MEMORANDUM OPINION AND ORDER
This case is on appeal from the United States Bankruptcy Court for the Northern District of Illinois, Eastern Division, Case No. 12-31336 (JPC). On July 10, 2015, the Bankruptcy Court entered an order (“Order”) confirming the amended joint Chapter 11 plan of reorganization for Dvorkin Holdings, LLC (“Debtor”), which was proposed by Gus A. Paloian, not individually or personally but solely in his capacity as the Chapter 11 Trustee (the “Trustee”) and Aaron Dvorkin, Beverly Dvorkin, and Francine Dvorkin (collectively, the “Equity Interest Holders”). Before the Court is the appeal of Colfin Bulls Fundings A, LLC (“Creditor”) from the Bankruptcy Court’s
I. Background
On August 7, 2012, Debtor filed a petition under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 101 et seq. Debtor was and is involved in real estate investment and management through its affiliates and related entities. The Equity Interest Holders indirectly own the membership interests in Debtor.
The United States Trustee filed a motion requesting that the Bankruptcy Court appoint a Chapter 11 Trustee. See N.D. 111. Bankr. Case No. 12-31336, Docket Entry 29. The United States Trustee explained that Debtor’s management was unable to fulfill the fiduciary duties owed to Debtor’s creditors following the indictment of Daniel Dvorkin — who played an important role in Debtor’s management — in a plot to solicit the murder of one of its creditors. See id. at 5-6. See also United States v. Dvorkin,
On November 15, 2012, Creditor filed a proof of claim (the “Original Proof of Claim”) with the Bankruptcy Court in the total amount of $3,504,767.25, exclusive of costs, expenses, and attorneys’ fees. Creditor’s claim evidences debt acquired by Creditor from MB Financial Bank, N.A. (“MB Financial”) for one or more loans that MB Financial made to Debtor or its affiliates. Creditor reserved its right to amend and supplement its Original Proof of Claim to add any additional claims it may have against Debtor. On December 20, 2012, the Bankruptcy Court sent a notice to all creditors informing them that February 27, 2013 was the deadline to file proofs of claim against the Estate (the “Bar Date”). Overall, creditors filed nearly $65,000,000 in claims against Debtor’s bankruptcy estate. On February 25, 2015, the Trustee filed a limited objection to Creditor’s Proof of Claim, to which Creditor responded on March 26, 2015.
On March 31, 2015, the Trustee and the Equity Interest Holders (collectively, the “Plan Proponents”) filed a Joint Chapter 11 Plan of Reorganization (the “Plan,” [14-1] at 1-26) and a disclosure statement concerning the Plan (“Disclosure Statement,” [14-4] at 78-106). The Plan proposed to pay general unsecured claims (Class Two) in full, plus interest accruing after the Petition Date at the “Legal Rate.” [14-1] at 13. In the Disclosure Statement, “Plan Proponents assert [that the Legal Rate] is the
Creditor objected to the Plan’s proposed payment of postpetition interest to holders of general unsecured claims at the Legal Rate. Creditor proposed that, instead of the Legal Rate, the Plan should pay post-petition interest at the postpetition regular and default interest rates set forth in its applicable promissory notes (the “Contract Rate”).
On May 7, 2015, the Bankruptcy Court granted the Trustee’s motion for an order approving the adequacy of the Plan Proponents’ Disclosure Statement. [14-3] at 14-18. The court recognized that the Trustee had recovered many millions of dollars for the Estate and its creditors, resulting in a surplus estate with more liquidated assets than scheduled claims. Id. at 15. The court explained that “[n]o voting will occur under” the Plan because “each class is unimpaired by the plan.” Id. (citing In re PPI Enterprises (U.S.), Inc.,
The court rejected the competing plan offered by creditors — which “propose[d] to pay claim holders interest at the contracts’ default rate” — on the basis that it “ignores the 11 U.S.C. § 502(b)(2) prohibition on the payment of unmatured postpetition interest.” [14-3] at 15. According to the court, “[s]ection 502(b)(2) provides that a claim is disallowed to the extent that ’such claim is for unmatured interest,”’ and therefore “’prohibits payment of postpetition interest on prepetition unsecured claims, including claims for prepetition taxes.’” [14-3] at 15-16 (quoting 4 Collier on Bankruptcy ¶ 502.03[3][a] (16th ed.)). The Bankruptcy Court also determined that In re Chicago, Milwaukee, St. Paul & Pacific Railroad Co.,
On May 29, 2015, Creditor filed an amended proof of claim (the “Amended Proof of Claim”). The Amended Proof of Claim added “a claim for post-petition regular and default interest” at the Contract Rate. [13] at 15. Neither the Trustee nor any other party objected to the Amended Proof of Claim on the ground that it was filed after the Bar Date or was otherwise improperly filed under Section 6.4 of the Plan.
On June 12, 2015, Creditor filed an objection to confirmation of the Plan. Specifically, Creditor: (1) restated its objection to confirmation of the Plan because it proposed to pay postpetition interest on Creditor’s claims at the Legal Rate rather than the Contract Rate; and (2) objected to the Plan’s proposed disallowance of late-filed claims for distribution purposes. The Plan Proponents responded to Creditor’s objection on June 23, 2015. On June 26, 2015, the Plan Proponents filed an amendment to the Plan.
On June 30, 2015, the Bankruptcy Court held a plan confirmation hearing. Creditor restated its two objections. The Bankruptcy Court overruled them and confirmed the Plan. See [1-3]. The Bankruptcy Court overruled Creditor’s objection to the post-petition interest rate “for the reasons stated on the record.” Id. at 3. It overruled Creditor’s objection to Section 6.4 of the plan: (1) “for the reasons set forth in In re Xpedior, Inc.,
On July 9, 2015, Creditor filed a Notice of Appeal challenging the Confirmation Order. Following confirmation, the Trustee made a distribution to creditors of 100% of all allowed claims, plus postpetition interest at the Federal Judgment Rate. Creditor’s claim is the only claim not fully paid under the Plan, due to Creditor’s objections.
Creditor raises the following issues on appeal (see [13] at 12-14):
1. Whether the Bankruptcy Court erred in entering the Confirmation Order confirming the Plan on the ground that, because the Debtor’s Estate is solvent, the Plan fails to provide Lender post-petition interest on its claims at the rates set forth in its contracts with the Debtor.
2. Whether the Bankruptcy Court erred in entering the Confirmation Order, on the ground that, because the Debtor’s Estate is solvent, the rate of post-petition interest provided in the Confirmation Order and in the Plan is improperly low and violates the “best interests of creditors” test of 11 U.S.C. § 1129(a)(7).
3. Whether the Bankruptcy Court erred in entering the Confirmation Order, and finding that the “legal rate” as provided for in 11 U.S.C. § 726 is the federal interest rate on money judgments in civil eases as provided in 28 U.S.C. § 1961, which as of the Petition Date (defined below) in the Bankruptcy Case provides post-judgment interest at the de minimis rate of only approximately 0.17% per annum.
4. Whether the'Bankruptcy Court erred in entering the Confirmation Order, on the ground that, the rate of post-petition interest provided in the Confirmation Order and in the Plan is improperly low and provides an unfair and inequitable windfall
5. Whether the Bankruptcy Court erred in entering the Confirmation Order, on the ground that, the rate of post-petition interest provided in the Confirmation Order and in the Plan is improperly low and violates 11 U.S.C. § 1129(b) to the extent that it is not “fair and equitable” and improperly discriminates against creditors to the benefit of the Equity Interest Holders.
6. Whether the Bankruptcy Court erred in entering the Confirmation Order, on the ground that, the disallowance of late-filed claims for distribution purposes under Section 6.4 of the Plan violates the “best interests of creditors” test of 11 U.S.C. § 1129(a)(7) and 11 U.S.C. § 726(a)(3).
7. Whether the Bankruptcy Court erred in entering the Confirmation Order, on the ground that, the disallowance of late-filed claims for distribution purposes under Section 6.4 of the Plan violates 11 U.S.C. §§ 1122(a), 1124 and 1129(a)(1).
8. Whether the Bankruptcy Court erred in entering the Confirmation Order, on the ground that, the disallowance of late-filed claims for distribution purposes under Section 6.4 of the Plan violates 11 U.S.C. § 1129(b) to the extent it is not “fair and equitable” and improperly discriminates against creditors to the benefit of Equity Interest Holders.
II. Standard of Review
“District courts sit as appellate courts when hearing appeals from bankruptcy courts.” Hijjawi v. Five N. Wabash Condo. Ass’n,
III. Analysis
Creditor challenges two aspects of the Bankruptcy Court’s Confirmation Order. First, Creditor argues that the Bankruptcy Court erred by confirming, over its objection, a Plan that pays its full claim plus interest at the Federal Judgment Rate, rather than the Contract Rate. According to Creditor, the Code does not mandate the payment of interest at the Federal Judgment Rate and, where there is a surplus left in a Chapter 11 bankruptcy, the Bankruptcy Code’s “best interests of the creditor” test (11 U.S.C. § 1129(a)(7)) and “fair and equitable” test (11 U.S.C. § 1129(b)) require the Bankruptcy Court to award unsecured creditors postpetition interest at the rates set forth in their contracts with the debtor. The Plan Proponents, argue that Creditor waived its right to appeal these issues, because subsections 1129(a)(7) and (b) apply only to claims that are “impaired” by the bankruptcy plan, and Creditor did not challenge the Bankruptcy Court’s finding that Class 2 creditors were not impaired by the Plan in its statement of issues to be presented on appeal (“Statement of Issues”). The Plan Proponents also argue that the Bankruptcy Court’s Order should be affirmed on its merits.
The Court begins its analysis of these issues with a background discussion of the Bankruptcy Code — specifically, its provisions concerning payment of postpetition interest and its requirements for approving a Chapter 11 plan over the objection of creditors (Section III.A). The Court next addressees whether Creditor waived its right to appeal the Bankruptcy Court’s, finding that Creditor’s claims were not impaired under the Plan and, if Creditor did not, whether the Bankruptcy Court’s finding of non-impairment was correct (Section III.B). The Court then analyzes whether the Code requires the Bankruptcy Court to award interest to unsecured creditors at the Federal Judgment Rate in cases involving a surplus bankruptcy estate (Section III.C), and whether use of the Federal Judgment Rate in such cases would comply with the Codes’ best interest of creditors test (Section III.D). Finally, the Court addresses Creditor’s challenge to Section 6.4 of the Plan (Section III.E).
A. The Bankruptcy Code
The Bankruptcy .Reform Act of 1978, which enacted the Bankruptcy Code (“Code”), was “the first major revision of the bankruptcy law in forty years.” Matter of Smith,
Under the Code, “[a] creditor * * * may file a proof of claim” in a debtor’s bankruptcy case. 11 U.S.C. § 501(a). A party in interest may file an objection to the claim. Id. § 502. If no objection is filed, the claim is deemed allowed. Id. § 502(a). If an objection is filed, the Bankruptcy Court must “determine the amount of the claim as of date of the bankruptcy petition, and must allow the claim with respect to that amount, except to the extent that one of nine enumerated grounds for disallowance exist.” In re The Budd Co., Inc.,
The Code allows a Chapter 11 debtor to formulate a plan of reorganization with a proposal for paying creditors’ claims. 11 U.S.C. § 1121(a). The Bankruptcy Court shall confirm the proposed plan if it concludes that the requirements of section 1129 have been met. Id. § 1129. As is relevant here, subsection 1129(a)(7) requires that, “[w]ith respect to each impaired class of claims or interests — (A) each holder of a claim or interest of such class — (i) has accepted the plan; or (ii) will receive or retain under the plan on account of such claim or interest property of a value, as of the effective date of the plan, that is not less than the amount that such holder would so receive or retain if the debtor were liquidated under chapter 7 of
In a Chapter 7 bankruptcy, fifth priority in the distribution of the bankruptcy estate is given to “payment of interest at the legal rate from the date of the filing of the petition, on any claim paid under paragraph (1), (2), (3), or (4) of * * * subsection [726(a) ].” 11 U.S.C. § 726(a)(5). The Seventh Circuit has construed subsection 726(a)(5) to be an exception to section 501(b)(2)’s prohibition on unmatured interest, which applies “when the debtor turns out to be solvent.” In re Fesco Plastics Corp., Inc.,
Subsection 1129(a)(8) of the Code further requires that, “[w]ith respect to each class of claims or interests — (A) such class has accepted the plan; or (B) such class is not impaired under the plan.” 11 U.S.C. § 1129(a)(8). If a class has not accepted the plan and is impaired under the plan, the Bankruptcy Court may nonetheless approve the plan in a “cramdown” under subsection 1129(b), which provides in relevant part:
(b)(1) Notwithstanding section 510(a) of this title, if all of the applicable requirements of subsection (a) of this section other than paragraph (8) are met with respect to a plan, the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.
(2) For the purpose of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements:
❖ * *
(B) With respect to a class of unsecured claims—
(i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or
(ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property[.] * * *
11 U.S.C. § 1129(b) (emphasis added).
Section 1129(b) is referred to as the “fair and equitable” test. “The absolute priority rule is one of the conditions of the ’fair and equitable’ standard necessary for cram down.” Sentinel,
B. Impairment
1. Waiver
Plan Proponents argue that Creditor waived its right to appeal the Bankruptcy Court’s finding that its claim was not impaired under the Plan by failing to list that specific issue in its Statement of Issues. Creditor responds that the issue of impairment is properly before the Court because it “may be reasonably inferred from the Statement of Issues,” given that Creditor “argued before the Bankruptcy Court that the Plan improperly impaired their claims due to its failure to pay post-petition interest at the Contract Rate.” [26] at 8.
Bankruptcy Rule 8009 requires the appellant to “file with the bankruptcy clerk and serve on the appellee * * * a statement of the issues to be presented.” Fed. R. Bankr. P. 8009(a)(1)(A). Creditor’s alleged failure to comply with this rule “does not affect the validity of the appeal.” Fed. R. Bankr. P. 8003(a)(2) (only the failure to timely file a notice of appeal affects the validity of an appeal). But it is a ground “for the district court * * * to act as it considers appropriate, including dismissing the appeal.” Id.
Exercising its discretion, the Court will not dismiss Creditor’s appeal based on Creditor’s alleged failure to comply with Rule 8009(a)(1)(A). There is no indication that the Plan Proponents have suffered any undue prejudice or surprise. The parties argued the impairment issue before the Bankruptcy Court and have had an opportunity to thoroughly brief the issue here. See Yoon v. VanCleef,
Moreover, while Creditor did not specifically challenge the Bankruptcy Court’s determination that its claim is not impaired under the Plan, this issue may reasonably be inferred from Creditor’s five specific challenges to the Bankruptcy Court’s approval, over its objection, of a Plan that awards Creditor 100% of its claim plus postpetition interest at the Federal Judgment Rate. See [13] at 12-13. See also In re Am. Cartage, Inc.,
2. Merits
The Court now turns to the merits of Plan Proponents’ argument that the
The Bankruptcy Court relied on the Third Circuit’s decision in PPI to conclude that Creditor was not impaired under the Plan because it will receive 100% of its claim plus postpetition interest at the Federal Judgment Rate.
Here, Creditor’s rights are “impaired” because its underlying contracts entitle it to interest at one rate and the Plan awards Creditor interest at a lower rate — namely, the Federal Judgment Rate. Under PPI, the Court must determine whether this impairment is a result of the application of the Code or the Plan. If the Code — rather than just the Plan — limits interest to the Federal Judgment Rate, then Creditor’s claim is not impaired under section 1124(1).
PPI recognizes that an unsecured claim is impaired if postpetition interest is not paid, but does not answer the question whether postpetition interest is limited to the Federal Judgment Rate. The issue of postpetition interest came up in PPI because the lessor argued, that the legislative history of section 1124 showed that Congress intended to “provid[e] creditors with voting rights if a bankruptcy plan alters their nonbankruptcy rights in any manner” — in the lessor’s case, by disallowing part of his claim through application of section 502(b)(6)’s cap. PPI,
As PPI discusses, Congress repealed subsection 1124(3) in response to New Valley. See H.R. REP. 103-835, at 47-48 (1994), as reprinted in 1994 U.S.C.C.A.N. 3340, 3356-57 (“Committee Report”). See also PPI,
In sum, PPI recognizes that a creditor is impaired under a plan that does not award post-petition interest, but does not address what rate of postpetition interest a bankruptcy court should apply. Therefore, the Court must consider the merits of Creditor’s argument that it is entitled to interest at the Contract rate before it can decide whether Creditor is impaired by the Plan. This leads the Court to the next issue on appeal: whether the Plan’s payment of postpetition interest at the Federal Judgment Rate is consistent with the Code’s express provisions concerning the award of postpetition interest, sections 502(b)(2) and 726(a)(5).
C. Sections 502(b)(2) and 726(a)(5)
The Bankruptcy Court held that Creditor was unimpaired under the Plan, and therefore that subsections 1129(a)(7) and 1129(b) were inapplicable, because: (1) section 726(a)(5) of the Code requires the payment of interest “at the legal rate”; and (2) the “legal rate” means the Federal Judgment Rate. [14-3] at 17. The Court agrees that section 726(a)(5) requires the payment of postpetition interest to unsecured creditors in Chapter 11 bankruptcy cases, but is not convinced that the “legal rate” is limited to the Federal Judgment Rate when the bankruptcy estate turns out to be solvent, which is the case here. Instead, the Court concludes that there is a presumption that, in a surplus Chapter 11
In Fesco Plastics, the Seventh Circuit explained that the “age-old rule in bankruptcy, adopted from the English system, is that interest on claims stops accruing when the bankruptcy petition is filed.”
Section 726(a)(5), which governs Chapter 7 proceedings, is applicable to a Chapter 11 proceeding via operation of section 1129(a)(7)’s best interest of creditors test. See In re Coram Healthcare Corp.,
However, the Code does not define “interest at the legal rate” and neither the Supreme Court, the Seventh Circuit, nor the district courts in this Circuit have interpreted the term.
In Cardelucci, which involved a surplus Chapter 11 bankruptcy estate, the Ninth Circuit interpreted section 726(a)(5) to require the payment of interest to unsecured
While Cardelucci is well-reasoned, the Court is not convinced that, by using the phrase “at the legal rate” in section 726(a)(5), Congress intended for the Federal Judgment Rate to apply to all unsecured claims for post-petition interest, even when there is a surplus estate. The Supreme Court has recognized that preCode practices may “inform[ ] our understanding of the language of the code.” Hartford Underwriters Ins. Co. v. Union Planters Bank, N.A,
Applying these principles, the Court concludes that it is not clear from the language of section 726(a)(5) that Congress intended to replace the pre-Code rule that in cases involving a surplus bankruptcy estate, the bankruptcy court should “enforce creditors’ rights according to the ten- or of the contracts that created those rights.” Chicago, Milwaukee,
It also is not clear from the language of section 726(a)(5) that Congress intended to replace the pre-Code rule with a mandatory Federal Judgment Rate. See In re Schoeneberg,
In 1994 — sixteen years after the Code was enacted — a Committee report suggested that pre-Code federal bankruptcy law was still relevant to the award of postpetition interest in cases involving a solvent bankruptcy estate. Specifically, the report accompanying the repeal of subsection 1124(3) recognized that claims for postpetition interest must comply with section 1129(a)(7)’s best interest of creditors test and section 1129(b)’s fair and equitable test.
According to the Committee, “[t]he words ‘fair and equitable’ are terms of art that have a well established meaning under the case law of the Bankruptcy Act as well as under the Bankruptcy Code.” Id. “Specifically, courts have held that where an estate is solvent, in order for a plan to be fair and equitable, unsecured and un-dersecured creditors’ claims must be paid in full, including postpetition interest, be
In Debentureholders, one of the cases cited by the Committee, the First Circuit outlined pre-Code .law concerning the award of postpetition interest in the case of a surplus bankruptcy estate.
The First Circuit determined that the trustee’s plan of reorganization was not fair and equitable and should not have been confirmed, because the plan did not provide for the holders of convertible debentures
If [the debtor] were insolvent, the indenture provision allowing the post-petition interest on the installments which fell due either before or after the petition was filed would not be enforceable, regardless of State law. The federal bankruptcy rule, derived from English law, provides that in the case of insolvent debtors interest, whether stipulated in a contract or not, stops at the moment the petition in bankruptcy is filed. Two reasons are given for the rule: (1) interest payments are penalties or damages assessed against the debtor for his detention of the creditor’s money and therefore it would be unjust to allow the creditor to recover such penalties or damages from other creditors who were not to blame for the detention; and (2) the bankruptcy court itself, not the debt- or, detained the money after the petition was filed.
But with respect to post-petition interest on both the unpaid installments which fell due before, and the unpaid install-' ments which fell due after, the petition, the legal situation is different when the supposed bankrupt proves to be solvent. Where the debtor is solvent, the bankruptcy rule is that where there is a contractual provision, valid under state law, providing for interest on unpaid installments of interest, the bankruptcycourt will enforce the contractual provision with respect to both installments due before and installments due after the petition was filed. This rule is fair and equitable inasmuch as the solvent debtor’s estate will have been enriched by the bankruptcy trustee’s use of money which the debtor had promised to pay promptly to the creditor, and, correspondingly, the creditor will have been deprived of the opportunity to use the money to his advantage. Moreover, the rule does not in any way affect any creditor other than the claimant of interest on interest. Finally, the rule is in harmony with the settled English and American law that when an alleged bankrupt is proved solvent, the creditors are entitled to receive post-petition interest before any surplus reverts to the debtor.
Id. at 268-69 (citations omitted; emphasis added).
In its pre-Code decisions, the Seventh Circuit recognized the same rule for awarding prepetition interest when the debtor is solvent. In Chicago, Milwaukee, the Seventh Circuit acknowledged the “venerable principle that a bankruptcy court can refusé to award interest that accrues on a creditor’s claim after the petition for bankruptcy is filed.”
. This Court also is guided by the Seventh Circuit’s treatment of postpetition interest awarded to oversecured creditors under section 506(b) of the Code. Section 506(b) provides that, “[t]o the extent that an allowed secured claim is secured by property the value of which * * * is greater than the amount of such claim, there shall be allowed to the holder of such claim, interest on such claim, and any reasonable fees, costs, or charges provided for under the agreement or State statute under which such claim arose.” 11 U.S.C. § 506(b) (emphasis added).
In In re Terry Ltd. P’ship,
Terry is instructive. Although section 506(b) uses somewhat different language than section 765(a)(5) — “interest on such claim” rather than “interest at the legal rate” — both phrases are ambiguous on their face. Terry looked to common law bankruptcy principles and Ron Pair to determine that the contract rate should be enforced unless equitable considerations dictate otherwise. Although the Plan Proponents claim that Terry has no application because it construes a different provision of the Code, the Court finds relevant its general principle that contract rights should be enforced in the absence of compelling equitable considerations.
In light of the ambiguous language used in section 726(a)(5), along with the pre- and post-Code case law and the 1994 Committee report' discussed above, this Court respectfully disagrees with the Bankruptcy Court’s conclusion that “interest at the legal rate” means the Federal Judgment Rate in cases involving a surplus estate. The Court finds it more likely that, by using the phrase “interest at the legal rate,” Congress was referring to the interest rate appropriate under federal bankruptcy law. Section 726(a)(5) codified the pre-Code “solvent debtor” exception to the longstanding bankruptcy rule that interest on claims stops accruing when the bankruptcy petition is filed. Fesco Plastics,
Moreover, this reading of the statute would ensure equitable treatment of creditors in cases involving a surplus estate that has enough funds to pay all unsecured creditors’ claims, including claims for post-petition interest. Where there is a surplus, the bankruptcy court has no apparent reason to be concerned about creditors receiving a “disproportionate share of any re
For these reasons, the Court concludes that, in the case of a Chapter 11 surplus bankruptcy estate that is large enough to pay in full all unsecured creditors’ claims plus postpetition interest, section 726(a)(5) does not limit a creditor with a valid contract to the Federal Judgment Rate. If the unsecured creditor’s contract provides for the payment of interest, there is a presumption that the creditor is entitled to the contractual amount. This presumption may be rebutted by equitable considerations.
D. Best Interest of Creditors Test, section 1129(a)(7)
The Court now turns to the best interest of creditors test codified in section 1129(a)(7) of the Code. Under the test, “[a]ll claimants in a class of claims that is impaired under the proposed [Chapter 11] plan must be accorded treatment under the plan at least as good as treatment they would receive upon the liquidation of the debtor under Chapter 7.” Sentinel,
E. Whether the Bankruptcy Court Erred By Confirming The Plan Because It Proposes to Disallow Late-Filed Claims for Distribution Purposes
The final issue in this appeal is whether the Bankruptcy Court erred in approving Section 6.4 of the Plan, which provides: “Subject to Bankruptcy Code section 502(j) and Bankruptcy Rules 3008 and 9006, any Claim for which the filing of a Proof of Claim, application or motion with the Bankruptcy Court is required under the terms of the Bankruptcy Code, the Bankruptcy Rules, any order of the Bankruptcy Court (including one providing for a Bar Date) or the Amended Joint Plan will be disallowed for distribution purposes if and to the extent that such Proof of Claim (or other filing) is not timely and properly
On appeal, Creditor argues that the Bankruptcy Court’s approval of Section 6.4 of the Plan violates the best interests of creditors test, the fair and equitable test, and other provisions of the Code. The Plan Proponents disagree on the merits and also assert that Creditor lacks standing to appeal this issue because the Plan Proponents did not object to and the Bankruptcy Court did not disallow Creditor’s Amended Proof of Claim on the ground that it was untimely.
The Court concludes that, regardless of Creditor’s standing, it would be premature to address Creditor’s challenges, to Section 6.4 because the Bankruptcy Court has made no findings as to the timeliness of Creditor’s claims under that provision. The Court has authority to remand to the bankruptcy court to clarify and make additional factual findings where appropriate. See, e.g., In re Sentinel Mgmt. Grp., Inc.,
IV. Conclusion
For the reasons set forth below, the Bankruptcy Court’s decision is reversed in part and the case is remanded to the Bankruptcy Court to: (1) determine the appropriate rate of postpetition interest to award Creditor in light of this opinion, Creditor’s contracts, and any relevant equitable considerations; (2) determine whether Creditor’s amended proof of claim is timely under Section 6.4 of the Plan and, if it is not, address Creditor’s arguments concerning why its amended proof of claim should nonetheless be accepted; and (3) make a distribution of funds in the appropriate amount to Creditor. Finally, the parties are requested to file on the docket in Case No. 15-cv-10512 (the related appeal) no later than April 15, 2016 a statement of position in regard to whether that appeal is moot in light of this opinion.
Notes
. This Court also has pending before it a related appeal, Case No. 15-cv-10512. As set out below (see p. 899, infra), the Court requests that the parties file in that docket no later than April 15, 2016 a statement of their position in regard to whether that appeal is moot in light of this opinion.
. Although Chicago, Milwaukee was decided after the Bankruptcy Code was enacted in 1978, it applied pre-Code law because the underlying petition for reorganization was filed in 1977. See Chicago, Milwaukee,
. The New Valley court recognized, nonetheless, that "the good faith requirement of Bankruptcy Code section 1129(a)(3) may independently require that postpetition interest be paid.” New Valley,
. The only decision from within this Circuit to have considered the issue is In re Sapp,
. See Coram, 315 B.R.at 346 ("Section 726(a)(5) provides that a creditor must receive post-petition 'interest at the legal rate.’ However, neither the Code nor its legislative history provides a definition of what that interest rate is.”).
. Cardelucci only considered the plan's compliance with section 1129(a)(7).
. A debenture is "[a] debt secured only by the debtor’s earning power, not by a lien on any specific asset.” Black's Law Dictionary (10th ed. 2014). A convertible debenture is "[a] debenture that the holder may change or convert into some other security, such as stock.” Id.
. In Ron Pair, the Supreme Court held that section 506(b) authorized payment of postpe-tition interest on nonconsensual oversecured prepetition claims, even though pre-Code practice was to allow postpetition interest only on consensual oversecured prepetition claims.
. The Court finds it unnecessary to reach Creditor’s argument that the Plan violates the "fair and equitable” test contained in 11 U.S.C. § 1129(b).