Absolute Priority Remains Absolute – US Supreme Court Holds Structured Dismissals Cannot Violate Priority Rules

March 23, 2017

In a highly anticipated bankruptcy opinion, the United States Supreme Court, in Czyzewski v. Jevic Holding Corp., held that courts may not approve structured dismissals providing for distributions that deviate from the priority rules prescribed in the Bankruptcy Code, absent consent of the affected creditors. In a 6-2 decision (which in truth was unanimous on the substance since the dissent addressed only a procedural issue), the Supreme Court reversed the Third Circuit, holding that a structured dismissal that paid nothing to priority claimants but provided distribution to general unsecured creditors impermissibly disregarded the priority scheme of the Bankruptcy Code.

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