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class of unsecured claims to be paid in full with interest 30 days after the effective date was an impaired class.250 Other courts continue to reject satisfaction of 1129(a)(10) by classes whose impairment was deemed artificial.251
After the 1994 Reform Act eliminated § 1124(3), a claim paid in full in cash on the effective date is nevertheless deemed impaired.252 This should eliminate the "artificial impairment" argument, but it still appears. The First Circuit Bankruptcy Appellate Panel held that impairment of trade creditors when they arguably could have been paid in full did not constitute impermissible "artificial impairment."253 The Seventh Circuit rejected the artificial impairment argument in 203 N. LaSalle.254 Although the debtor had sufficient funds on hand at confirmation to pay all trade debt in full, they were to be paid over time and without any interest. The bankruptcy court held it was appropriate for the debtor to reserve some funds to enhance feasibility of the reorganization and to be able to pay more on the bank's claims, and the Seventh Circuit held that conclusion was not clearly erroneous. It would have been a greater contribution to this area of confirmation law if the court had instead held as a matter of law that "artificial impairment" is not a concept that has any basis in the Code, as Bankruptcy Judge Paine held in Creekstone,255 instead of leaving yet another
the obligations would become administrative claims, which do not vote.
250
In re Hotel Associates of Tucson, 165 B.R. 470 (9th Cir. BAP 1994). The Court noted it was bound by Anaheim but also found its reasoning more convincing than Windsor because "We do not believe it is the bankruptcy court's role to ask whether alternative payment structures could produce a different scenario in regard to impairment of classes." The court remanded, however, for a determination of the debtor's good faith, instructing the bankruptcy court to "recognize that the act of impairment in an attempt to gerrymander a voting class of creditors is indicative of bad faith."
251
In re W.C. Peeler Co., Inc., 182 B.R. 435 (Bankr. D.S.C. 1995)("engineered" impairment does not suffice); In re Fur Creations by Varriale, Ltd., 1995 WL 688699 (Bankr. S.D.N.Y. 1995)("Allowing an 'artificially impaired' class to satisfy 11 U.S.C. § 1129(a)(10) requirement would nullify the protection it was designed to provide," so "there must be a showing that the proposed impairment is necessary for economical or other justifiable reasons and not just to achieve a 'cram down.'"); In re Dean, 166 B.R. 949 (Bankr. W.D. N.M. 1994)(payment of trade debts 60 days after effective date without business justification is artificial impairment, following Windsor). Contra, In re Ridgewood Apartments of DeKalb County, Inc., 183 B.R. 784 (Bankr. S.D. Ohio 1995)(business reasons refuted artificial impairment argument).
252
In re Atlanta-Stewart Partners, 193 B.R. 79 (Bankr. N.D. Ga. 1996); See also In re Willow Creek Apartments, Ltd., 1996 Bankr LEXIS 1888 (Bankr. M.D. N.C. 1996).
253 In re Memorial Products Co., Inc., 212 B.R. 185 (1st Cir BAP 1997).
254 In re 203 N. LaSalle Street Partnership, 126 F.3d 955 (7th Cir. 1977).
255 In re Creekstone Apartments Assocs., L.P., 1995 Bankr. LEXIS 552 (Bankr. M.D. Tenn. 1995), aff'd, 1995 U.S. Dist. LEXIS 14876 (M.D. Tenn. 1995).
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