Cross-class cram down
A cross-class cram-down is a mechanism by which a restructuring plan may be imposed on classes of creditors that have voted against the plan, provided that the statutory conditions are met.
This instrument is primarily encountered in insolvency proceedings such as the WHOA and enables a restructuring plan to be sanctioned by the court notwithstanding dissenting votes from one or more classes. It prevents a minority of creditors from blocking a rescue of the enterprise.
The court reviews, inter alia, whether the plan complies with the absolute priority rule, whether the dissenting classes are not worse off than in bankruptcy, and whether the majority of the classes have approved. In practice, the cross-class cram-down is deployed in complex restructurings to enable a continuation of the business without requiring unanimous consent from all classes.
“The court applied the cross-class cram-down, thereby rendering the plan binding on the dissenting class of subordinated creditors as well.”
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