## Facts

- Abengoa Bioenergy Biomass of Kansas, LLC (ABBK) was part of the U.S. bioenergy group of Spanish corporation Abengoa, S.A.
- ABBK’s principal asset was an ethanol-and-cogeneration plant ABBK built in Hugoton, Kansas.
- ABBK received over $100 million from the U.S. Department of Energy for the plant; after that funding ended, ABBK obtained additional funding from Abengoa and ABBK’s affiliates through intercompany transactions.
- In February 2016, several ABBK affiliates filed voluntary chapter 11 cases in the Eastern District of Missouri, and their combined plan was confirmed, creating a liquidating trust (with Drivetrain, LLC as trustee).
- In March 2016, several creditors filed an involuntary chapter 7 petition against ABBK in the District of Kansas; ABBK converted the case to chapter 11.
- ABBK sold its plant for approximately $48.5 million.
- In April 2017, ABBK filed a chapter 11 plan (a plan of liquidation) that treated unsecured creditors in two separate impaired classes:
  - Class 2: general unsecured third-party creditors, to be paid pro rata.
  - Class 3: unsecured intercompany claims held by Abengoa-related entities, to receive no distribution.
- Drivetrain, as liquidating trustee for certain Abengoa affiliates that held intercompany claims against ABBK, objected to confirmation. Drivetrain argued (i) the plan improperly classified the intercompany claims separately from other unsecured claims and (ii) the plan failed the “best interests of creditors” test because the intercompany claims would allegedly receive a pro rata distribution in a hypothetical chapter 7 liquidation.
- ABBK’s executive vice president testified that ABBK and its affiliates operated as integrated entities; the affiliates knew ABBK was completely dependent on affiliate funding; the affiliates knew the plant would not be profitable; and none of the affiliates expected to be repaid. The testimony also stated that subordination and nonpayment of intercompany debts was part of the group’s shared management strategy.

## Issues

1. Whether ABBK’s plan could separately classify affiliated intercompany unsecured claims from third-party general unsecured claims and provide no distribution on the intercompany claims.
2. Whether the plan satisfied 11 U.S.C. § 1129(a)(7)(A)(ii) as to the dissenting intercompany creditors by providing at least as much as they would receive in a hypothetical chapter 7 liquidation.

## Decision

- The court overruled Drivetrain’s confirmation objections and confirmed ABBK’s chapter 11 plan of liquidation.
- The court held that ABBK had a valid basis to classify affiliate intercompany claims separately from third-party unsecured claims and to provide different treatment.
- The court concluded the plan met § 1129(a)(7) because, based on the record and likely treatment of insider intercompany claims in liquidation, the objecting intercompany creditors were not shown to be worse off under the plan than in a realistic chapter 7 liquidation.

## Legal Principles

- A chapter 11 plan must satisfy the confirmation requirements of 11 U.S.C. § 1129, including proper classification and, for each impaired non-accepting class, the “best interests of creditors” test in § 1129(a)(7).
- Classification turns on whether claims are substantially similar; separate classification is permissible when supported by a legitimate reason tied to the nature of the claims and the parties’ economic relationship.
- Insider or affiliate intercompany claims may be treated differently from trade debt when the record shows the advances functioned more like risk capital within an integrated corporate group, including where repayment was not expected and intercompany nonpayment was consistent with the group’s internal practice.
- The § 1129(a)(7) comparison to chapter 7 is a practical liquidation analysis; the court may consider the likely outcomes and disputes that would affect distribution in a chapter 7 case (including the probable treatment of insider intercompany claims), rather than assuming all unsecured claims would share equally as filed.

## Conclusion

In In re Abengoa Bioenergy Biomass of Kansas, LLC, the bankruptcy court confirmed ABBK’s liquidating chapter 11 plan over the objection of the Missouri liquidating trustee for affiliated intercompany creditors, holding that the plan’s separate classification and nonpayment of intercompany claims was justified by the economic reality of ABBK’s integrated relationship with its affiliates and that the plan satisfied § 1129(a)(7) because the objecting intercompany creditors were not shown to receive more in a realistic chapter 7 liquidation.


In re Abengoa Bioenergy Biomass of Kansas, LLC, 2018 WL 812941 (2018)