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reorganization plan."384 This feature was found to violate the absolute priority rule because it was a right retained by the debtor on account of its equity status.
There are two logical flaws in the Court's reasoning. First, the exclusive right to propose a plan does not vest in the equity holders, but in the debtor. Second, the right does not exist "on account of" the equity holders' equity interests, but on account of § 1121. Indeed, even if there were no equity interests, such as in a nonprofit corporation or a cooperative such as in Wabash, the debtor would still have the exclusive right under § 1121 to propose a plan.
Consequently 203 N. LaSalle holds that a new value corollary might exist, but if it does it requires either exclusivity to be terminated or some kind of opportunity for competing bids to contribute the new value. But whether either of those will suffice was also not decided: "Whether a market test would require an opportunity to offer competing plans or would be satisfied by a right to bid for the same interest sought by old equity, is a question we do not decide here."385
No reported lower court decision yet tests the holding of 203 N. LaSalle. The Third Circuit read 203 N. LaSalle to require that there be a causal relation between the holding of an equity interest and the receipt or retention of value under the plan for there to be a violation of the absolute priority rule.386 Consequently it concluded that there was no violation in a plan's release of fraudulent conveyance claims that could be asserted against equity holders, arising out of a leveraged buyout, when they were released because they were deemed not worth pursuing. The opinion does address the question left unanswered in 203
N. LaSalle, whether the requisite causal relation is a "but for" cause or a higher proximate cause, but the conclusion necessarily implies something more than "but for" cause is required, since the equity holders would not have been subject to the fraudulent conveyance claims but for their status as equity holders.
One bankruptcy court terminated the debtor's exclusive period in which to file a plan due to the new value provision in the plan filed by the debtor.387 The court did so even though the plan already provided for an auction of the debtor's equity interests. Since the
384 Id. at 1422.
385 Id. at 1424.
386 In re PWS Holding Corp., 228 F.3d 224 (3d Cir. 2000).
387 In re Situation Management Systems, Inc., 252 B.R. 859 (Bankr. D. Mass. 2000).
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