Philadelphia and Wilmington partner Andy Kassner and associate Joe Argentina published an article in The Legal Intelligencer titled, “High Court Addresses Structured Dismissal of Bankruptcy Case.” The article explores a recent reversal by the Supreme Court that rejected the concept that a “rare case” exception which violates the Bankruptcy Code’s priority scheme can be applied in structured dismissals. The opinion, Czyzewski v. Jevic Holding Corp., 580 U.S. ___(2017), was issued on March 22, 2017.
In In re Jevic Holding Corp., No. 14-1465 slip op. (3d Cir. May 21, 2015), the Third Circuit held that a structured dismissal that does not adhere to the Bankruptcy Code’s priority distribution scheme was permitted in rare instances when virtually no other option is available. The Supreme Court identified several potentially serious consequences to accepting the rare case exception and ultimately ruled that a bankruptcy court cannot approve a structured dismissal that provides for distributions that do not follow priority rules of the Bankruptcy Code without the affected creditors’ agreement.
In their analysis, Andy and Joe say that “the Jevic case stretched the concept of what could constitute cause under section 349 for the end to justify the means – here excluding a valid creditor constituency from the process and receiving no distribution on its priority claim – to an end (recovery for other creditors who would otherwise receive nothing) that the Court found intolerable absent express statutory authority.”