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Simple English definitions for legal terms
cramdown
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A quick definition of cramdown:
Term: CRAMDOWN
Definition: Cramdown is when a court approves a plan for a company that is going through bankruptcy, even if some creditors don't agree with it. The court can do this if at least one group of creditors has accepted the plan, it's fair to everyone, and doesn't treat anyone unfairly.
A more thorough explanation:
Definition: Court confirmation of a Chapter 11 bankruptcy plan despite the opposition of certain creditors.
Under the Bankruptcy Code, a court may confirm a plan even if it has not been accepted by all classes of creditors. This is called a cramdown. For a cramdown to be approved, the plan must meet certain requirements:
- It has been accepted by at least one impaired class
- It does not discriminate unfairly
- It is fair and equitable
For example, let's say a company is going bankrupt and owes money to two groups of creditors: bondholders and suppliers. The bondholders agree to the bankruptcy plan, but the suppliers do not. If the court determines that the plan is fair and equitable, it can still be approved and the suppliers will have to accept it, even if they don't like it. This is a cramdown.
Another example could be a real estate developer who wants to restructure their debt. The developer proposes a plan that is accepted by some creditors, but not all. If the court determines that the plan meets the requirements for a cramdown, it can still be approved and the developer can move forward with their restructuring.