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installments of $625,000 each thereafter. The bankruptcy court found the present value of the contributions to total $4.1 million, and confirmed the plan. The Seventh Circuit affirmed and the Supreme Court granted certiorari.
Unfortunately the Supreme Court's 203 North LaSalle opinion fails to answer the question the Court had raised ten years earlier, whether the new value corollary exists under the Code. The Court noted that the Code's "partial codification of the absolute priority rule" "does not codify any authoritative pre-Code version of the absolute priority rule." It analyzed the history of the concept under the Act and the legislative history of the adoption of the Code's partial codification, but reached only the weak double-negative conclusion that "this history does nothing to disparage the possibility apparent in the statutory text, that the absolute priority rule now on the books as subsection 1129(b)(2)(B)(ii) may carry a new value corollary." It considered at length but ultimately declined to resolve whether "on account of" refers to a "but for" causation test, which was the government's "starchy position," or a stronger proximate cause, as the debtor urged. The Court concluded that even under the latter interpretation the plan before it was "doomed" "by its provision for vesting equity in the reorganized business in the Debtor's partners without extending an opportunity to anyone else either to compete for that equity or to propose a competing reorganization plan." 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
