In re Master Mortgage Investment Fund, Inc.

Skopbank (creditor) held a $19 million claim on the bankruptcy estate of Master Mortgage Investment Fund, Inc. (Master) (debtor), an investment fund. Skopbank and Master negotiated a postpetition settlement. Under the agreement, Skopbank contributed about $4 million in value to the estate, making it possible for Master’s other creditors to receive a distribution. The agreement created a right of indemnity between Master and Skopbank, giving Skopbank a right of contribution against Master. Master’s prepetition contracts with some nondebtor affiliates gave the affiliates rights of indemnification against Master. Mater also negotiated settlement agreements with the affiliates, in which the affiliates released about $3 million in claims against Skopbank, and contributed value to Master’s estate. As a part of the settlements, Master agreed that its reorganization plan (plan) would permanently enjoin its creditors and equity security holders from asserting claims against Skopbank or the affiliates arising from its relationship with Master. Four of the five impaired creditor classes voted to accept Master’s plan. The United States Securities and Exchange Commission (SEC) objected to the plan, arguing that the plan’s confirmation would violate § 524(e) of the United States Bankruptcy Code (code). Section 524(e) stated that the discharge of debt in bankruptcy did not affect the liability of other entities for that debt. However, § 105 of the code gave bankruptcy courts the power to issue any order or judgment considered necessary or appropriate to the bankruptcy proceedings.