In re DBSD North America
United States Court of Appeals for the Second Circuit
634 F.3d 79 (2011)
DBSD (debtor), a satellite communications company whose sole owner ICO held 98.9% of its equity, filed Chapter 11 with a first-lien credit facility, second-lien convertible notes, and an unsecured claim by Sprint (plaintiff) arising from pending litigation; DBSD's proposed plan paid first-lien debt in full over four years, gave second-lien noteholders shares worth roughly 51-73% of their claims, gave unsecured creditors including Sprint shares worth only 4-46% of their claims, and separately gave ICO shares and warrants, with the second-lien holders (defendant) characterizing ICO's allocation as a voluntary "gift" from their own recovery. The bankruptcy court and district court both approved the plan over Sprint's objection as not violating the absolute priority rule, and Sprint appealed.
Whether it violates the absolute priority rule for a reorganization plan, objected to by a class of unsecured creditors not receiving full satisfaction, to give the debtor's existing shareholder an interest in the reorganized entity characterized as "gifted" by a senior class of secured creditors.