In re Red Mountain Machinery Co.
United States Bankruptcy Court for the District of Arizona
448 B.R. 1 (2011)
Red Mountain Machinery Company (Red Mountain), a machine-rental business owned by Owen and Linda Cowling (the Cowlings), financed operations through lines of credit with Comerica Bank (Comerica) and, after the business declined, filed for chapter 11 owing Comerica about $33 million. The proposed reorganization plan gave the Cowlings 100 percent equity in the reorganized company in exchange for $480,000 cash and a $1,250,000 loan; Comerica objected that the plan violated the absolute-priority rule and failed to satisfy the new-value corollary.
Whether the new-value corollary to the absolute-priority rule requires that the debtor's equity holders give new value that is reasonably equivalent to the interest received in the reorganized entity.