On March 22, 2017, the Supreme Court, in Czyzewski et al., v. Jevic Holding Corp., et al., confirmed that the Bankruptcy Code does not permit “priority skipping” in Chapter 11 structured dismissals. In doing so, the Court held that, although the Code does not explicitly provide what, if any, priority rules apply to the distribution of estate assets in a Chapter 11 structured dismissal, “[a] distribution scheme in connection with the dismissal of a Chapter 11 case cannot, without the consent of the affected parties, deviate from the basic priority rules that apply under the
. . . Code.”
Jevic Holding Corp. (“Jevic”) filed for Chapter 11 following a failed leveraged buyout. Jevic owed $53 million to its senior secured creditors and over $20 million to tax and general unsecured creditors. Jevic’s Chapter 11 filing generated two significant legal actions: (1) a claim from its employees that Jevic, and others, had violated state and federal Worker Adjustment and Retraining Notification (“WARN”) Acts; and (2) an action for fraudulent conveyance brought by the official unsecured creditors’ committee (the “Committee”) against Sun Capital Partners, Inc. (“Sun”), Jevic’s private equity owner, and its secured lender, CIT Group, Inc. (“CIT”).