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11 U.S.C.S. § 1124(1) says that a class of claims or interests is not impaired if the plan leaves unaltered the claimant's legal, equitable, and contractual rights. The plain text of § 1124(1) requires that the plan do the altering. A creditor is impaired under § 1124(1) only if the plan itself alters a claimant's legal, equitable, or contractual rights.
Debtor oil companies voluntarily petitioned for reorganization under Chapter 11. During bankruptcy proceedings, however, oil process rose, resulting in the debtor oil companies becoming solvent again. Consequently, the debtors proposed a reorganization plan that would compensate the creditors in full. As to creditors with claims under the Note Agreement and Revolving Credit Facility (together, the "Class 4 Creditors"), the debtors would pay three sums: the outstanding principal on those obligations, pre-petition interest at a rate of 0.1%, and post-petition interest at the federal judgment rate. Accordingly, the debtors elected to treat the Class 4 Creditors as “unimpaired.” Therefore, they could not object to the plan. The Class 4 Creditors objected just the same, insisting that their claims were impaired because the plan did not require the debtors to pay a contractual Make-Whole Amount and additional post-petition interest at contractual default rates. The Bankruptcy court held that the creditors were impaired. The debtors appealed.
Under the circumstances, were the creditors impaired by the proposed reorganization plan?
Because debtor oil companies' Chapter 11 reorganization was filed when debtors were insolvent but then became solvent due to rising commodity prices, which allowed debtors to treat Class 4 creditors as unimpaired so they could not object to the plan, the Court held that the bankruptcy court's ruling that creditors were impaired by the plan that paid them everything allowed by the Bankruptcy Code was error because, under the plain language of 11 U.S.C.S. § 1124(1), a creditor was impaired only if the plan itself altered the creditor's legal, equitable, or contractual rights, not if they were altered by bankruptcy code disallowance provisions. According to the Court, creditors were not entitled to a ruling on claims for a make-whole amount and post-petition interest as the bankruptcy court had not considered the issue, requiring a remand.