A federal judge suspended the effect of a bankruptcy judge’s approval of Adelphia’s $15 billion bankruptcy reorganization plan Wednesday so she can review it.
U.S. District Judge Shira Scheindlin said she would require bondholders challenging the plan to post $1.3 billion because a delay could cost the bankruptcy estate more than a billion dollars in additional costs or “could even cause the plan to collapse.”
She said a stay was necessary because, without it, it was “extremely unlikely” that the bondholders would ever receive meaningful appellate review of the bankruptcy court’s rulings, and, once set in motion, “the plan truly cannot be unraveled.”
Yet, she added, “a stay of a confirmation order in one of the longest-running and most complex bankruptcies in our history threatens grave harm to thousands of parties who have been waiting for more than four years to obtain sizeable distributions from a group of bankrupt estates.”
She said “grueling negotiations” resulted in the plan, which was overwhelmingly approved by creditors and approved on Jan. 3 by the bankruptcy court in a lengthy decision.
Scheindlin said there were weighty issues that she must study. In the federal courts, a district court judge acts as an appellate court in reviewing final orders by a bankruptcy court. Scheindlin’s findings could then be appealed to the 2nd U.S. Circuit Court of Appeals.
She said there was a “substantial possibility” that she might find the bankruptcy court made an error by confirming the plan without determining which assets are subject to the payment of various claims.
The judge said a study of the plan “would likely find” that the plan’s approval violates the Constitutional right of the bondholders to a fair distribution of Adelphia’s assets.
A message for comment left with Adelphia was not immediately returned.