Section 1109(b) of the federal Bankruptcy Code provides that “A party in interest . . . may raise and may appear and be heard on any issue in a case under this chapter.”[1] Chapter 11 of the Code, where this provision is found, allows for the reorganization of a financially troubled business organization pursuant to a debt relief plan approved by the debtor business and by most of its creditors. However, such a plan cannot be followed until it is approved by a bankruptcy court after a hearing. Any person affected by the proposed plan may appear at the hearing and raise objections. In Truck Insurance Exchange v. Kaiser Gypsum Company, decided on June 6, 2024, the Court unanimously[2] held that a liability insurance company that is expected to cover the debtor’s liabilities in a proposed reorganization plan is a “party in interest” entitled to file objections to that plan under Section 1109(b).
COMMENT: The Court followed the plain language of the statute, as well as its purpose to give everyone interested in a proposed reorganization plan a voice, but not a veto, in its ultimate approval or disapproval by the bankruptcy court.
Dan Rhea
[1] 11 U.S.C. § 1109(b).
[2] Justice Alito abstained due to an undisclosed conflict-in-interest.
RECENT RULINGS 