New Value, After LaSalle

Abstract

The LaSalle opinion ended doubts about the continued existence of the new value exception to the absolute priority rule. Reorganization plans that propose to issue securities in exchange for new contributions can be crammed down, but under stricter criteria. After LaSalle, new value plans must meet a market test. Thus, LaSalle appeared to revolutionize the cram-down process, forcing auctions in every new value plan. This Article surveys the experience since LaSalle. The few cases that applied it never ordered an auction or a true market test. Every plan proposed by debtors was rejected. In cases where competing plans were allowed, the choice among them was made by the court rather than any market. The experience with competing plans indicates that new contributions of unique assets that will serve the debtor's strategy may overcome objections. Pursuing the justification of the fresh start policy, that bankruptcy law will prevent the incapacitation of individuals' productivity, reveals the possibility of a narrow exception to LaSalle's requirement of a market test for every new value plan.