Lehman: Plans Cannot Bypass the Code (Even with Consent)

The Bankruptcy Code has substantive protections that may not be bargained away, and creditor consent cannot cure all defects in a reorganization plan. This is the holding of the US District Court for the Southern District of New York in a recent decision arising in the Lehman Brothers case. This dec...

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Bibliographic Details
Published in:American Bankruptcy Institute journal 2014-07, Vol.33 (7), p.16
Main Authors: White, Clifford J, Sheahan, John
Format: Article
Language:English
Subjects:
Administrative expenses
Bankruptcy
Bankruptcy laws
Bankruptcy reorganization
Committees
Consent
Creditors
District courts
Executive compensation
Federal court decisions
Federal courts
Investment banking
Legal fees
Professionals
Provisions
Restrictions
State court decisions
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Summary:The Bankruptcy Code has substantive protections that may not be bargained away, and creditor consent cannot cure all defects in a reorganization plan. This is the holding of the US District Court for the Southern District of New York in a recent decision arising in the Lehman Brothers case. This decision may have far-reaching implications for the increasingly prevalent bankruptcy practice of elevating consent among debtor's management and select creditors over the commands of the Bankruptcy Code and broader shareholder interests. Although it should be no surprise that the district court properly enforced the Code's limits on what creditors' fees and expenses an estate may pay, its ultimate importance likely derives from the broader principles that it espouses. Although the bankruptcy court in AMR struck the CEO's bonus from the plan as a condition of confirmation, the district Court's decision in Lehman II underscores why the Code's executive-compensation restrictions cannot be circumvented in a plan.
ISSN:1931-7522