Norman Kinel Co-Authors Article for the Journal of Corporate Renewal

A graduate of the American University Washington College of Law, Norman Kinel is a partner with Squire Patton Boggs’ Restructuring and Insolvency Group. Recently, Norman Kinel co-authored an article published in the Journal of Corporate Renewal titled “Did Jevic Doom Future Chapter 11 Recovery Efforts by Unsecured Creditors?”

The article begins with a focus on a Chapter 11 bankruptcy case involving Constellation Enterprises, LLC, et al., a private entity which produces metal parts for companies in the oil and gas, air transportation, nuclear, and rail transportation industries. An official committee of Constellation's unsecured creditors entered into a settlement agreement with Constellation and its senior secured lenders and submitted a motion for approval of the settlement agreement to the federal bankruptcy court. The settlement agreement provided for the contribution by the senior secured lenders of certain non-bankruptcy estate assets -- including cash and certain litigation claims -- to a trust to be established for the benefit of unsecured creditors. However, the proceeds of the trust would not be distributed in strict accordance with the Bankruptcy Code's "absolute priority rule." 

Due to the disparate proposed distribution of the assets to be received under the settlement agreement to priority claimants, such as the IRS, as well as to a group of delayed-draw term loan lenders (DDTL), the IRS, the United States Trustee and the DDTL lenders filed objections to the settlement agreement. The bankruptcy court, however, deferred action on the matter until the U.S. Supreme Court made a ruling in a case known as Czyzewski v. Jevic Holding Corp. 

Ultimately, in the Jevic case the high court reversed a 3rd U.S. Circuit Court of Appeals ruling that had allowed the distribution of non-estate assets to general unsecured creditors, even when skipping distribution higher-priority unsecured claimants.

As a result of the Supreme Court’s ruling in Jevic, the bankruptcy court declined to approve the settlement. On appeal, the committee disputed the applicability of the Supreme Court's Jevic ruling to their settlement, but the appeal was ultimately dismissed when the Chapter 11 case was converted to a Chapter 7 bankruptcy case. 

As a result, according to the journal article, the appeal was never determined on its merits, and an important issue has yet to be decided by an appeals court: whether the ruling set forth in Jevic prevents priority-skipping settlements where the property to be given in consideration is not property of the bankruptcy estate.