On February 8, 2016, the United States Court of Appeals for the Ninth Circuit (the “Ninth Circuit”) created an opening for debtors seeking to circumvent the Bankruptcy Code’s requirement that a plan of reorganization be accepted by at least one class of non-insider impaired claims, holding that a claim held by an “insider” can count for purposes of satisfying the requirement if the claim is transferred to a non-insider prior to voting.

Background and Applicable Statute -

When The Village at Lakeridge, LLC (the “Debtor”) filed bankruptcy in June 2011, it had two primary creditors: U.S. Bank National Association (“U.S. Bank”) held a secured claim in the amount of $10 million, and the Debtor’s sole equity holder, MBP Equity Partners 1, LLC (“MBP”), held an unsecured claim in the amount of $2.76 million. After the Debtor filed its plan, MBP sold its claim to Dr. Robert Rabkin for $5,000. Although Dr. Rabkin had no prior relationship with MBP or the Debtor, he had a close personal and business relationship with one of MBP’s members.