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Do Death Trap Provisions Breathe Life Into A Chapter 11 Reorganization Plan?, Amanda K. Bloch

Amanda K. Bloch

In modern day Chapter 11 bankruptcy proceedings, pre-petition secured creditors often provide debtor-in-possession financing, and these lenders consequently become the controlling entity in the bankruptcy. Several new practices have developed as a result of this financing scheme which permit the pre-petition lenders to increase their status in the bankruptcy (e.g. roll-ups, the new value exception). One such practice is the inclusion of a “death trap” provision in a reorganization plan. These provisions stipulate that an impaired class, usually an equity class in an insolvent corporation, will receive a distribution under the plan in return for an affirmative vote, but no …