## Facts

- An involuntary Chapter 11 case was filed against New Valley Corporation in 1991; New Valley later proceeded as a debtor-in-possession.
- During the case, New Valley’s financial condition improved, and it became solvent (assets exceeded liabilities).
- New Valley proposed a plan to pay 100% of allowed unsecured claims in cash on the plan’s effective date.
- Creditor groups (an unsecured creditors’ committee, a senior secured noteholders’ committee, and the PBGC) asserted that solvency entitled unsecured creditors to postpetition interest before any value could flow to junior interests.
- New Valley sought a pre-confirmation declaratory ruling that unsecured claims paid in full at their allowed amounts would be “unimpaired” and therefore not entitled to postpetition interest.

## Issues

1. Whether a solvent Chapter 11 debtor must pay postpetition interest to unsecured creditors whose claims are treated as unimpaired by payment in full of the allowed claim amount on the effective date.
2. Whether, even absent a statutory entitlement, plan confirmation “good faith” under 11 U.S.C. § 1129(a)(3) can require payment of postpetition interest in a solvent debtor case.

## Decision

- The court held that the Bankruptcy Code does not require a solvent Chapter 11 debtor to pay postpetition interest on unsecured claims that are unimpaired by payment in full of the allowed amount.
- The court concluded that paying the allowed amount of an unsecured claim in cash on the effective date can render the claim unimpaired even without postpetition interest.
- The court ruled that the “best interests of creditors” test does not provide a postpetition-interest right to unimpaired creditors.
- The court left open that, at confirmation, § 1129(a)(3) good faith could, on specific facts, support requiring postpetition interest as a condition of confirmation.

## Legal Principles

- Under 11 U.S.C. § 502(b)(2), unmatured interest is disallowed as part of an allowed claim; postpetition interest therefore is not included in the allowed amount of an unsecured claim.
- Under then-effective 11 U.S.C. § 1124(3), a plan may leave a class unimpaired by providing cash equal to the allowed amount of the claim on the effective date, even if no postpetition interest is paid.
- The 11 U.S.C. § 1129(a)(7) “best interests” test protects only impaired classes; it does not create a statutory entitlement to postpetition interest for unimpaired creditors.
- Pre-Code “solvent debtor” concepts do not create a general Chapter 11 statutory right to postpetition interest for unimpaired unsecured creditors; any additional protection may arise, if at all, through confirmation standards such as § 1129(a)(3) good faith.

## Conclusion

The court determined that, even in a solvent Chapter 11 case, unsecured creditors paid in full at the allowed amount may be treated as unimpaired without postpetition interest, while reserving that confirmation-stage good-faith review could, depending on the facts, warrant requiring interest.


In re New Valley Corp., 168 B.R. 73 (Bankr. D.N.J. 1994)