The Elusive Meaning Of Impairment [2004-03-01]
Larry D. Simons
"Impairment" is defined as "[t]he fact or state of being damaged, weakened, or diminished." However, judicial interpretation has expanded the meaning of the word beyond its plain definition. As a result, the concept of impairment has often been misunderstood and misapplied. The amendments contained in the Bankruptcy Reform Act of 1994 did little to change that.
Impairment is a crucial concept in every plan of reorganization or liquidation under chapter 11 since a plan proponent (and ultimately, the court) must determine whether a creditor is impaired and, therefore, arguably entitled to vote. Section 1129(a)(1)5 of the Bankruptcy 'Code requires that at least one impaired class vote to accept the plan. On the other hand, classes of unimpaired creditors are presumed to have accepted the plan, and therefore a proponent need not solicit their vote. Thus, a clear understanding of what is meant by "impairment" is essential.
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