In the Matter of: Castleton Plaza, L.P., No. 12-2639 (7th Cir. 2013)
Annotate this CaseThe debtor owns a shopping center. Broadbent owns 98 percent of equity directly and two percent indirectly. EL-SNPR is its only secured lender; its note (interest at 8.37%) matured in 2010. The debtor did not pay, but commenced bankruptcy and proposed reorganization under which $300,000 of the $10 million secured debt would be paid and the balance written down to $8.2 million, with the difference unsecured. The loan would be extended and the interest rate cut to 6.25%. Unpaid creditors normally receive equity in a reorganized business. The plan cut creditors out of equity. Since the plan pays EL-SNPR less than its contractual entitlement, 11 U.S.C. 1129(b)(2)(B)(ii) provides that Broadbent cannot retain equity interest on his old investment; precedent requires an auction before he could receive equity on new investment. The plan nominally omitted Broadbent, but gave all equity to his wife for $375,000. Wife owns the company that manages the shopping center; Broadbent is CEO. The management contract would continue. The bankruptcy judge held that open competition was unnecessary because wife did not hold an equity interest. The Seventh Circuit reversed, stating that a new-value plan bestowing equity on a spouse can be as effective at evading the absolute-priority rule as a plan bestowing equity on the original investor.
Some case metadata and case summaries were written with the help of AI, which can produce inaccuracies. You should read the full case before relying on it for legal research purposes.
This site is protected by reCAPTCHA and the Google Privacy Policy and Terms of Service apply.