In re Armstrong World Industries, Inc.

432 F.3d 507 (2005)

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In re Armstrong World Industries, Inc.

United States Court of Appeals for the Third Circuit
432 F.3d 507 (2005)

  • Written by Rose VanHofwegen, JD

Facts

Manufacturer Armstrong World Industries, Inc. (AWI) and subsidiaries (debtors) filed for bankruptcy reorganization because of asbestos liabilities. AWI proposed a plan with unsecured creditors in Class 6, asbestos claimants in Class 7, and AWI’s parent and only equity stakeholder Armstrong Worldwide, Inc. (AWWD), in Class 12. The plan would impair all three classes by altering their claims or interests. AWI had to place $1.8 billion in an asbestos-claim trust and issue AWWD warrants worth $35 to $40 million to purchase AWI’s new common stock. If Class 6 rejected the plan, Class 7 would receive but automatically waive receipt of the warrants such that they issued to AWWD. AWI claimed the warrants were consideration for settlement of about $12 million worth of intercompany debts instead of for equity interests. Unsecured creditors objected under the absolute-priority rule and because proposed federal legislation to relieve asbestos liability would free up about $1 billion the plan designated for asbestos claimants for other creditors. The bankruptcy court recommended confirmation, but the district court refused under the absolute-priority rule. AWI and asbestos-claimant representatives appealed on multiple grounds, including that the circumstances warranted an equitable exception to the rule.

Rule of Law

Issue

Holding and Reasoning (Thompson, J.)

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