## Facts

- Landau Boat Company (Landau) was a corporate debtor in a Chapter 11 case in the U.S. Bankruptcy Court for the Western District of Missouri.
- Landau proposed a plan of reorganization that cancelled all existing common stock and authorized issuance of new common stock.
- The plan set the price of the new common stock at $1 per share.
- Each purchaser of a $1 share was also required to make a $3 loan to Landau (a combined equity purchase and mandatory lending commitment).
- Creditors, including unsecured creditors, were eligible to purchase the new shares under the plan.
- The plan contemplated using the proceeds of the stock sale to make distributions to unsecured creditors, but unsecured claims would still be impaired (not paid in full).
- The class of unsecured creditors voted to reject the plan.
- Landau sought confirmation over that rejection by requesting cramdown under 11 U.S.C. § 1129(b), arguing the plan was “fair and equitable” to the dissenting unsecured class.

## Issues

1. Whether a Chapter 11 plan may be confirmed by cramdown under 11 U.S.C. § 1129(b) when unsecured creditors are impaired and dissent, but equity holders are able to obtain an ownership interest in the reorganized debtor through the plan’s new stock-and-loan subscription structure.

## Decision

- The court denied Landau’s request to cram down the plan and refused confirmation.
- The court held the plan was not “fair and equitable” to the rejecting class of unsecured creditors because unsecured creditors were not paid in full while equity effectively retained or regained an interest under the plan.

## Legal Principles

- Under 11 U.S.C. § 1129(b)(1), a plan can be confirmed over rejection by an impaired class only if the plan does not discriminate unfairly and is “fair and equitable” with respect to that class.
- For a dissenting class of unsecured claims, § 1129(b)(2)(B) requires either (i) payment of property having a value equal to the allowed amount of the claims, or (ii) that no junior class (including equity) receive or retain any property under the plan “on account of” its junior interest (the absolute priority rule).
- A plan that leaves unsecured creditors unpaid in full generally cannot give equity an ownership stake in the reorganized debtor through the plan, even if the plan cancels old shares and issues new shares, when the practical effect is that old equity is positioned to continue as owners while senior creditors remain impaired.
- Providing an opportunity to acquire new equity through a plan (including through a combined stock purchase and required loan) can constitute “property” received under the plan for absolute-priority purposes when it allows junior interests to obtain a continuing ownership interest while a rejecting unsecured class is not paid in full.
- Any asserted “new value” rationale must be assessed against absolute priority: junior interests may not use a plan structure to preserve ownership ahead of dissenting, unpaid senior creditors.

## Conclusion

In Landau II, the bankruptcy court refused to confirm Landau Boat Company’s Chapter 11 plan by cramdown because the plan impaired and failed to pay unsecured creditors in full, yet allowed equity to obtain a continuing ownership interest through the new stock offering tied to mandatory loans, which the court concluded was not “fair and equitable” under § 1129(b) and violated the absolute priority rule.


In re Landau Boat Co. (Landau II), 13 B.R. 788 (1981)