Simon Fraser, a member of Cozen O’Connor’s Bankruptcy, Insolvency & Restructuring Practice Group, discusses a recent court decision in the American Bankruptcy Institute’s Unsecured Trade Creditors Committee Newsletter. Simon explains that, “Emerald Oil is the latest in an ever-increasing line of cases approving ‘death trap’ provision in plans.” He adds that, “The courts’ decisions can be distilled to the fundamental principle that ‘death traps’ are permissible where the incentive is consideration beyond a creditor’s existing rights, but impermissible where the incentive is the threat of stripping existing rights.” For creditors facing a plan containing a death trap provision, Simon notes that, “As long as the provision would not deprive creditors of any specific rights under the Bankruptcy Code, and, if applicable, offers all creditors in the affected class(es) the same opportunity, the provision is likely to be upheld under the current trend.”
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