When voting results come back for a reorganization plan, debtors often issue releases trumpeting the figures. It's not uncommon at all to see a statement noting that, say, 95% of the company's unsecured creditors voted in favor of the plan and that the debtor received "overwhelming" support of its proposal.
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What you won't hear, however, is when a prospective cramdown is going on, which is what makes jeweler Luxury Ventures LLC's confirmation hearing -- set for late Thursday -- so interesting.
As a matter of bankruptcy law, a debtor must obtain the approval from two-thirds of a creditor class for a plan to be accepted by that class. If all classes accept a plan, it can make for a smooth confirmation hearing. But Luxury, which was Florida's largest jeweler when it filed for Chapter 11 on Nov. 19, may have an interesting fight on its hands on Thursday.
Luxury reported in court documents that just 17% of its unsecured creditor class supported its plan, and further, two classes of secured creditors (each consisting of one creditor apiece, interestingly enough) rejected its plan. The result? A motion for a cramdown, in which a plan is put through even if not all creditors agree with it.
Cramdowns heretofore have been rare, mostly because they require a plan sponsor to get the support of at least one impaired class, or one class of creditors not being made whole. A debtor must prove to the court that its plan doesn't unfairly discriminate against the class (or classes) of creditors that have rejected it. The debtor must also show that the proposal is fair and equitable, which is generally found if a plan obeys the absolute priority rule. (The absolute priority rule stipulates that each senior class of creditors must be paid in full before the class underneath it receives any distributions.)
Luxury believes that its plan,
which is backed, in part, by an equity investment from KCP Opportunity Fund I LP, satisfies those standards. Considering Luxury has three angry classes to appease, it will be interesting to see just which way Judge Alexander Paskay of the U.S. Bankruptcy Court for the Middle District of Florida in Fort Myers leans. -
Ben Fidler
