It’s Complicated — Structuring a Bankruptcy Settlement to Avoid Employment Claims
On March 22, 2017, the Supreme Court limited the use of “structured dismissals” in chapter 11 cases, overturning a ruling of the Third Circuit that would have wiped out employee WARN Act claims while paying out lower-priority, general unsecured creditors. It stressed that any distribution scheme in connection with a proposed chapter 11 structured dismissal must follow the basic priority rules of the Bankruptcy Code absent consent of the affected parties. Notably, the Supreme Court avoided determining that interim modifications of the priority scheme cannot be permitted at any time during a case. The key question the Court considered was:
- Whether a bankruptcy court,
in considering a proposed structured dismissal of a chapter 11 case, can provide
for distributions that deviate from the ordinary priority rules that would
apply in a chapter 7 liquidation or a chapter 11 plan without the consent of the
Read the full e-communication update here.