Liberty National Enterprises v. Ambanc La Mesa Ltd. Partnership (In re Ambanc La Mesa Ltd. Partnership)

Liberty National Enterprises, the only secured creditor in this single-asset bankruptcy of a 256-unit apartment project, appeals the confirmation of a Chapter 11 plan of reorganization which utilized the “cramdown” provisions of 11 U.S.C. § 1129 (b) of the Bankruptcy Code. We reverse on two grounds.

The bankruptcy court first, erroneously failed to include cash collateral, the sum of rents accumulated less operating expenses at the time of the confirmation of the Plan, in the present value securing Liberty’s claim; and second, violated the absolute priority rule, which would provide interest on that portion of Liberty’s claim classified as unsecured before any equity interest would revert to the bankrupt, because the “new value” approved by the court as justifying such a violation was not substantial.

Ambanc is a limited partnership formed in June 1988 to purchase, operate, hold, and ultimately dispose of a single asset: a 256-unit apartment project in Mesa, Arizona. Ambanc purchased the property with funds borrowed from Liberty’s predecessor in return for a note in the principal amount of $7.6 million, secured with a deed of trust covering the property. As of May 1990, the…