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community. In Briscoe,359 for example, the purpose of such a reorganization was to preserve low income housing.
If there is no junior equity class, a plan can be crammed down on objecting unsecured creditors without paying them full present value of their claims, so long as the best interests test is satisfied by providing them more than liquidation value. This can occur with a nonprofit corporation or a municipality in a chapter 9 case, which incorporates the same absolute priority rule.360 This raises the question of whether those in control of a nonprofit entity or a municipality should be deemed an equity class even though they cannot profit from the status as can shareholders or partners of for-profit entities.
In Wabash,361 the Seventh Circuit held that the cooperative members who controlled the debtor, a utility cooperative, did not qualify as equity interests because they could never profit from their status.362 That conclusion may have been somewhat facile. While it is true coop members cannot legally profit from the distribution of dividends, they could profit in another sense, by utilizing assets at a cost below their true acquisition cost, and below the debt service they would have to pay if all unsecured debt were paid in full. That was not the case in Wabash because (1) the nuclear power plant had been abandoned and was not providing the debtor any value, and (2) utilities are regulated and the utility commission had already denied the coop's petition to raise rates to cover the cost of its abandoned nuclear power plant.363 But that may not be the case with other kinds of entities that could similarly rely on such non-equity status to retain control of a debtor and its assets while not paying objecting creditors in full, such as municipalities and nonprofit corporations.
The Ninth Circuit held, however, that a parent union did not have any equity interest in a local union for absolute priority purposes, because the debtor's ability to collect dues from members did not arise from the affiliation with the parent.364
358
Northern Pac. Ry. Co. v. Boyd, 228 U.S. 482, 508, 33 S. Ct. 554, 561 (1913).
359
In re Briscoe Enterprises, Ltd., II, 994 F.2d 1160 (5th Cir.), cert. denied, 126 L ED. 2d 451 (1993).
360
Code section 901(a) specifically incorporates § 1129(b)(2)(B), even though it is hard to conceive there ever being a class junior to unsecured creditors.
361
In re Wabash Valley Power Ass'n, 72 F.3d 1305 (7th Cir. 1996).
362
72 F.3d at 1319.
363
72 F.3d at 1308.
364
Sec. Farms v. Gen. Teamsters, Warehousemen & Helpers Union, Local 890, 265 F.3d 869 (9th Cir. 2001).
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