Can a senior secured creditor, who credit bid for substantially all of a debtor's assets, contribute non-estate property to a litigation trust for the benefit of general unsecured creditors without following the absolute priority rule? In the recent Constellation Enterprises case, the Bankruptcy Court for the District of Delaware ruled that, as a result of the Supreme Court's Jevic decision, it cannot and on that basis refused to approve a settlement which would have provided a significant recovery to unsecured creditors. The court's decision resulted in a multi-million dollar windfall for the senior secured creditors with whom the creditors' committee in that case had negotiated a favorable settlement.

In an article published in the Journal of Corporate Renewal, the official publication of the Turnaround Management Association, entitled "Did Jevic Doom Future Chapter 11 Recovery Efforts by Unsecured Creditors?," Squire Patton Boggs Restructuring & Insolvency Group partners Norman Kinel and Nava Hazan examine Constellation Enterprises and its potential ramifications on efforts by creditors' committees to obtain recoveries for their constituents in the chapter 11 cases of highly overleveraged companies.

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