Law School Case Brief
In re Adelphia Communs. Corp. - 359 B.R. 54 (Bankr. S.D.N.Y. 2006)
A right to vote on a plan is a fundamental right of creditors under chapter 11. Designation of a creditor's vote is a drastic remedy, and, as a result, designation of votes is the exception, not the rule.
The targeted creditors voted all of their claims in favor of the reorganization plan. The bondholders opposed and filed a motion to designate, for bad faith, the votes in the class of senior notes of the three targeted creditors that voted to support the chapter 11 plan for confirmation. The targeted creditors and creditors committee opposed the motion on the ground that there was no basis for disqualifying the votes.
Should the votes of the targeted creditors be disqualified?
The court held that, even if all of the bondholders' factual allegations were true, it did not disqualify, by designation under 11 U.S.C.S. § 1126(e), the targeted creditors' votes because the voting right was not to be denied except for highly egregious conduct. The court held that the targeted creditors' overly aggressive behavior and overreaching in maximizing their recoveries through releases, exculpation, and fee reimbursement under the prospective plan and using enticements to others to support the plan did not have the badges of bad faith because they did not seek to assume control of or destroy the debtor out of pure malice and their behavior could be addressed in the confirmation process. The court held owning bonds in multiple debtors in a single multi-debtor chapter 11 case did not represent an ulterior motive or bad faith warranting vote designation.
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