Respondents, who operate a family farm, obtained secured loans
from petitioners. Following a 1984 default on the loan payments,
one petitioner filed a state court replevin action seeking
possession of the farm equipment pledged as security, but
respondents obtained an automatic stay of the action when they
filed a petition for reorganization under Chapter 11 of the
Bankruptcy Code (Code). On petitioners' motions for relief from the
automatic stay, the District Court found respondents'
reorganization plan to be infeasible and affirmed the Bankruptcy
Court's decision to grant petitioners relief. The Court of Appeals
reversed, finding that respondents could file a feasible
reorganization plan (as suggested by the court), and rejecting
petitioners' contention that the Code's "absolute priority rule,"
11 U.S.C. § 1129(b)(2)(B)(ii) (1982 ed. and Supp. IV) -- which
provides that a dissenting class of unsecured creditors must be
provided for in full before any junior class can receive or retain
any property under the plan -- barred confirmation of any plan
which allowed respondents to retain their equity interest in the
farm, which was junior to creditors' unsecured claims. The court
held that, under
Case v. Los Angeles Lumber Products Co.,
308 U. S. 106, the
absolute priority rule did not bar respondents from retaining their
equity interest if they contributed "money or money's worth" to the
reorganized enterprise, and that their yearly contributions of
"labor, experience, and expertise" would constitute such a
contribution, therefore permitting confirmation of a reorganization
plan over petitioners' objections.
Held: The absolute priority rule applies, and
respondents' promise of future labor warrants no exception to its
operation. Pp.
485 U. S.
202-211.
(a) The dicta in
Case v. Los Angeles Lumber Products
Co., relied upon by the Court of Appeals, is not applicable
here. Viewed from the time of the plan's approval, respondents'
promise of future services was intangible, inalienable, and, in all
likelihood, unenforceable. Unlike "money or money's worth," such
promise cannot be exchanged in any market for something of value to
the creditors today. No broader exception to the absolute priority
rule than that suggested in
Los Angeles Lumber's dicta
exists. The statutory language and § 1129(b)'s legislative history
bar any expansion of any exception to the absolute priority
Page 485 U. S. 198
rule beyond that recognized in this Court's cases at the time
Congress enacted the 1978 Bankruptcy Code. Pp.
485 U. S.
202-206.
(b) The provisions of the Code do not support the contentions
that the equitable nature of bankruptcy proceedings prevents
petitioners from voting in the class of unsecured creditors, and
requires confirmation of a "fair and equitable" reorganization plan
in the best interests of all creditors and debtors; and that
respondents' wholly unsecured creditors (as opposed to petitioners,
who have undersecured claims) would fare better under the proposed
reorganization plan than if the farm was liquidated. Whatever
equitable powers remain in the bankruptcy courts must be exercised
within the Code's confines. Pp.
485 U. S.
206-207.
(c) There is no merit to respondents' argument that the absolute
priority rule does not apply on the ground that, because the farm
has no "going concern" value (apart from their own labor on it),
any equity interest they retain in a reorganization is worthless to
the senior unsecured creditors, and therefore is not "property"
under the rule. Even where debts far exceed the current value of
assets, a debtor who retains his equity interest in the enterprise
retains "property." The legislative history suggests that Congress'
meaning of "property" was broad, including both tangible and
intangible property. The interest respondents would retain under
any reorganization must be considered "property," and therefore can
only be retained pursuant to a plan accepted by their creditors or
formulated in compliance with the absolute priority rule. Pp.
485 U. S.
207-209.
(d) Relief from current problems facing farm families cannot
come from a misconstruction of the bankruptcy laws, but rather only
from action by Congress. Moreover, the Family Farmers Bankruptcy
Act of 1986 creates a new Chapter 12 bankruptcy proceeding whereby
family farmers can retain an equity interest in their farms while
making loan repayments under a reorganization plan. To uphold the
Court of Appeals' decision would create a method of proceeding
under Chapter 11 which would be far more advantageous to farmers
than is Chapter 12; this would be contrary to Congress' intent. Pp.
485 U. S.
209-211.
794 F.2d 388, reversed and remanded.
WHITE, J., delivered the opinion of the Court, in which all
other Members joined, except KENNEDY, J., who took no part in the
consideration or decision of the case.
Page 485 U. S. 199
JUSTICE WHITE delivered the opinion of the Court.
In this case, the Court of Appeals found that respondents'
promise of future "labor, experience, and expertise" permitted
confirmation of their Chapter 11 reorganization plan over the
objections of their creditors, even though the plan violated the
"absolute priority rule" of the Bankruptcy Code. Because we find
this conclusion at odds with the Code and our cases, we
reverse.
I
Respondents operate a failing family farm in Nobles County,
Minnesota. Between 1965 and 1984, they obtained loans from
petitioners, securing the loans with their farmland, machinery,
crops, livestock, and farm proceeds. In November, 1984, respondents
defaulted on their loan payments to petitioner Norwest Bank
Worthington; at the time,
Page 485 U. S. 200
the aggregate loan balance owed the petitioners exceeded $1
million.
Following the default, Norwest filed a replevin action in
Minnesota state court seeking possession of the farm equipment
respondents had pledged as security. However, two weeks later,
respondents obtained an automatic stay of the replevin proceedings
when they filed a petition for reorganization under Chapter 11 of
the Bankruptcy Code.
See 11 U.S.C. § 362(a) (1982 ed. and
Supp. IV).
Petitioners filed motions in the Bankruptcy Court for relief
from the automatic stay. 11 U.S.C. § 362(d) (1982 ed., Supp. IV).
After decisions by the Bankruptcy and the District Courts, these
motions were ultimately considered by the Court of Appeals, which
prohibited petitioners from repossessing any equipment pending a
determination by the District Court of the probability of success
of a reorganization plan to be filed by respondents. App. to Pet.
for Cert. A-76 - A-77. On remand, the District Court found
respondents' reorganization plan to be "utter[ly] infeasibl[e]."
Id. at A-86. It therefore affirmed the Bankruptcy Court's
initial decision to grant petitioners relief from the automatic
stay.
On appeal, the Court of Appeals reversed. It found that
respondents could file a feasible reorganization plan. 794 F.2d
388, 399 (CA8 1986). Consequently, the Court of Appeals remanded
the case with instructions that the Bankruptcy Court entertain and
confirm a reorganization plan which comported with an outline
suggested in a lengthy appendix to the Eighth Circuit's opinion.
Id. at 408-414.
In reaching this conclusion, the Court of Appeals rejected
petitioners' contention that, because of the "absolute priority
rule" in the Bankruptcy Code, 11 U.S.C. § 1129(b)(2)(B)(ii) (1982
ed. and Supp. IV), their legitimate objections to any
reorganization plan which allowed respondents to retain an interest
in the farm property was sufficient to bar confirmation
Page 485 U. S. 201
of such a plan. [
Footnote 1]
Petitioners contended that the absolute priority rule prohibited
respondents from retaining their equity interest in the farm, which
is junior to the creditors' unsecured claims. But the Court of
Appeals, relying on this Court's decision in
Case v. Los
Angeles Lumber Products Co., 308 U. S. 106
(1939), held that the absolute priority rule did not bar
respondents from retaining their equity interest in the farm if
they contributed "money or money's worth" to the reorganized
enterprise. It further concluded that respondents' "yearly
contributions of labor, experience, and expertise" would constitute
a contribution of "money or money's worth," and therefore would
permit confirmation of a reorganization plan over petitioners'
objections. 794 F.2d at 402-403. Judge John Gibson, in dissent,
criticized the majority's application of the absolute priority rule
and its reading
Page 485 U. S. 202
of
Los Angeles Lumber as "unprecedented, illogical, and
unfair." 794 F.2d at 406. He concluded that the absolute priority
rule barred respondents' retention of an equity interest in the
farm over petitioners' legitimate objections.
After the Eighth Circuit -- sharply divided -- denied rehearing
en banc,
id. at 414-415, petitioners sought review by this
Court. We granted certiorari to consider the Court of Appeals'
application of the absolute priority rule, 483 U.S. 1004 (1987),
and now reverse.
II
As the Court of Appeals stated, the absolute priority rule
"provides that a dissenting class of unsecured creditors must be
provided for in full before any junior class can receive or retain
any property [under a reorganization] plan."
794 F.2d at 401. The rule had its genesis in judicial
construction of the undefined requirement of the early bankruptcy
statute that reorganization plans be "fair and equitable."
See
Northern Pacific R. Co. v. Boyd, 228 U.
S. 482,
228 U. S.
504-505 (1913);
Louisville Trust Co. v. Louisville,
N. A. & C. R. Co., 174 U. S. 674,
174 U. S. 684
(1899). The rule has since gained express statutory force, and was
incorporated into Chapter 11 of the Bankruptcy Code adopted in
1978.
See 11 U.S.C. § 1129(b)(2)(B)(ii) (1982 ed., Supp.
IV). Under current law, no Chapter 11 reorganization plan can be
confirmed over the creditors' legitimate objections (absent certain
conditions not relevant here) if it fails to comply with the
absolute priority rule.
There is little doubt that a reorganization plan in which
respondents retain an equity interest in the farm is contrary to
the absolute priority rule. [
Footnote 2] The Court of Appeals did not
Page 485 U. S. 203
suggest otherwise in ruling for respondents, but found that such
a plan could be confirmed over petitioners' objections because of
an "exception" or "modification" to the absolute priority rule
recognized in this Court's cases.
The Court of Appeals relied on the following dicta in
Case
v. Los Angeles Lumber Products Co., supra, at
308 U. S.
121-122:
"It is, of course, clear that there are circumstances under
which stockholders may participate in a plan of reorganization of
an insolvent debtor. . . ."
"[W]e believe that, to accord 'the creditor of his full right of
priority against the corporate assets' where the debtor is
insolvent, the stockholder's participation must be based on a
contribution in money or money's worth, reasonably equivalent in
view of all the circumstances to the participation of the
stockholder."
The Court of Appeals found this language applicable to this
case, concluding that respondents' future contributions of "labor,
experience, and expertise" in running the farm -- because they have
"value" and are "measurable" -- are "money or money's worth" within
the meaning of
Los Angeles Lumber. 794 F.2d at 402. We
disagree. [
Footnote 3]
Page 485 U. S. 204
Los Angeles Lumber itself rejected an analogous
proposition, finding that the promise of the existing shareholders
to pledge their "financial standing and influence in the community"
and their "continuity of management" to the reorganized enterprise
was "[in]adequate consideration" that could not possibly be deemed
"money's worth." 308 U.S. at
308 U. S. 122.
No doubt, the efforts promised by the
Los Angeles Lumber
equity holders -- like those of respondents -- had "value" and
would have been of some benefit to any reorganized enterprise. But
ultimately, as the Court said in
Los Angeles Lumber,
"[t]hey reflect merely vague hopes or possibilities."
Id.
at
308 U. S.
122-123. The same is true of respondents' pledge of
future labor and management skills.
Viewed from the time of approval of the plan, respondents'
promise of future services is intangible, inalienable, and, in all
likelihood, unenforceable. It "has no place in the asset column of
the balance sheet of the new [entity]."
Los Angeles
Lumber, 308 U.S. at
308 U. S.
122-123. Unlike "money or money's worth," a promise of
future services cannot be exchanged in any market for something of
value to the creditors today. In fact, no decision of this Court or
any Court of Appeals, other than the decision below, has ever found
a promise to contribute future labor, management, or expertise
sufficient to qualify for the
Los Angeles Lumber exception
to the absolute priority rule. [
Footnote 4] In short, there is no
Page 485 U. S. 205
way to distinguish between the promises respondents proffer here
and those of the shareholders in
Los Angeles Lumber;
neither is an adequate contribution to escape the absolute priority
rule.
Respondents suggest that, even if their proposed contributions
to the reorganized farm do not fit within the
Los Angeles
Lumber dicta, they do satisfy some broader exception to the
absolute priority rule. Brief for Respondents 23-24. But no such
broader exception exists. Even if Congress meant to retain the
Los Angeles Lumber exception to the absolute priority rule
when it codified the rule in Chapter 11 -- a proposition that can
be debated,
see n. 3,
supra -- it is clear that
Congress had no intention to expand that exception any further.
When considering adoption of the current Code, Congress received a
proposal by the Bankruptcy Commission to modify the absolute
priority rule to permit equity holders to participate in a
reorganized enterprise based on their contribution of "continued
management . . . essential to the business" or other participation
beyond "money or money's worth."
See H.R.Doc. No. 93-137,
pt. 1, pp. 258-259 (1973). This proposal -- quite similar to the
Court of Appeals' holding in this case -- prompted adverse
reactions from numerous sources. [
Footnote 5] Congress ultimately rejected the proposed
liberalization of
Page 485 U. S. 206
the absolute priority rule and adopted the codification of the
rule now found in 11 U.S.C. § 1129(b)(2)(B)(ii) (1982 ed. and Supp.
IV). "This [section] codifies the absolute priority rule from the
dissenting class on down."
See H.R.Rep. No. 95-595, p. 413
(1977). We think the statutory language and the legislative history
of § 1129(b) clearly bar any expansion of any exception to the
absolute priority rule beyond that recognized in our cases at the
time Congress enacted the 1978 Bankruptcy Code.
In sum, we find no support in the Code or our previous decisions
for the Court of Appeals' application of the absolute priority rule
in this case. We conclude that the rule applies here, and
respondents' promise of future labor warrants no exception to its
operation.
III
Respondents advance two additional arguments seeking to obviate
the conclusion mandated by the absolute priority rule.
A
Respondents first advance a variety of "equitable arguments"
which, they say, prevent the result we reach today. Respondents
contend that the nature of bankruptcy proceedings -- namely, their
status as proceedings in "equity" -- prevents petitioners from
inequitably voting in the class of unsecured creditors, and
requires that a "fair and equitable" reorganization plan in the
best interests of all creditors and debtors be confirmed.
See Brief for Respondents 14-16, 23-24. Similarly, the
Court of Appeals found it significant that -- in its view --
respondents' wholly unsecured creditors (as opposed to petitioners,
who have partially secured claims) would fare better under the
proposed reorganization plan than if the farm was liquidated. 794
F.2d at 402.
The short answer to these arguments is that whatever equitable
powers remain in the bankruptcy courts must and can only be
exercised within the confines of the Bankruptcy Code. The Code
provides that undersecured creditors can
Page 485 U. S. 207
vote in the class of unsecured creditors, 11 U.S.C. § 506(a),
the Code provides that a "fair and equitable" reorganization plan
is one which complies with the absolute priority rule, 11 U.S.C. §
1129(b)(2)(B)(ii) (1982 ed. and Supp. IV), and the Code provides
that it is up to the creditors -- and not the courts -- to accept
or reject a reorganization plan which fails to provide them
adequate protection or fails to honor the absolute priority rule,
11 U.S.C. § 1126 (1982 ed. and Supp. IV).
The Court of Appeals may well have believed that petitioners or
other unsecured creditors would be better off if respondents'
reorganization plan was confirmed. But that determination is for
the creditors to make in the manner specified by the Code. 11
U.S.C. § 1126(c). Here, the principal creditors entitled to vote in
the class of unsecured creditors (
i.e., petitioners)
objected to the proposed reorganization. This was their prerogative
under the Code, and courts applying the Code must effectuate their
decision.
B
Respondents further argue that the absolute priority rule has no
application in this case, where the property which the junior
interest holders wish to retain has no value to the senior
unsecured creditors. In such a case, respondents argue, "the
creditors are deprived of nothing if such a so-called
interest'
continues in the possession of the reorganized debtor." Brief for
Respondents 19. Here, respondents contend, because the farm has no
"going concern" value (apart from their own labor on it), any
equity interest they retain in a reorganization of the farm is
worthless, and therefore is not "property" under 11 U.S.C. §
1129(b)(2)(B)(ii) (1982 ed. and Supp. IV).
We join with the consensus of authority which has rejected this
"no value" theory. [
Footnote 6]
Even where debts far exceed the
Page 485 U. S. 208
current value of assets, a debtor who retains his equity
interest in the enterprise retains "property." Whether the value is
"present or prospective, for dividends or only for purposes of
control" a retained equity interest is a property interest to
"which the creditors [are] entitled . . . before the stockholders
[can] retain it for any purpose whatever."
Northern Pacific R.
Co. v. Boyd, 228 U.S. at
228 U. S. 508.
Indeed, even in a sole proprietorship, where "going concern" value
may be minimal, there may still be some value in the control of the
enterprise; obviously, also at issue is the interest in potential
future profits of a now-insolvent business.
See SEC v.
Canandaigua Enterprises Corp., 339 F.2d 14, 21 (CA2 1964)
(Friendly, J.). And while the Code itself does not define what
"property" means as the term is used in § 1129(b), the relevant
legislative history suggests that Congress' meaning was quite
broad. "
[P]roperty' includes both tangible and intangible
property." See H.R.Rep. No. 95-595, at 413.
Moreover, respondents' "no value" theory is particularly
inapposite in this case. This argument appears not to have been
presented to the Eighth Circuit, which implicitly concluded -- to
the contrary of respondents' position here -- that the equity
interest respondents desire to retain has some value.
See
794 F.2d at 402-403. Even cursory consideration reveals that the
respondents' retained interest under the plan might be "valuable"
for one of several reasons. For example, the Court of Appeals
provided that respondents would be entitled to a share of any
profits earned by the sale of secured property during the
reorganization period,
id. at
Page 485 U. S. 209
403, and n. 18 -- an interest which can hardly be considered
"worthless." And there is great common sense in petitioners'
contention that "obviously, there is some going concern value here,
or the parties would not have been litigating over it for the last
three years." Tr. of Oral Arg. 15-16.
Consequently, we think that the interest respondents would
retain under any reorganization must be considered "property" under
§ 1129(b)(2)(B)(ii), and therefore can only be retained pursuant to
a plan accepted by their creditors or formulated in compliance with
the absolute priority rule. Since neither is true in this case, the
Court of Appeals' judgment for respondents cannot stand.
IV
In rejecting respondents' position, we do not take lightly the
concerns which militated the Eighth Circuit towards its result. As
a Bankruptcy Judge commented on the Court of Appeals' decision in
this case:
"We understand the motivation behind the majority opinion in
Ahlers. Farm bankruptcies are in a state of crisis and we,
too, sympathize with the plight of the American farmer.
Nevertheless, the solution proposed by the
Ahlers majority
is contrary to the Bankruptcy Code and a long line of case
law."
In re Stegall, 64 B.R. 296, 300 (Bkrtcy.Ct. CD
Ill.1986).
Family farms hold a special place in our Nation's history and
folklore. Respondents and
amici paint a grim picture of
the problems facing farm families today, and present an eloquent
appeal for action on their behalf. [
Footnote 7] Yet relief from current farm woes cannot come
from a misconstruction of the applicable bankruptcy laws, but
rather, only from action by Congress. [
Footnote 8]
Page 485 U. S. 210
The error of the Court of Appeals' approach is further revealed
by an examination of a measure Congress has recently enacted to
cope with these very same concerns, the Family Farmers Bankruptcy
Act of 1986, Pub.L. 99-554, § 255, 100 Stat. 3105-3114. The Act
creates a new Chapter 12 bankruptcy proceeding, under which family
farmers can retain an equity interest in their farms while making
loan repayments under a reorganization plan.
See 11 U.S.C.
§ 1201
et seq. (1982 ed., Supp. IV). [
Footnote 9]
The legislative history of the Act makes it clear that one of
Congress' principal concerns in adopting Chapter 12 was the
difficulties farmers encountered in seeking to reorganize under
Chapter 11. [
Footnote 10]
And yet, as respondents concede, the Court of Appeals' decision
here creates a method of proceeding under Chapter 11 which is far
more advantageous to farmers than is Chapter 12.
See Brief
for Respondents 6-9; Tr. of Oral Arg. 23-25. Thus, given
respondents' reading of Chapter 11, Congress enacted a relief
provision in Chapter 12
Page 485 U. S. 211
which is less favorable to its intended beneficiaries than is
current law. But, in adopting Chapter 12, Congress thought it was
doing just the opposite. [
Footnote 11]
"[W]here, as here, Congress adopts a new law . . . [it] normally
can be presumed to have had knowledge of the interpretation given
to the [old] law."
Lorillard v. Pons, 434 U. S. 575,
434 U. S. 581
(1978). We think Congress' understanding of Chapter 11 and its
absolute priority rule -- and not respondents' -- is the correct
one. We do not believe that Congress created, in Chapter 12, an
option for farm reorganizations
less accessible to most
farmers than current Chapter 11 proceedings.
V
In sum, because we find the decision below to be contrary to the
Bankruptcy Code and this Court's previous cases, the judgment of
the Court of Appeals is reversed, and the case is remanded for
further proceedings consistent with this opinion.
It is so ordered.
JUSTICE KENNEDY took no part in the consideration or decision of
this case.
[
Footnote 1]
In relevant part, 11 U.S.C. § 1129(b) (1982 ed. and Supp. IV)
provides:
"(1) . . . [T]he court . . . shall confirm the plan . . . if the
plan . . . is fair and equitable. . . . "
"(2) . . . [T]he condition that a plan be fair and equitable . .
. includes the following requirements:"
"
* * * *"
"(B) With respect to a class of unsecured claims -- "
"(i) the plan provides that each holder of a claim of such class
receive or retain on account of such claim property of a value, as
of the effective date of the plan, equal to the allowed amount of
such claim; or"
"(ii) the holder of any claim or interest that is junior to the
claims of such class will not receive or retain under the plan on
account of such junior claim or interest any property."
Petitioners contended, and the Court of Appeals agreed, that
they must be treated as unsecured creditors for purpose of any
reorganization plan, because their claims were substantially
undersecured.
See 794 F.2d 388, 399 (CA8 1986); 11 U.S.C.
§ 506(a). Petitioners further argued, and the Court of Appeals also
agreed, that any reorganization plan for respondents could not
comply with § 1129(b)(2)(B)(i), because respondents could not
possibly provide petitioners with property equal to the allowed
amount of their claims.
See 794 F.2d at 401.
Thus, the Court of Appeals concluded that respondents'
reorganization plan would have to comply with § 1129(b)(2)(B)(ii)
-- the codification of the absolute priority rule -- in order to be
confirmed.
Ibid.
[
Footnote 2]
Respondents do not contest this conclusion, but rather, argue
(1) that their proposal to retain an equity interest in the farm
and equipment is confirmable under an exception to the absolute
priority rule, Brief for Respondents 21-25, and (2) that the rule
does not (or should not) apply to their reorganization plan for
various reasons,
id. at 14-21. For reasons we discuss
infra at 204-206 and in Part III, we find these arguments
unpersuasive.
[
Footnote 3]
The United States, as
amicus curiae, urges us to
reverse the Court of Appeals' ruling and hold that codification of
the absolute priority rule has eliminated any "exception" to that
rule suggested by
Los Angeles Lumber. See Brief
for United States as
Amicus Curiae 17-23. Relying on the
statutory language and the legislative history, the United States
argues that the 1978 Bankruptcy Code "dropped the
infusion-of-new-capital exception to the absolute priority rule."
Id. at 22.
We need not reach this question to resolve the instant dispute.
As we discuss
infra at 204-206, we think it clear that,
even if the
Los Angeles Lumber exception to the absolute
priority rule has survived enactment of the Bankruptcy Code, this
exception does not encompass respondents' promise to contribute
their "labor, experience, and expertise" to the reorganized
enterprise.
Thus, our decision today should not be taken as any comment on
the continuing vitality of the
Los Angeles Lumber
exception -- a question which has divided the lower courts since
passage of the Code in 1978.
Compare, e.g., In re Sawmill
Hydraulics, Inc., 72 B.R. 454, 456, and n. 1 (Bkrtcy.Ct.CD
Ill.1987),
with, e.g., In re Pine Lake Village Apartment
Co., 19 B.R. 819,
83.3
(Bkrtcy.Ct.SDNY 1982). Rather, we simply conclude that, even if an
"infusion-of-
money-or-money's-worth'" exception to the absolute
priority rule has survived the enactment of § 1129(b), respondents'
proposed contribution to the reorganization plan is inadequate to
gain the benefit of this exception.
[
Footnote 4]
"[P]revious attempts to qualify non-capital equity in the
absolute priority context have been unanimously rejected." Koger
& Acconcia, In re Ahlers: Capitalizing on Sweat, 42 J.Mo.Bar
455, 458 (1986).
See also 794 F.2d at 407 (Gibson, J.,
dissenting);
In re Baugh, 73 B.R. 414, 418 (Bkrtcy.Ct. ED
Ark.1987);
In re Pecht, 57 B.R. 137, 139-141 (Bkrtcy.Ct.
ED Va.1986).
In support of their position, respondents rely extensively on
SEC v. United States Realty & Improvement Co.,
310 U. S. 434
(1940).
See Tr. of Oral Arg. 31-33, 35-37. However, the
relevant portion of that case concerned a chapter of the old
bankruptcy statutes under which the absolute priority rule did not
apply.
See SEC v. United States Realty & Improvement Co.,
supra, at
310 U. S.
453-454. Thus, that case is wholly inapposite here.
[
Footnote 5]
See, e.g., Hearings on S. 235 and S. 236 before the
Subcommittee on Improvements in Judicial Machinery of the Senate
Committee on the Judiciary, 94th Cong., 1st Sess., pt. 2, p. 1044
(1975) (statement of Prof. Vernon Countryman);
id. at 710
(statement of Phillip A. Loomis, Jr., Comm'r of the Securities and
Exchange Comm'n); Brudney, The Bankruptcy Commission's Proposed
"Modifications" of the Absolute Priority Rule, 48 Am.Bankr.L.J.
305, 336-339 (1974).
[
Footnote 6]
Respondents note that one Bankruptcy Court has accepted the "no
value" theory in a case similar to this one.
See In re Star
City Rebuilders, Inc., 62 B.R. 983, 988-989 (WD Va.1986). But
even in so doing, the Bankruptcy Court acknowledged that the bulk
of authority was to the contrary.
See id. at 989;
see
also In re Modern Glass Specialists, Inc., 42 B.R. 139,
140-141 (Bkrtcy.Ct. ED Wisc.1984);
In re Huckabee Auto
Co., 33 B.R. 132, 141 (Bkrtcy.Ct. MD Ga.1981);
In re
Landall Boat Co., 8 B.R. 436, 438-439 (Bkrtcy.Ct. WD
Mo.1981).
Petitioners contend that the
Star City decision is the
only one to accept the "no value" theory.
See Tr. of Oral
Arg. 16. Respondents did not contest this assertion or provide
authority to the contrary.
[
Footnote 7]
See Brief for Respondents 8-11; Brief for State of
Arkansas
et al. as
Amici Curiae 1-2.
[
Footnote 8]
Even if current farm problems "justified" a judicial
modification of the absolute priority rule along the line of the
Court of Appeals' opinion, not the least of the problems with the
decision below is that there is no way to limit it to family farms,
or even to small businesses generally. The shareholders of any
corporate debtor might be able to evade the absolute priority rule
under the Eighth Circuit's reasoning; such a result surely cannot
be squared with the case law or the Code as they are discussed
supra.
[
Footnote 9]
Respondents apparently cannot qualify for relief under Chapter
12, because they do not meet the requirements that Congress has
adopted in defining what is an eligible "family farm" for purposes
of Chapter 12.
See Tr. of Oral Arg. 23; 11 U.S.C. §
101(17) (1982 ed., Supp. IV).
In addition, respondents may be disqualified from filing under
Chapter 12 because they had previously filed under Chapter 11. The
Bankruptcy Courts are divided on the issue.
Compare, e.g., In
re Big Dry Angus Ranch, Inc., 69 B.R. 695, 699-701
(Mont.1987),
with, e.g., In re B.A.V., Inc., 68 B.R. 411,
412-413 (Colo.1986).
[
Footnote 10]
See 132 Cong.Rec. 28592 (1986) (statement of Sen.
Thurmond);
id. at 28593 (statement of Sen. Grassley).
Congress seemed particularly aware of the specific obstacle that
the absolute priority rule posed to farm reorganizations.
See Anderson, An Analysis of Pending Bills to Provide
Family Farm Debtor Relief Under the Bankruptcy Code, reprinted in
132 Cong.Rec. 28593, 28599 (1986).
[
Footnote 11]
"Under this new chapter, it will be easier for a family farmer
to confirm a plan of reorganization." Joint Explanatory Statement
of the Committee of Conference, reprinted in 132 Cong.Rec. 28143,
28144 (1986).