Petersburg Regency: A Case for Structured Dismissals that is Stronger than Jevic2/6/2017 | Article
New Jersey Law Journal, February 6, 2017.
In Petersburg Regency, all that remained of the debtor was a $10.2 million pool of insurance proceeds resulting from a Virginia hotel that was irretrievably damaged by a hurricane in 2003. See Petersburg Regency, 540 B.R. at 512. The main issue before the court during the bankruptcy case was whether to grant the creditors’ motions to approve a settlement among them that provided for the distribution of the debtor's only significant asset—the insurance proceeds—under a consensual settlement among those creditors (the "Settling Creditors") and thereafter dismiss the case. Id. The Settling Creditors, who represented all secured and unsecured non-insider claims against the debtor, reached a settlement among themselves, consented to the proposed distribution and unanimously opposed the debtor's and the debtor's principals' proposal to proceed with a different distribution scheme under a chapter 11 plan of liquidation. Id. at 512-13. The Settling Creditors took the position that the debtor was using the bankruptcy to hold them hostage and to muscle out a distribution to equity holders who were not entitled to a distribution. While a simple dismissal, for example as a bad faith filing, provided one alternative for the creditors, that alternative would return the creditors to lengthy and costly state court litigation. Thus, the creditors quickly realized that a deal, if it could be reached, was the best approach. Surprisingly, twelve classes of creditors with differing levels of priority and different types of claims agreed to the deal, with only the former owners of Petersburg Regency objecting. As owners, they were at the bottom of the waterfall and would receive nothing. Id. at 519.
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