## Facts

- Exide Technologies, a lead-acid battery manufacturer with operations in North America, Europe, and Asia, filed for Chapter 11 reorganization in the U.S. Bankruptcy Court for the District of Delaware.
- The U.S. Trustee appointed an Official Committee of Unsecured Creditors and an Official Committee of Equity Security Holders during the case.
- Exide proposed a plan of reorganization and sought confirmation over objections, including objections by the unsecured creditors’ committee.
- Confirmation turned heavily on Exide’s enterprise value because the valuation affected how much secured creditors, unsecured creditors, and equity would receive under the plan.
- Exide and the unsecured creditors’ committee presented competing expert valuations using the same general valuation techniques (including discounted cash flow and market-based comparisons).
- The experts’ results diverged due to different assumptions and data inputs: Exide argued the enterprise value was about $950 million to $1 billion, while the committee argued it was about $1.4 billion to $1.7 billion.
- Objectors contended Exide’s valuation assumptions were too low and that, as a result, the plan would allocate value in a way that disadvantaged unsecured creditors and could permit some senior creditors to receive more than the full value of their allowed claims.
- The plan also incorporated a settlement of an adversary proceeding brought by the unsecured creditors’ committee against Exide’s prepetition secured lenders, asserting lender-misconduct theories that allegedly harmed unsecured creditors.
- In addition, the plan contained broad release, exculpation, and injunction provisions protecting certain nondebtor parties, including the prepetition lenders.
- After a multi-day confirmation hearing, the court issued an opinion addressing whether the plan satisfied the confirmation requirements.

## Issues

1. Whether the plan satisfied the “fair and equitable” requirement of 11 U.S.C. § 1129(b), including the absolute priority rule, in light of the disputed enterprise valuation and the resulting distributions among creditor and equity classes.
2. Whether the plan’s settlement of the committee’s adversary proceeding against the prepetition lenders was fair and reasonable and in the best interests of the estate under bankruptcy settlement standards.
3. Whether the plan’s nondebtor release, exculpation, and injunction provisions were permissible and adequately supported by the record, including consideration, creditor support, and necessity to the reorganization.

## Decision

- Confirmation was denied; the court concluded the plan could not be confirmed in its present form.
- The court found the plan’s valuation case was not persuasive enough to support confirmation where valuation drove compliance with § 1129(b) and the allocation of value among classes.
- The court concluded the plan’s incorporated settlement of the lender-liability adversary proceeding was not justified on the record under settlement-approval standards, given the breadth of the claims being released and the consideration provided.
- The court found the third-party release and injunction package was too broad and insufficiently supported, and therefore could not be approved as drafted.

## Legal Principles

- A plan confirmed over the dissent of an impaired class must satisfy § 1129(b), including the “fair and equitable” standard and the absolute priority rule; distributions must respect statutory priority and may not award junior stakeholders value on account of their interests unless senior claims are satisfied as required by the Code.
- Because valuation determines who is “in the money,” the court must have a reliable enterprise valuation record to test whether the plan’s allocations comply with § 1129(b), including whether any class is receiving more than the full value of its allowed claim.
- A plan provision that settles estate claims must satisfy bankruptcy compromise standards (commonly framed by factors such as the probability of success, likely collection, litigation cost and delay, and the interests of creditors); releasing potentially valuable claims requires a record-supported showing that the trade is reasonable.
- Nondebtor releases and related injunctions require careful judicial review; broad, nonconsensual releases and protections must be supported by evidence and findings showing a legally sufficient basis, including why the relief is warranted and what consideration supports it.

## Conclusion

In re Exide Technologies denied confirmation of Exide’s proposed Chapter 11 plan because the record did not support the plan’s valuation-driven treatment of classes under § 1129(b), the plan’s embedded settlement of the committee’s lender-liability litigation was not shown to be a reasonable compromise for the estate, and the plan’s broad third-party release and injunction provisions lacked adequate support and could not be approved as written.


In re Exide Technologies, 303 B.R. 48 (2003)