By Francis J. Lawall and John Henry Schanne II (Pepper Hamilton LLP)
In Ad Hoc Committee of Non-Consenting Creditors v. Peabody Energy Corp., (In re Peabody Energy Corp.), 933 F.3d 918 (8th Cir. 2019), the Eighth Circuit held that a debtors’ Chapter 11 plan complied with Bankruptcy Code Section 1123(a)(4) (which mandates that a plan provide the same treatment to all members of a particular class), despite providing more favorable treatment to creditors that agreed to backstop a rights offering by paying the participating creditors significant premiums and allowing them to purchase preferred stock at a deep discount.
The Eighth Circuit’s decision in Peabody joins decisions from the Second, Fifth and Ninth circuits in ruling that a plan may treat one set of claim holders within a single class more favorably than another so long as the treatment is not for the claim but for distinct, legitimate rights or contributions from the favored group separate from the claim. As bankruptcy cases continue to grow in size and complexity, creative approaches such as that employed in Peabody are certain to be utilized in efforts to salvage businesses in troubled industries.