## Facts

- Landau Boat Company, a corporate debtor, filed for Chapter 11 reorganization.
- The debtor proposed a plan with four classes: (1) administrative expenses paid in full; (2) secured claims paid in full; (3) unsecured claims paid 10% of allowed amounts; and (4) shareholders to receive no distribution but retain their equity interests.
- The impaired unsecured class rejected the plan.
- The court had previously denied the debtor’s attempt to disqualify a major unsecured creditor’s rejecting vote as not cast in good faith.
- After failing to obtain consensual confirmation, the debtor sought nonconsensual confirmation under the cramdown provision, 11 U.S.C. § 1129(b).

## Issues

1. Whether the plan could be confirmed under 11 U.S.C. § 1129(b) over the dissent of the impaired unsecured class as “fair and equitable” and not unfairly discriminatory.
2. Whether allowing existing shareholders to retain equity interests while unsecured creditors received less than full payment violated the absolute priority rule codified in § 1129(b)(2)(B)(ii).

## Decision

- The court denied confirmation under § 1129(b).
- Because unsecured creditors were not paid in full, § 1129(b)(2)(B)(i) was not satisfied.
- The plan failed § 1129(b)(2)(B)(ii) because shareholders, junior to unsecured creditors, would retain property (equity ownership) on account of their interests despite the unsecured class’s nonpayment in full and rejection.
- No recognized exception (such as a qualifying new value contribution) was shown to justify equity retention over dissenting unsecured creditors.

## Legal Principles

- Under 11 U.S.C. § 1129(b)(1), a court may confirm a plan over an impaired class’s rejection only if the plan does not discriminate unfairly and is fair and equitable as to that class.
- For a class of unsecured claims, “fair and equitable” requires either:
  - the class receives property equal in value to the allowed amount of its claims as of the effective date, or
  - no junior claim or interest holder receives or retains any property on account of that junior interest. 11 U.S.C. § 1129(b)(2)(B).
- The absolute priority rule bars existing equity from receiving or retaining value under a cramdown plan when a dissenting class of unsecured creditors is not paid in full, absent a valid exception.
- Retention of equity ownership constitutes “property” retained on account of a junior interest, even if the plan provides no cash distribution to shareholders.

## Conclusion

The court refused to confirm the Chapter 11 plan by cramdown because it allowed existing shareholders to keep their equity interests while unsecured creditors, who rejected the plan, would receive only 10% of their claims, violating the absolute priority rule in § 1129(b)(2)(B)(ii).


In re Landau Boat Co., 8 B.R. 436 (Bankr. W.D. Mo. 1981)