THIS CASEBOOK contains a selection of U. S. Court of Appeals decisions that analyze and discuss issues arising from bankruptcy proceedings. Section 1129(a)(7)(A)(ii) (of the Bankruptcy Code) requires bankruptcy courts to determine what creditors would receive under a hypothetical chapter 7 liquidation, and then compare that amount to what the same creditors would receive under a chapter 11 reorganization. It provides that a bankruptcy court may confirm a chapter 11 plan only if each holder of an impaired claim "will receive ...
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THIS CASEBOOK contains a selection of U. S. Court of Appeals decisions that analyze and discuss issues arising from bankruptcy proceedings. Section 1129(a)(7)(A)(ii) (of the Bankruptcy Code) requires bankruptcy courts to determine what creditors would receive under a hypothetical chapter 7 liquidation, and then compare that amount to what the same creditors would receive under a chapter 11 reorganization. It provides that a bankruptcy court may confirm a chapter 11 plan only if each holder of an impaired claim "will receive or retain ... property of a value, as of the effective date of the plan, that is not less than the amount that such holder would so receive or retain if the debtor were liquidated under chapter 7 of this title on such date." 11 U.S.C. ??? 1129(a)(7)(A)(ii). Although "[t]he hypothetical liquidation analysis must be based on evidence and not assumptions in order to meet the best interests of creditors test," COLLIER ON BANKRUPTCY ??? 1129.02 n.98 (Alan N. Resnick & Henry J. Sommer eds., 16th ed. 2016) (citing In re MCorp Fin., Inc., 137 B.R. 219, 228-29 (Bankr. S.D. Tex. 1992)), "a trustee's avoiding powers in a hypothetical chapter 7 case may [] affect the analysis," id. ??? 1129.02. In re Tenderloin Health, 849 F. 3d 1231 (9th Cir. 2017). For instance, in In re Affiliated Foods, Inc., 249 B.R. 770 (Bankr. W.D. Mo. 2000), the court found the statute "requires an estimation of the value of all of the bankruptcy estate's assets, including such hard to determine values as disputed and contingent claims, the potential disallowance of claims (under ??? 502(d)), the probability of success and value of causes of action held by the estate, and, in this case, potential preference actions." Id. at 788 (internal citation omitted). Likewise, in In re Sierra-Cal, 210 B.R. 168 (Bankr. E.D. Cal. 1997), the court found "all provisions applicable in a chapter 7 liquidation are to be taken into account when the court determines what sums would be paid to whom in a hypothetical liquidation." Id. at 174. It then applied two avoidance provisions in the hypothetical liquidation using the facts and testimony in the record. See id. at 174-75 (concluding "a competent chapter 7 trustee would be able to recover against [the creditor] under ??? 544 and ??? 549"). In re Tenderloin Health, ibid.
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