In the recent decision of In re Village at Camp Bowie I, the U.S. Court of Appeals for the Fifth Circuit held that section 1129(a)(10) of the Bankruptcy Code does not prohibit Chapter 11 debtors from artificially impairing a class of creditors in order to secure confirmation of a non-consensual (i.e., "cramdown") plan. At the same time, however, the Fifth Circuit noted that artificial impairment could, under certain circumstances, violate a debtor’s duty under section 1129(a)(3) to propose a plan in good faith.1 In reaching its conclusion, the Fifth Circuit confirmed its prior view on the controversial issue of artificial impairment, an issue which has led to inconsistent rulings from various jurisdictions, and which is often at the core of confirmation litigation involving debtors and their major creditors in complex Chapter 11 practice.
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