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Gift Plans: Death Knell or Still on Life Support?
On Feb. 7, 2011, the United States Court of Appeals for the Second Circuit issued an opinion (In re DBSD North America, Incorporated, No. 10-1352) where the majority held, among other things, that a plan of reorganization violated the absolute priority rule of ' 1129(b)(2)(B) of the Bankruptcy Code where the holders of second-lien debt agreed to voluntarily gift shares and warrants to existing shareholders while the holders of general unsecured claims did not receive full payment of their claims.
This 2-1 decision is the first to directly address the viability of gift plans in the Second Circuit, and has gained much notoriety in the bankruptcy bar. This article, however, does not focus on the circuit court's ruling that the absolute priority rule bars gift plans. Instead, we focus on whether the circuit court's finding that an out-of-the-money unsecured creditor with an unliquidated claim has standing to object to a gift plan, since that issue appears not to have been fully briefed and therefore not fully considered by the circuit court.
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