Memorandum of Decision Re: Cramdown
II. Absolute Priority Rule
At the first hearing on confirmation, D & M argued that the "absolute priority rule" gives it a veto power over confirmation because the plan "allows distributions to unsecured creditors while claims of bona fide secured creditors remain unpaid." At the second hearing, it retreated a little and argued that a plan cannot be "fair and equitable" as to a secured creditor if unsecured creditors are paid anything before secured creditors are paid in full. Neither position has any merit whatsoever. The absolute priority rule provides that a plan cannot be confirmed over a dissenting class of unsecured claims or interests if a junior class gets anything. It is codified in section 1129(b)(2)(B)(ii) of the Code as to unsecured claims and section 1129(b)(2)(C)(ii) as to interests (i.e. shareholders, partners, etc.). The rights of secured creditors are set forth in section 1129(b)(2)(A), which contains no such language. The Code is specifically written so that secured creditors, unlike unsecured creditors and interest holders, do not have a veto power. As long as a secured creditor retains its lien and will be paid the full amount of its claim with interest, it has no veto power just because unsecured creditors will be paid before it or along with it. The only cases cited by D & M in support of its position are two pre-Code Supreme Court cases, Case v. Los Angeles Lumber Prod. Co., 308 U.S. 106 (1939) and Consolidated Rock Prod. Co. v. Du Bois, 312 U.S. 510 (1941), neither of which dealt with the rights of secured creditors. The law review article cited by D & M, Klee, "Cram Down II," 64 Am.Bankr.L.J. 229 (1990), deals only with developments in the law as they relate to unsecured creditors and equity holders. For the same author's discussion of the rights of secured creditors, see Klee, "All You Ever Wanted to Know About Cram Down Under the New Bankruptcy Code," 53 Am.Bankr.L.J. 133, 150-156 (1979).
III. Violation of the Automatic Stay
D & M argues that the plan "violates the automatic stay because it allows junior unsecured creditors to participate although the present value of distributions to the D & M Investments is not equal to the amount of their claim." The court has not the slightest idea what this means. The automatic stay is a temporary shield for the debtor, stopping creditor action while the debtor reorganizes or is liquidated. The court has never seen it used by a creditor to thwart the debtor's attempt to reorganize, nor does D & M explain how it is even relevant. The plan does meet the requirements of section 1129(b)(2)(A)(i)(II), in that the interest rate of 10% is more than enough, under current market conditions, to make deferred payment to it the equivalent of cash on confirmation.
IV. Good Faith
D & M argues that the plan is not proposed in good faith because it calls for liquidation. There is no basis for this argument. Liquidating plans are specifically authorized by section 1123(a)(5)(D) of the Code. All of the other creditors, including those secured by liens both senior and junior to that of D & M, have agreed to the plan. Moreover, the court doubts the good faith of D & M, since the record does not reflect much effort on its part to enforce its security interest and the court doubts that it is in a position to cure the defaults on such a large obligation secured by the senior lien.
V. Fair and Equitable
The plan is fair and equitable as to D & M, no less than to all the other creditors which have approved it. As an accommodation to D & M, the senior lienholder has even agreed that interest and other charges due to it will not accrue during the five months the debtor is given under the plan to market the property, so that any delay will not increase the debt senior to D & M. The interest rate to be paid to D & M upon sale is more than enough to be the equivalent of cash today, even considering the risk factors associated with the plan. If a sale is consummated, no payments will be made to anyone unless there are enough proceeds to satisfy D & M's claim in full.
The court finds that the plan proposed by the debtor meets all the requirements of confirmation set forth in section 1129 of the Code. As to the sole dissenting creditor, D & M, the plan meets the requirements of section 1129(b)(2)(A) for confirmation over its objection. Accordingly the plan, as amended by the stipulation of March 18, 1993, and revised on March 24, 1993, will be confirmed. Counsel for the debtor shall submit an appropriate form of order. This memorandum constitutes the court's findings and conclusions pursuant to FRCP 52(a) and FRBP 7052.
Dated: March 24, 1993 _______________________ Alan Jaroslovsky U.S. Bankruptcy