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In re Bush Indus. - 315 B.R. 292 (Bankr. W.D.N.Y. 2004)

Rule:

Although a debtor may in good faith negotiate a lock up agreement, the particular terms of any resulting plan must themselves be proposed in good faith and not by any means forbidden by law.

Facts:

Bush Industries, Inc., filed a petition for relief under chapter 11 of the Bankruptcy Code on March 31, 2004. From the beginning of the case, the debtor indicated that it had reached agreement with the majority of its secured creditors as to the terms of a reorganization plan. Pursuant to that agreement, the debtor filed a disclosure statement and plan on April 23, 2004. After a hearing on notice to all creditors, the bankruptcy court approved a Second Amended Disclosure Statement and scheduled a hearing to consider confirmation of the plan. In its disclosure statement, the debtor describes itself as "a diversified global furniture manufacturer and supplier of surface technologies." The Official Committee of Equity Security Holders (the "Equity Committee") asked that the court deny confirmation of the debtor's plan of reorganization on the grounds that the plan fails to satisfy the absolute priority rule, the committee challenges a proposed grant of general releases to holders of a pre-petition credit facility, and that the plan failed to satisfy the good faith requirement.

Issue:

Should the court deny confirmation of a debtor's plan of reorganization?

Answer:

Yes.

Conclusion:

The court denied confirmation of the plan in its present form. The enterprise value of debtor did not exceed the sum of all outstanding claims against the estate. Thus, a cancellation of pre-petition stock did not, per se, violate the absolute priority rule. The objection to releases was overruled. The plan proposed only a release from the debtor and its subsidiaries, and the release was limited to claims that related to the reorganization case, the plan, or the various credit agreements. The equity committee identified no actual counterclaim that debtor might assert against the holders of the pre-petition credit facility. As to the final argument, an officer violated the requirement of good faith, having secured a promise for what was essentially a bonus that would be distributed to himself without concern for minority stock interests.

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