tag:blogger.com,1999:blog-6321089372587128676.post1267813552137933523..comments2023-10-17T10:01:00.917-04:00Comments on Distressed Debt Investing: Recent Bankruptcy Rulings and Their Implications for Distressed InvestorsUnknownnoreply@blogger.comBlogger2125tag:blogger.com,1999:blog-6321089372587128676.post-23720073725218065932011-02-11T11:35:26.234-05:002011-02-11T11:35:26.234-05:00http://edocket.access.gpo.gov/2011/2011-2991.htmhttp://edocket.access.gpo.gov/2011/2011-2991.htmAnonymousnoreply@blogger.comtag:blogger.com,1999:blog-6321089372587128676.post-13690987451506995822011-02-11T11:05:55.330-05:002011-02-11T11:05:55.330-05:00The other important part of the DBSD ruling is tha...The other important part of the DBSD ruling is that "gifting" is no longer permitted in the Second Circuit (i.e. in bankruptcies filed in NY). The court found that "gifting," a practice by which secured creditors provide a small recovery to equity holders out of the secured creditors' own recovery to buy equity's support even though unsecured creditors are not being paid in full, violates the absolute priority rule. This had been a common practice to avoid fighting with old equity and had not previously been thought to violate absolute priority since a gift from secured creditors to equity holders doesnt really affect what unsecured creditors receive. The Second Circuit put a stop to this practice (assumming there is an objection by unsecured creditors), finding that "gifting" violates the language of the Bankruptcy Code and leaves open the potential for misbehavior by equity holders who control the ch. 11 process. It is likely that this decision will lead to more fights with equity holders who can no longer be as easily paid off to go away.Anonymousnoreply@blogger.com