§ 9.9.8.8 Absolute Priority Rule. The codification of the fair and equitable rule for unsecured claims (and equity interests) is essentially the absolute priority rule. 11 U.S.C. §1129(b)(2)(B) . The absolute priority rule is triggered if a class of unsecured claims rejects a plan that does not provide for it to be paid full present value. In re Perez, 30 F.3d 1209, 1214 (9th Cir. 1994) ; In re Bonner Mall Partnership, 2 F.3d 899, 906 (9th Cir. 1993) , motion to vacate denied and cert. dismissed, 513 U.S. 18 (1994) ; In re Green, 98 B.R. 981, 982 (9th Cir. BAP 1989) ; In re Arden Properties, Inc., 248 B.R. 164, 173-74 (Bankr. D. Ariz. 2000) (Haines, J.) (The absolute priority rule applies only to unsecured classes, not to secured claims.). “Stated simply, the absolute priority rule preserves a reorganization’s going concern value for the benefit of its creditors.” In re Mission Heights Investors Ltd. Partnership, 202 B.R. 131, 137 (Bankr. D. Ariz. 1996) (Marlar, J) . The rule applies where interest holders retain an interest in the debtor, so a not-for-profit corporation such as a local of a labor union, where the union members are not owners, is outside the rule. In re General Teamsters, Warehousemen & Helpers Union, Local 890, 265 F.3d 869 (9th Cir. 2001).
Whether the absolute priority rule applies to a plan for an individual chapter 11 debtor is unclear. When the Bankruptcy Code was amended in 2005 by BAPCPA, Congress amended the Bankruptcy Code’s statement of the absolute priority rule to provide an exception in chapter 11 cases where the debtor is an individual. After BAPCPA, the rule provides that in individual cases, “the debtor may retain property included in the estate under section 1115, subject to the requirement of subsection (a)(14) of this section.” 11 U.S.C. § 1129(b)(2)(B)(ii) . The bankruptcy appellate panel for the Ninth Circuit has interpreted this amendment as abrogating entirely the absolute priority rule in individual chapter 11 cases. In re Friedman, 466 B.R. 471 (9th Cir. BAP 2012) . The Ninth Circuit has not addressed the issue. Other circuit courts, however, have ruled that BAPCPA’s amendment to the absolute priority rule did not abrogate the rule entirely in individual cases, but only as to property specifically included in the estate under § 1115. In re Lively, 717 F.3d 406 (5th Cir. 2013) ; In re Stephens, 704 F.3d 1279 (10th Cir. 2013) ; In re Maharaj, 681 F.3d 558 (4th Cir. 2012) . For individual debtors only, § 1115 adds...
