Cram down

A "cram down" is a legal and financial term primarily used in bankruptcy proceedings, particularly in the United States. It refers to a situation where a bankruptcy court approves a plan of reorganization, despite the dissent of one or more classes of creditors. Essentially, the court "crams down" the plan on the dissenting creditors, forcing them to accept the terms of the reorganization even if they voted against it.

Requirements for Cram Down

For a cram down to be approved, the bankruptcy court must find that the plan:

• Is fair and equitable to the dissenting class. This is the most crucial requirement and is determined by specific tests depending on the class of claim. For secured creditors, the "fair and equitable" standard generally requires that the creditor retain its lien on the collateral and receive payments equal to the value of the collateral. For unsecured creditors, it generally requires either full payment of their claims, or that no junior class receives or retains any property under the plan.
• Does not discriminate unfairly against the dissenting class.
• Is feasible. This means that the debtor must be able to successfully execute the plan and make the required payments.
• Is proposed in good faith.

Impact and Implications

Cram down is a powerful tool for debtors in bankruptcy, as it allows them to restructure their debts and emerge from bankruptcy even if some creditors object. However, it also protects creditors by ensuring that they receive fair treatment under the plan. The process can be complex and involves careful evaluation by the bankruptcy court to ensure that all requirements are met.

Context and Usage

The term "cram down" is almost exclusively used in the context of bankruptcy law and financial restructuring. It is not typically used in other legal or business settings. The concept is critical in Chapter 11 bankruptcies, where reorganizations are common.