WASHINGTON — In a substantial shift of power in favor of creditors, the U.S. Supreme Court yesterday sharply limited the ability of the original shareholders of a bankrupt entity to retain ownership in the reorganized property.
Bankruptcy scholars and practitioners had expected the court to resolve one of the most pressing issues to divide the lower federal circuits and the bankruptcy bar since the enactment of the 1978 Bankruptcy Reform Act: Is there a new value exception to the Bankruptcy Code’s absolute priority rule, which governs how creditors get paid. But the justices, in one scholar’s view, ‘fudged a little.”
