Michigan Bankruptcy Blog

In Lindsey, the Chapter 11 individual debtor proposed a reorganization plan in which he would retain property. Impaired creditors objected to the plan, arguing that it did not comply with the “absolute priority rule,” which bars debtors from retaining any property unless the reorganization plan pays all dissenting creditors in full. The debtor argued that under BAPCPA, the absolute priority rule does not apply to individual debtors in Chapter 11 cases. The bankruptcy court denied confirmation, and the district court affirmed. The debtor appealed to the United States Court of Appeals for the Sixth Circuit.

Without reaching the merits of the appeal, the Sixth Circuit dismissed the appeal for lack of jurisdiction and vacated the district court’s order. The Sixth Circuit held that the district court’s rejection of the reorganization plan did not create a final appealable order. The court noted that orders may be appealed to the Sixth Circuit if they are “final judgments, order, and decrees,” or they may be received for interlocutory review if they are first properly certified and accepted.

Here, the district court’s order was not certified for interlocutory review, and the Sixth Circuit found that the order was not a “final” order. The Sixth Circuit reasoned that although confirmation of the plan was denied, the debtor must still propose another plan, which might be confirmed. The court rejected the proposition that bankruptcies demand a flexible approach to finality given number of parties involved and number of issues at stake. If such flexibility is required, orders may be certified for interlocutory review.

Because a circuit split exists on this issue, it may be prime for review by the Supreme Court. It is not yet known whether a writ of certiorari will be filed.