St. John’s Law Student
In In re RCS Capital Development
the Bankruptcy Appellate Panel of the Ninth Circuit Court of Appeals affirmed the bankruptcy court’s finding that the debtor’s, RCS Capital Development (“RCS”), chapter 11 plan was feasible notwithstanding ongoing civil litigation between RCS and potential creditor ABC Learning (“ABC”).
RCS filed its chapter 11 case, while it was simultaneously involved in two lawsuits
against ABC. Ultimately, as a result of these actions, RCS had an enforceable claim against ABC for $57 million, and ABC had an enforceable claim against RCS for $41 million.
In its proposed chapter 11 plan, RCS explained that it intended to use the $57 million as a setoff to pay ABC the full amount of its claim.
However, the plan did not include a provision that accounted for the possibility that an appeal of the Nevada civil suit might result in ABC obtaining a judgment against RCS, thereby negating RCS’s right to setoff.
Nevertheless, the BAP found that RCS’s plan was feasible, even though it did not factor in the possibility of an unfavorable appeal.