In re Windsor on the River Associates, Ltd.

Windsor on the River Associates, Ltd. (Windsor) (debtor) owned an apartment complex in Iowa. Balcor Real Estate Finance, Inc. (Balcor) (creditor) held a $9.35 million note and mortgage on the complex. The note provided for a balloon payment of all the unpaid principle and deferred interest in May 1991. Between March 1991 and May 1991, Windsor tried and failed to negotiate an extension of the loan. Windsor defaulted and filed for Chapter 11 bankruptcy before the May maturity date. The bankruptcy court determined that the value of the complex was just over $10 million and that Balcor’s claim was over $9 million. Windsor’s reorganization plan (the plan) recognized three classes of creditors. Class 1 consisted of Balcor’s secured claim. Class 2 was a legal claim of about $60, 000 brought by Mary Niman. Class 3 consisted of $13,000 in unsecured trade debts. Under the plan, Balcor was to receive $500,000 on the plan’s effective date, but the maturity date of the remainder of the debt would be extended 10 years. The payments to the Class 2 and Class 3 creditors were to be made 60 days after the effective date of the plan. According to § 1124(1) of the Bankruptcy Code (code), a creditor’s claims were considered impaired by a plan if the plan altered the creditor’s legal, equitable, or contractual interests. Because full payment to each class was delayed, each class was considered impaired. Under code § 1129(a)(10), a court could confirm a plan if only one class of claims impaired by the plan voted to accept the plan. Balcor believed that Class 2 and Class 3 had been artificially impaired to ensure that at least one impaired class would be crammed down over Balcor’s objections. Balcor successfully challenged the validity of the Class 2 claim, denying Niman the right to vote on the plan. Balcor purchased most of the Class 3 claims as well. However, the bankruptcy court denied Balcor the right to vote as assignee of those claims. The Class 3 claimants voted to approve the plan. The bankruptcy court therefore approved the plan over Balcor’s objections.