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is materially and adversely affected. This conclusion was upheld in Sun Country Development, where the Fifth Circuit held the plan was proposed in good faith even though it was modified to impair the unsecured creditors, apparently solely to satisfy § 1129(a)(10). However, a panel of the Fifth Circuit subsequently suggested in dictum that this might constitute bad faith.
The Eighth Circuit held in Windsor, however, that "a claim is not impaired if the alteration of rights arises solely from the debtor's exercise of discretion." The accepting impaired class in Windsor was a $13,000 trade creditor class that was to be paid in full 60 days after the effective date. The Eighth Circuit held the class of unsecured creditors was a "manufactured" impaired class whose vote did not count to satisfy 1129(a)(10). The
Eighth Circuit found the impairment of the trade creditors to be artificial because "simple remanipulation of the plan demonstrates" the debtor could have easily repaid the trade creditors on the effective date with some of the money to be paid to the secured creditor.
No language in § 1129(a)(10) supports the conclusion. To the contrary, the focus of § 1129(a)(10) is solely on what the class will accept, not on what alternative treatment the debtor could have proposed. Nothing in the Code requires consideration of possible alternative plans, and § 1125(a)(1) specifically provides that a disclosure statement "need not include such information about any other possible or proposed plan." For a thorough critique of the Eighth Circuit's opinion on numerous grounds, see Judge Paine's excellent analysis in Creekstone.
Another criticism of Windsor's approach stems from a standing question: do other creditors have grounds to complain that another creditor should not have been impaired? One bankruptcy court, while not relying solely on a standing analysis, analyzed the significance of 1129(a)(10) as follows:
Section 1129(a)(10) is a technical requirement for confirmation. It is an obligation for the proponent to fulfill; it is not a substantive right of objecting creditors. Indeed, the purpose and usefulness of Section 1129(a)(10) have often been questioned. See generally, David Gray Carlson, "The Classification Veto in Single-Asset Cases Under Bankruptcy Code Section 1129(a)(10)," 44 S.C. L. REV. 565 (1993). A recent report by the prestigious National Bankruptcy Conference recommends its abolition. RREFORMING THE BANKRUPTCY CODE: THE NATIONAL BANKRUPTCY CONFERENCE'S CODE REVIEW PROJECT, FINAL REPORT, May 1, 1994, Proposal B-1, pp. 276-77. In this circuit, any change of a creditor's rights, whether for the better or worse, constitutes impairment and creates the possibility of a "consenting impaired class."
