Clifford Chance

Ninth Circuit Decision Restricts Claim Purchasers' Ability to Block Reorganization Plan

24 July 2012

A recent decision by the Ninth Circuit Bankruptcy Appellate Panel may indicate the increasing resistance of courts to permit secondary market claim purchasers to influence reorganization proceedings.  In In re: Windmill Durango Office, LLC,  the court held that a claim purchaser could not change the vote cast by the seller even though the ballot deadline had not yet passed.  In affirming the bankruptcy court's decision, the Panel reasoned that there was no basis for permitting a change of vote where a purchaser's only purpose is to obtain a strategic advantage with respect to its other interests in the case.  This decision, along with the Second Circuit decision In re: DBSD America, Incorporated,  may signal a trend in bankruptcy law that courts will restrict the ability of claim purchasers to affect plan confirmations and the reorganization process. 

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