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Supreme Court Hears Oral Arguments in Key Bankruptcy Procedure Case

chapter-11.jpgRecently, the Supreme Court of the United States heard oral arguments in the case of Czyzewski v. Jevic Holding Corporation. This case involves a dispute over commonly used Chapter 11 bankruptcy settlement procedures. More specifically, the question at stake is how much power individual bankruptcy courts will have to approve bankruptcy settlements that deviate from the typical order of creditor preference.

Understanding the Background of the Case

In 2008, Jevic Holding Corporation, a New Jersey-based trucking company, filed for Chapter 11 bankruptcy protection. This filing came only a few years after a private equity firm had purchased the company for nearly $78 million. As a result of the bankruptcy filing, over 1000 employees lost their jobs. Many of these workers blamed the private equity company for the company's financial distress.

Further, the workers also alleged that the private equity firm had failed to follow New Jersey labor laws. As a result, the laid-off workers sued for lost wages and for unpaid benefits. In all, their claims came to nearly $8 million. At the same time, there were many other claims against the trucking company. This led to a highly complex bankruptcy filing in which several different parties had vastly different claims against the over-leveraged firm. Eventually, a settlement was reached between the private equity firm and some of the lenders. Through this settlement, some unsecured lenders were allowed to collect compensation, although, no remaining assets were left for the laid-off employees who were seeking lost wages.

The Settlement Deviated from the Standard Order of Priority

Generally, bankruptcy courts use the following as the order of priority for determining the preference of creditor claims:

  1. Secured creditors;
  2. Junior creditors;
  3. Employees owed wages or benefits;
  4. Unsecured creditors; and
  5. Equity holders.

Though, courts do deviate from this standard from time to time. Indeed, in this case, a settlement was reached that did not follow this order of preference. Now, the Supreme Court must determine whether or not that is permissible as a matter of law. On one hand, some industry observers argue that courts should not be able to approve settlements that deviate from the basic preference order. This argument notes that this could let certain parties gang up on other parties so that they could collectively squeeze the other parties out of the settlement agreement.

On the other hand, other industry experts have argued that judges must have some discretion in reviewing and assessing the unique aspects of each individual settlement. Otherwise, they may not be able to reach a just and efficient solution. The decision in this case will be highly instructive and our team will be keeping a close eye on the proceedings.

Let Us Help with Your Business Bankruptcy Case

At Diemer, Whitman & Cardosi, LLP, our passionate San Jose bankruptcy attorneys always stay up on the latest developments in bankruptcy law. If your company is in need of business bankruptcy assistance, please get in touch with us at our San Jose office today. We will review your claim free of charge. Our firm proudly represents clients throughout the Bay Area and Silicon Valley, including in Santa Clara County, San Mateo County, and Alameda County.

Source:

http://www.scotusblog.com/case-files/cases/czyzewski-v-jevic-holding-corporation/?wpmp_switcher=desktop

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