Cramdown
What does "Cramdown" mean in law?
Cramdown refers to the court's power under 11 U.S.C. section 1129(b) to confirm a Chapter 11 plan of reorganization over the objection of one or more impaired classes of creditors, provided the plan does not discriminate unfairly and is "fair and equitable" to the dissenting class. For secured creditors, fair and equitable treatment requires the plan to provide the creditor with the present value of its allowed secured claim or the indubitable equivalent. For unsecured creditors, the absolute priority rule applies, meaning no junior class (including equity holders) may receive any distribution unless the dissenting senior class is paid in full. The cramdown mechanism, while powerful, requires that at least one impaired class of creditors has voted to accept the plan, ensuring a minimum level of creditor support.
Definition
Cramdown refers to the court's power under 11 U.S.C. section 1129(b) to confirm a Chapter 11 plan of reorganization over the objection of one or more impaired classes of creditors, provided the plan does not discriminate unfairly and is "fair and equitable" to the dissenting class. For secured creditors, fair and equitable treatment requires the plan to provide the creditor with the present value of its allowed secured claim or the indubitable equivalent. For unsecured creditors, the absolute priority rule applies, meaning no junior class (including equity holders) may receive any distribution unless the dissenting senior class is paid in full. The cramdown mechanism, while powerful, requires that at least one impaired class of creditors has voted to accept the plan, ensuring a minimum level of creditor support.
Example
When the senior bondholders rejected the debtor's reorganization plan, the court crammed down the plan over their objection after finding it provided them with the present value of their secured claims through deferred cash payments at market interest rates.