On May 21, 2015, as amended on Aug. 18, 2015, the U.S. Court of Appeals for the Third Circuit issued a decision approving the settlement and dismissal of a chapter 11 bankruptcy case through a structured dismissal. The court approved the use of a structured dismissal of a chapter 11 bankruptcy where the dismissal calls for a distribution that does not specifically adhere to the priority scheme in Bankruptcy Code § 507. The Third Circuit’s decision may be narrowed to rare instances, but it is acceptable when there are “specific and credible grounds to justify [the] deviation” from the priority scheme. The Jevic decision, therefore, may provide a template for practitioners to structure dismissals in future chapter 11 cases, and may require courts to determine what constitutes specific and credible grounds to warrant deviating from the Bankruptcy Code’s priority structure.
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