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Full Opinion
delivered the opinion of the Court.
Bankruptcy Code Chapter 11 allows debtors and their creditors to negotiate a plan for dividing an estateâs value. See 11 U.S.C. §§ 1128, 1129, 1141. But sometimes the parties cannot agree on a plan. If so, the bankruptcy court may decide to dismiss the case. § 1112(b). The Code then ordinarily provides for what is, in effect, a restoration of the prepetition financial status quo. § 349(b),
In the case before us, a Bankruptcy Court dismissed a Chapter 11 bankruptcy. But the-court did not simply restore the prepetition status quo. Instead, the court ordered a distribution of estate assets that gave money to high-priority secured creditors and to low-priority general unsecured creditors but which skipped certain dissenting mid-priority creditors. The skipped creditors would have been entitled to payment ahead of the general unsecured creditors in a Chapter 11 plan (or in a Chapter 7 liquidation). See §§ 507, 725, 726, 1129. The question before us is whether a bankruptcy court has the legal power to order this priority-skipping kind of distribution scheme in connection with a Chapter 11 dismissal.
In our view, a bankruptcy court does not have such a power. A distribution scheme ordered in connection with the dismissal of a Chapter 11 case cannot, without the consent of the affected parties, deviate from the basic priority rules that apply under the primary mechanisms the Code establishes for final distributions of estate value in business bankruptcies.
I
A
1
We begin with a few fundamentals: A business may file for bankruptcy under either Chapter 7 or Chapter 11. In Chapter 7, a trustee liquidates the debtorâs assets and distributes them to creditors. See § 701 et seq. In Chapter 11, debtor and creditors try to negotiate a plan that will govern the distribution of valuable assets from the debtorâs estate and often keep the business operating as a going concern. See, e.g., §§ 1121, 1123, 1129, 1141 (setting out the framework in which the parties negotiate).
Filing for Chapter 11 bankruptcy has several relevant legal consequences. First, an estate is created comprising all property of the debtor. § 541(a)(1). Second, a fiduciary is installed to manage the estate in the interest of the creditors. §§ 1106, 1107(a). This fiduciary, often the debtorâs existing management team, acts as âdebtor in possession.â §§ 1101(1), 1104. It may operate the business, §§ 363(c)(1), 1108, and perform certain bankruptcy-related functions; such as seeking to recover for the estate preferential or fraudulent transfers made to other persons, § 547 (transfers made before bankruptcy that unfairly preferred particular creditors); § 548 (fraudulent transfers, including transfers made before bankruptcy for which the debtor did not receive fair val
It is important to keep in mind that Chapter 11 foresees three possible outcomes. The first is a bankruptcy-court-confirmed plan. Such a plan may keep the business operating but, at the same time, help creditors by providing for payments, perhaps over time. See §§ 1123, 1129, 1141. The second possible outcome is conversion of the case to a Chapter 7 proceeding for liquidation of the business and a distribution of its remaining assets. §§ 1112(a), (b), 726. That conversion in effect confesses an inability to find a plan. The third possible outcome is dismissal of the Chapter 11 case. § 1112(b). A dismissal typically ârevests the property of the estate in the entity in which such property was vested immediately before the commencement of the caseâ â in other words, it aims to return to .the prepetition financial status quo. § 349(b)(3).
Nonetheless, recognizing that conditions may have changed in ways that make a perfect restoration of the status quo difficult or impossible, the Code permits the bankruptcy court, âfor cause,â to alter a Chapter 11 dismissalâs ordinary restorative consequences. § 349(b). A dismissal that does so (or which has other special conditions attached) is often referred to as a âstructured dismissal,â defined by the American Bankruptcy Institute as a
âhybrid dismissal and confirmation order ... that ... typically dismisses the case while, among other things, approving certain distributions to creditors, granting certain third-party releases, enjoining certain conduct by creditors, and not necessarily vacating orders or unwinding transactions undertaken during the case.â American Bankruptcy Institute Commission To Study the Reform of Chapter 11, 2012-2014 Final Report and Recommendations 270 (2014).
Although the Code does not expressly mention structured dismissals, they âappear to be increasingly common.â Ibid., n. 973.
2
The Code also sets forth a basic system of priority, which ordinarily determines the order in which the bankruptcy court will distribute assets of the estate. Secured creditors are highest on the priority list, for they must receive the proceeds of the collateral that secures their debts. 11 U.S.C. § 725. Special classes of creditors, such as those who hold certain claims for taxes or wages, come next in a listed order. §§ 507, 726(a)(1). Then come low-priority creditors, including general unsecured creditors. § 726(a)(2). The Code places equity holders at the bottom of the priority list. They receive nothing until all previously listed creditors have been paid in full. § 726(a)(6).
The Code makes clear that distributions of assets in a Chapter 7 liquidation must follow this prescribed order. §§ 725, 726. It provides somewhat more flexibility for distributions pursuant to Chapter 11 plans, which may impose a different ordering with the consent of the affected parties. But a bankruptcy court cannot confirm a plan that contains priority-violating distributions over the objection of an impaired creditor class. §§ 1129(a)(7), 1129(b)(2).
The question here concerns the interplay between the Codeâs priority rules and a Chapter 11 dismissal. Here, the Bankruptcy Court neither liquidated the debtor under Chapter 1- nor confirmed a Chapter 11 plan. But the court, instead of reverting to the prebankruptcy status quo, or
B
In 2006, Sun Capital Partners, a private equity firm, acquired Jevic Transportation Corporation with money borrowed from CIT Group in a âleveraged buyout.â In a leveraged buyout, the buyer (B) typically borrows from a third party (T) a large share of the funds needed to purchase a company (C). B then pays the money to Câs shareholders. Having bought the stock, B owns C. B then pledges Câs assets to T so that T will have security for its loan. Thus, if the selling price for C is $60 million, B might use $10 million of its own money, borrow $40 million from T, pay $50 million to Câs shareholders, and then pledge C assets worth $40 million (or more) to T as security for Tâs $40 million loan. If B manages C well, it might make enough money to pay T back the $40 million and earn a handsome profit on its own $10 million investment. But, if the deal sours and C descends into bankruptcy, beware of what might happen: Instead of Câs $40 million in assets being distributed to its existing creditors, the money will go to T to pay back Tâs loanâ the loan that allowed B to buy C. (T will receive what remains of Câs assets because T is now a secured creditor, putting it at the top of the priority list). Since Câs shareholders receive money while Câs creditors lose their claim to Câs remaining assets, unsuccessful leveraged buyouts often lead to fraudulent conveyance suits alleging that the purchaser (B) transferred the companyâs assets without receiving fair value in return. See Lipson & Vandermeuse, Stern, Seriously: The Article I Judicial Power, Fraudulent Transfers, and Leveraged Buyouts, 2013 Wis. L.Rev. 1161, 1220-1221.
This is precisely what happened here. Just two years after Sunâs buyout, Jevic (C in our leveraged buyout example) filed for Chapter 11 bankruptcy. At the time of filing, it owed $53 million to senior secured creditors Sun and CIT (B and T in our example), and over $20 million to tax and general unsecured creditors.
The circumstances surrounding Jevicâs bankruptcy led to two lawsuits. First, petitioners, a group of former Jevic truckdrivers, filed suit in bankruptcy court against Jevic and Sun. Petitioners pointed out that, just before entering bankruptcy, Jevic had halted almost all its operations and had told petitioners that they would be fired. Petitioners claimed that Jevic and Sun had thereby violated state and federal Worker Adjustment and Retraining Notification (WARN) Acts â laws that require a company to give workers at least 60 daysâ notice before their termination. See 29 U.S.C. § 2102; N.J. Stat. Ann. § 34:21-2 (West 2011). The Bankruptcy Court granted summary judgment for petitioners against Jevic, leaving them (and this is the point to remember) with a judgment that petitioners say is worth $12.4 million. See In re Jevic Holding Corp., 496 B.R. 151 (Bkrtcy.Ct.D.Del.2013), Some $8.3 million of that judgment counts as a priority wage claim under 11 U.S.C. § 507(a)(4), and is therefore entitled to payment ahead of general unsecured claims against the Jevic estate.
Second, the Bankruptcy Court authorized a committee representing Jevicâs unsecured creditors to sue Sun and CIT. The Bankruptcy Court and the parties were aware that any proceeds from such a suit would belong not to the unsecured creditors, but to the bankruptcy estate. See §§ 541(a)(1), (6); Official Comm. of Unsecured Creditors of Cybergenics Corp. v. Chinery, 330 F.3d 548, 552-553 (C.A.3 2003) (en banc) (holding that a creditorâs committee can bring a derivative action on behalf of the estate). The committee alleged that Sun and CIT, in the course of their leveraged buyout, had âhastened Jevicâs bankruptcy by saddling it with debts that it couldnât service.â In re Jevic Holding Corp., 787 F.3d 173, 176 (C.A.3 2015). In 2011, the Bankruptcy Court held that the committee had adequately pleaded claims of preferential transfer under § 547 and of fraudulent transfer under § 548. In re Jevic Holding Corp., 2011 WL 4345204 (Bkrtcy.Ct.D.Del., Sept. 15, 2011).
Sun, CIT, Jevic, and the committee then tried to negotiate a settlement of this âfraudulent-conveyanceâ lawsuit. By that point, the depleted Jevic estateâs only remaining assets were the fraudulent-conveyance claim itself and $1.7 million in cash, which was subject to a lien held by Sun.
The parties reached a settlement agreement. It provided (1) that the Bankruptcy Court would dismiss the fraudulent-conveyance action with prejudice; (2) that CIT would deposit $2 million into an account earmarked to pay the committeeâs legal fees and administrative expenses; (3) that Sun would assign its lien on Jevicâs remaining $1.7 million to a trust, which would pay taxes and administrative expenses and distribute the remainder on a pro rata basis to the low-priority general unsecured creditors, but which wmld not distribute anything to petitioners (who, by virtue of their WARN judgment, held an $8.3 million mid-level-priority wage claim against the estate); and (4) that Jevicâs Chapter 11 bankruptcy would be dismissed.
Apparently Sun insisted on a distribution that would skip petitioners because petitionersâ WARN suit against Sun was still pending and Sun did not want to help finance that litigation. See 787 F.3d, at 177-178, n. 4 (Sunâs counsel acknowledging before the Bankruptcy Court that ââSun probably does care where the money goes because you can take judicial notice that thereâs a pending WARN action against Sun by the WARN plaintiffs. And if the money goes to the WARN plaintiffs, then youâre funding someone who is suing you who otherwise doesnât have funds and is doing it on a contingent fee basisâ â). The essential point is that, regardless of the reason, the proposed settlement called for a structured dismissal that provided for distributions that did not follow ordinary priority rules.
Sun, CIT, Jevic, and the committee asked the Bankruptcy Court to approve the settlement and dismiss the case. Petitioners and the U.S. Trustee objected, arguing that the settlementâs distribution plan violated the Codeâs priority scheme because it skipped petitioners â who, by virtue of their WARN judgment, had mid-level priority claims against estate assets â and distributed estate money to low-priority general unsecured creditors.
The Bankruptcy Court agreed with petitioners that the settlementâs distribution scheme failed to follow ordinary priority
The District Court affirmed the Bankruptcy Court. It recognized that the settlement distribution violated ordinary priority rules. But those rules, it wrote, were ânot a bar to the approval of the settlement as [the settlement] is not a reorganization plan.â In re Jevic Holding Corp., 2014 WL 268613, *3 (D.Del., Jan. 24, 2014).
The Third Circuit affirmed the District Court by a vote of 2 to 1. 787 F.3d, at 175; id., at 186 (Seirica, J., concurring in part and dissenting in part). The majority held that structured dismissals need not always respect priority. Congress, the court explained, had only âcodified the absolute priority rule ... in the specific context of plan confirmation.â Id., at 183. As a result, courts could, âin rare instances like this one, approve structured dismissals that do not strictly adhere to the Bankruptcy Codeâs priority scheme.â Id., at 180.
Petitioners <the workers with the WARN judgment) sought certiorari. We granted their petition.
II
Respondents initially argue that petitioners lack standing because they have suffered no injury, or at least no injury that will be remedied by a decision in their favor. See Spokeo, Inc. v. Robins, 578 U.S. -, -, 136 S.Ct. 1540, 1547, 194 L.Ed.2d 635 (2016) (explaining that, for Article III standing, a plaintiff must have â(1) suffered an injury in fact, (2) that is fairly traceable to the challenged conduct of the defendant, and (3) that is likely to be redressed by a favorable judicial decisionâ). Respondents concede that the structured dismissal approved by the Bankruptcy Court contained distribution conditions that skipped over petitioners, ensuring that petitioners received nothing on their multimillion-dollar WARN claim against the Jevie estate. But respondents still assert that petitioners suffered no loss.
The reason, respondents say, is that petitioners would have gotten nothing even if the Bankruptcy Court had never approved the structured dismissal in the first place, and will still get nothing if the structured dismissal is undone now. Reversal will eliminate the settlement of the committeeâs fraudulent-conveyance lawsuit, which was conditioned on the Bankruptcy Courtâs approval of the priority-violating structured dismissal. If the Bankruptcy Court cannot approve that dismissal, respondents contend, Sun and CIT will no longer agree to settle. Nor will petitioners ever be able to obtain a litigation recovery. Hence there will be no lawsuit money to distribute. And in the absence of lawsuit money, Jevicâs assets amount to about $1.7 million, all pledged to Sun, leaving nothing for anyone else, let alone petitioners. Thus, even if petitioners are right that the structured dismissal was impermissible, it cost them nothing. And a judicial decision in their favor will gain them nothing. No loss. No redress.
As to the first, the record indicates that a settlement that respects ordinary priorities remains a reasonable possibility. It makes clear (as counsel made clear before our Court, see Tr. of Oral Arg. 58) that Sun insisted upon a settlement that gave petitioners nothing only because it did not want to help fund petitionersâ WARN lawsuit against it. See 787 F.3d, at 177-178, n. 4. But, Sun has now won that lawsuit. See 656 Fed.Appx. 617. If Sunâs given reason for opposing distributions to petitioners has disappeared, why would Sun not settle while permitting some of the settlement money to go to petitioners?
As to the second, the record indicates that the fraudulent-conveyance claim could have litigation value. CIT and Sun, after all, settled the lawsuit for $3.7 million, which would make little sense if the action truly had no chance of success. The Bankruptcy Court could convert the case to Chapter 7, allowing a Chapter 7 trustee to pursue the suit against Sun and CIT. Or the court could simply dismiss the Chapter 11 bankruptcy, thereby allowing petitioners to assert the fraudulent-conveyance claim themselves. Given these possibilities, there is no reason to believe that the claim could not be pursued with counsel obtained on a contingency basis. Of course, the lawsuit â like any lawsuitâ might prove fruitless, but the mere possibility of failure does not eliminate the value of the claim or petitionersâ injury in being unable to bring it.
Consequently, the Bankruptcy Courtâs approval of the structured dismissal cost petitioners something. They lost a chance to obtain a settlement that respected their priority. Or, if not that, they lost the power to bring their own lawsuit on a claim that had a settlement value of $3.7 million. For standing purposes, a loss of even a small amount of money is ordinarily an âinjury.â See, e.g., McGowan v. Maryland, 366 U.S. 420, 430-431, 81 S.Ct. 1101, 6 L.Ed.2d 393 (1961) (finding that appellants fined $5 plus costs had standing to assert an Establishment Clause challenge). And the ruling before us could well have cost petitioners considerably more. See Clinton v. City of New York, 524 U.S. 417, 430-431, 118 S.Ct. 2091, 141 L.Ed.2d 393 (1998) (imposition of a âsubstantial contingent liabilityâ qualifies as an injury). A decision in petitionersâ favor is likely to redress that loss. We accordingly conclude that petitioners have standing.
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' We turn to the basic question presented: Can a bankruptcy court approve a structured dismissal that provides for distributions that do not follow ordinary priority rules without, the affected creditorsâ consent? Our simple answer to this complicated question is âno.â
The Codeâs priority system constitutes a basic underpinning of business bankruptcy law. Distributions of estate assets at the termination of a business bankruptcy normally take place through a Chapter 7 liquidation or a Chapter 11 plan, and both are governed by priority. In Chapter 7 liquidations, priority is an absolute command â lower priority creditors cannot receive anything until higher priority creditors have been paid in full. See 11 U.S.C. §§ 725, 726. Chapter 11 plans provide somewhat more flexibility, but a priority-violating plan still cannot be confirmed over the objection of an impaired class of creditors. See § 1129(b).
The importance of the priority system leads us to expect more than simple statutory silence if, and .when, Congress were to intend a major departure. See Whitman v. American Trucking Assns., Inc., 531 U.S. 457, 468, 121 S.Ct. 903, 149 L.Ed.2d 1 (2001) (âCongress ... does not, one might say, hide elephants in mouseholesâ). Put somewhat more directly, we would expect to see some affirmative indication of intent if Congress actually meant to make structured dismissals a backdoor means to achieve the exact kind of nonconsensual priority-violating final distributions that the Code prohibits in Chapter 7 liquidations and Chapter 11 plans.
We can find nothing in the statute that evinces this intent.. The Code gives a bankruptcy court the power to âdismissâ a Chapter 11 case. § 1112(b). But the word âdismissâ itself says nothing about the power to make nonconsensual priority-violating distributions of estate value. Neither the word âstructured,â nor the word âconditions,â nor anything else about distributing estate value to creditors pursuant to a dismissal appears in any relevant part of the Code.
Insofar as the dismissal sections of Chapter 11 foresee any transfer of assets, they seek a restoration of the prepetition financial status quo. See § 349(b)(1) (dismissal ordinarily reinstates a variety of avoided transfers and voided liens); § 349(b)(2) (dismissal ordinarily vacates certain types of bankruptcy orders); § 349(b)(3) (dismissal ordinarily ârevests the property of the estate in the entity in which such property was vested immediately before the commencement of the caseâ); see also H.R.Rep. No. 95-595, p. 338 (1977) (dismissalâs âbasic purpose ... is to undo the bankruptcy case, as far as practicable, and to restore all property rights to the position in which they were found at the commencement of the caseâ).
Section 349(b), we concede, also says that a bankruptcy judge may, âfor cause, orde[r] otherwise.â But, read in context, this provision appears designed to give courts the flexibility to âmake the appropriate orders to protect rights acquired in reliance on the bankruptcy case.â H.R.Rep. No. 95-595, at 338; cf., e.g., Wiese v. Community Bank of Central Wis., 552 F.3d 584, 590 (C.A.7 2009) (upholding, under § 349(b), a Bankruptcy Courtâs decision not to reinstate a debtorâs claim against a bank that gave up a lien in reliance on the claim being released in the debtorâs reorganization plan). Nothing else in the Code authorizes a court ordering a dismissal to make general end-of-case distributions of estate assets to creditors of the kind that normally take place in a Chapter 7 liquidation or Chapter 11 plan â let alone final distributions that do
We have found no contrary precedent, either from this Court, or, for that matter, from lower court decisions reflecting common bankruptcy practice. The Third Circuit referred briefly to In re Buffet Partners, L.P., 2014 WL 3735804 (Bkrtcy.Ct. N.D.Tex., July 28, 2014). The court in that case approved a structured dismissal. (We express no view about the legality of structured dismissals in general.) But at the same time it pointed out âthat not one party with an economic stake in the case has objected to the dismissal in this manner.â Id., at *4.
The Third Circuit also relied upon In re Iridium Operating LLC, 478 F.3d 452 (C.A.2 2007). But Iridium did not involve a structured dismissal. It addressed an interim distribution of settlement proceeds to fund a litigation trust that would press claims on the estateâs behalf. See id., at 459-460. The Iridium court observed that, when evaluating this type of preplan settlement, â[i]t is difficult to employ the rule of prioritiesâ because âthe nature and extent of the Estate and the claims against it are not yet fully resolved.â Id., at 464 (emphasis added). The decision does not state or suggest that the Code authorizes nonconsensual departures from ordinary priority rules in the context of a dismissal â which is a final distribution of estate value â and in the absence of any further unresolved bankruptcy issues.
We recognize that Iridium is not the only case in which a court has approved interim distributions that violate ordinary priority rules. But in such instances one can generally find significant Code-related objectives that the priority-violating distributions serve. Courts, for example, have approved âfirst-dayâ wage orders that allow payment of employeesâ prepetition wages, âcritical vendorâ orders that allow payment of essential suppliersâ prepetition invoices, and âroll-upsâ that allow lenders who continue financing the debtor to be paid first on their prepetition claims. See Cybergenics, 330 F.3d, at 574, n. 8; D. Baird, Elements of Bankruptcy 232-234 (6th ed. 2014); Roe, 99 Va. L. Rev., at 1250-1264. In doing so, these courts have usually found that the distributions at issue would âenable a successful reorganization and make even the disfavored creditors better off.â In re Kmart Corp., 359 F.3d 866, 872 (C.A.7 2004) (discussing the justifications for critical-vendor orders); see also Toibb v. Radloff, 501 U.S. 157, 163-164, 111 S.Ct. 2197, 115 L.Ed.2d 145 (1991) (recognizing âpermitting business debtors to reorganize and restructure their debts in order to revive the debtorsâ businessesâ and âmaximizing the value of the bankruptcy estateâ as purposes of the Code). By way of contrast, in a structured
Rather, the distributions at issue here more closely resemble proposed transactions that lower courts have refused to allow on the ground that they circumvent the Codeâs procedural safeguards. See, e.g., In re Braniff Airways, Inc., 700 F.2d 935, 940 (C.A.5 1983) (prohibiting an attempt to âshort circuit the requirements of Chapter 11 for confirmation of a reorganization plan by establishing the terms of the plan sub rosa in connection with a sale of assetsâ); In re Lionel Corp., 722 F.2d 1063, 1069 (C.A.2 1983) (reversing a Bankruptcy Courtâs approval of an asset sale after holding that § 363 does not âgran[t] the bankruptcy judge carte blancheâ or âswallo[w] up Chapter llâs safeguardsâ); In re Biolitec, Inc., 528 B.R. 261, 269 (Bkrtcy.Ct.N.J.2014) (rejecting a structured dismissal because it âseeks to alter partiesâ rights without their consent and lacks many of the Codeâs most important safeguardsâ); cf. In re Chrysler LLC, 576 F.3d 108, 118 (C.A.2 2009) (approving a § 363 asset sale because the bankruptcy court demonstrated âproper solicitude for the priority between creditors and deemed it essential that the [s]ale in no way upset that priorityâ), vacated as moot, 592 F.3d 370 (C.A.2 2010) (per curiam).
IV
We recognize that the Third Circuit did not approve nonconsensual priority-violating structured dismissals in general. To the contrary, the court held that they were permissible only in those ârare case[s]â in which courts could find âsufficient reasonsâ to disregard priority. 787 F.3d, at 175, 186. Despite the ârare caseâ limitation, we still cannot agree.
For one thing, it is difficult to give precise content to the concept âsufficient reasons.â That fact threatens to turn a ârare caseâ exception into a more general rule. Consider the present case. The Bankruptcy Court feared that (1) without the worker-skipping distribution, there would be no settlement, (2) without a settlement, all the unsecured creditors would receive nothing, and consequently (3) its distributions would make some creditors (high- and low-priority creditors) better off without making other (mid-priority) creditors worse off (for they would receive nothing regardless). But, as we have pointed out, the record provides equivocal support for the first two propositions. See supra, at 982 - 983. And, one can readily imagine other cases that turn on comparably dubious predictions. The result is uncertainty. And uncertainty will lead to similar claims being made in many, not just a few, cases. See Rudzik, A Priority Is a Priority Is a Priority â Except When It Isnât, 34 Am. Bankr. Inst. J. 16, 79 (2015) (â[Ojnce the floodgates are opened, debtors and favored creditors can be expected to make every case that ârare caseâ â).
The consequences are potentially serious. They include departure from the protections Congress granted particular classes of creditors. See, e.g., United States v. Embassy Restaurant, Inc., 359 U.S. 29, 32, 79 S.Ct. 554, 3 L.Ed.2d 601 (1959) (Congress established employee wage priority âto alleviate in some degree the hardship that unemployment usually brings to workers and their familiesâ when an employer files for bankruptcy);
For these reasons, as well as those set forth in Part III, we conclude that Congress did not authorize a ârare caseâ exception. We cannot âalter the balance struck by the statute,â Law v. Siegel, 571 U.S. -, -, 134 S.Ct. 1188, 1198, 188 L.Ed.2d 146 (2014), not even in ârare cases.â Cf. Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 207, 108 S.Ct. 963, 99 L.Ed.2d 169 (1988) (explaining that courts cannot deviate from the procedures âspecified by the Code,â even when they sincerely âbeliev[e] that ... creditors would be better offâ). The judgment of the Court of Appeals is reversed, and the case is remanded for further proceedings consistent with this opinion.
It is so ordered.