Bankruptcy Advisory: Second Circuit Prohibits Chapter 11 Gifts to Junior Creditor Classes
3/3/2011
By Kevin J. Walsh and Ella Shenhav
In re DBSD N. Am., Inc.,--- F.3d ----, 2011 WL 350480 (2nd Cir. Feb. 7, 2011)
In a recent decision, the Second Circuit Court of Appeals has cast doubt on the continued viability of the gifting doctrine in the context of a contested Chapter 11 plan—marking yet another carve-out from the doctrine, which gained credence in the SPM decision from the First Circuit Court of Appeals. Gifting is a strategy sometimes used in Chapter 11 cases where a senior creditor diverts some of the consideration it would otherwise receive under a plan to a junior class of creditors or equity while bypassing an intervening class of creditors.
