Intercreditor Agreement Didn’t Apply to Plan Distributions, Third Circuit Holds

In a typical chapter 11 reorganization, distributions to secured creditors are not distributions of collateral, at least when there is no sale, according to the Third Circuit. Furthermore, undersecured creditors are not entitled to post-petition interest when calculating the distributions among creditors secured by the same collateral, the appeals court held. Although rulings are critical for corporate reorganizations in Delaware, the June 19 decision by Circuit Judge Stephanos Bibas was nonprecedential. The opinion puts Delaware firmly in line with New York.

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