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new value and claims is not determinative. The "substantial" requirement is an effort to avoid token contributions which may nominally exceed the value of the retained interest. Bankruptcy Judge Scholl requires the partners make their "best efforts" in a single-asset case.
By contrast, the District Court for the Northern District of Illinois affirmed that a contribution equal to only 7% of the unsecured claims satisfied the substantiality test "both in absolute terms and in its impact on this case," where it consisted of $3 million in cash and $1.25 in a letter of credit. Similarly, the Nevada District Court found a $150,000 new value contribution to be sufficiently substantial, even though it was less than 4% of the unsecured debt being discharged under the plan, because it was the amount necessary for deferred maintenance and to rehabilitate the apartment project, and "no mathematical relationship defines when a cash infusion is substantial."
Because it is a circuit court's affirmance of confirmation of a new value plan, 203 N. LaSalle provides perhaps the most solid guidance of what "substantiality" requires. The bankruptcy court had found that the $4 million present value of the contributions was substantial in both absolute terms and as constituting more than 10% of the secured creditor's unsecured debt. The Seventh Circuit held this was not clear error. The Seventh Circuit opinion does not indicate why the comparison was to the deficiency claim rather than to the secured debt. Nonetheless, because it upholds what it concludes is a 10% contribution, 203
N. LaSalle is the first appellate court decision to provide sound guidance on how much of a new value contribution is required. Lower court decision also seem to be generally concluding that 10% or more of the secured debt constitutes sufficient new value.
Some opinions also compare the new contribution to the value of assets owned by the reorganized debtor without considering the debtor's equity in those assets.
Because bright lines do not exist in this area, demonstrating a "substantial" contribution appears the most ephemeral of the factual determinations required in determining the requisite new value. The cases requiring a comparison to any arbitrary number which can be derived from the balance sheet, e.g., the amount of debt, debt discharged, assets in the estate, make little intellectual sense and are not grounded in the pre
