In Re Bonner Mall Partnership, Debtor. Bonner Mall Partnership v. U.S. Bancorp Mortgage Co.

This case requires us to decide whether the new value “exception” to the absolute priority rule survives the enactment of the Bankruptcy Reform Act of 1978 (better known as the Bankruptcy Code), which replaced the Bankruptcy Act of 1898. 1 The new value exception allows the shareholders of a corporation in bankruptcy to obtain an interest in the reorganized debtor in exchange for new capital contributions over the objections of a class of creditors that has not received full payment on its claims. Whether this doctrine is viable under the Bankruptcy Code has significant implications for the relative bargaining power of debtors and creditors in Chapter 11 cases. Although no circuit court has taken a definitive position on this question, dicta in several opinions demonstrate intra and inter-circuit disagreements. District and bankruptcy courts are sharply divided on the question, as are the commentators. The question will in all probability ultimately be decided by the Supreme Court. In the meantime, we conclude that the new value exception remains a vital principle of bankruptcy law.

I. BACKGROUND

In 1984-85, Northtown Investments built Bonner Mall. The project was financed by a $6.3 million loan, secured by the mall property, from First National Bank of North Idaho, which later sold the note and deed of trust to appellant U.S. Bancorp Mortgage Co. (“Ban-corp”). In October 1986 the mall was purchased by appellee Bonner Mall Partnership (“Bonner”), subject to the lien acquired by Bancorp. Bonner is composed of six partners, five trusts and one individual investor, *902 and was formed for the express purpose of buying the mall. Unfortunately, the cash-flow from the mall was much smaller than Bonner expected. When Bonner failed to pay its real estate taxes to Bonner County, Idaho, Bancorp commenced a nonjudicial foreclosure action. After several unsuccessful attempts to renegotiate and restructure Bonner’s debt, Bancorp set a trustee’s sale for March 14, 1991.

On March 13,1991, Bonner filed a Chapter 11 (reorganization) bankruptcy petition, which automatically stayed the foreclosure sale. 11 U.S.C. § 362(a). Bancorp moved for relief from the stay under section 362(d)(2). 2 As a condition to obtaining relief under that provision, Bancorp was required to show that Bonner had no equity in the mall and that Bancorp’s claim against Bonner was undersecured. United Sav. Ass’n of Tex. v. Timbers of Inwood Forest Assoc., Ltd., 484 U.S. 365, 377, 108 S.Ct. 626, 633, 98 L.Ed.2d 740 (1988). Because Bancorp established these facts, the burden shifted to Bonner to prove 1) that its retention of the mall was necessary to an effective reorganization, 3 and 2) that there was a reasonable possibility of a successful reorganization within a reasonable time. 4 See id After two hearings on Bancorp’s motion, the bankruptcy court denied it without prejudice. In his order denying relief the bankruptcy judge assumed the continued existence of the new value exception, noted its strict requirements, and expressed doubts whether Bonner could satisfy them. Nevertheless, he allowed Bonner thirty days to propose a plan.

Bonner filed a reorganization plan relying on the new value doctrine. In response Ban-corp renewed its motion to lift the stay. Bancorp argued 1) that the new value exception did not survive the enactment of the Bankruptcy Code; and 2) even if it did, Bonner’s plan was still unconfirmable as a matter of law. The parties stipulated that the motion involved only legal questions, so no evidence was taken. The bankruptcy court accepted Bancorp’s first argument but did not reach the second. The bankruptcy judge noted that after his original order the Fifth Circuit had concluded in its “convincing” decision in Phoenix Mut. Life Ins. Co. v. Greystone III Joint Venture (In re Greystone III Joint Venture), 995 F.2d 1274 (5th Cir.1991), ’petition for rehearing granted in part and opinion withdrawn in part, 995 F.2d 1284 (5th Cir.) (per curiam), cert. denied — U.S. -, 113 S.Ct. 72, 121 L.Ed.2d 37 (1992), that there is no longer a new value exception. On that basis, the judge granted Bancorp’s motion for relief from the automatic stay. After the bankruptcy judge stayed his order at Bonner’s request, Bonner appealed to the district court.

On appeal, the district judge determined that the only issue before him was whether the Bankruptcy Code had eliminated the new value exception. He found that it had not. In doing so he relied on the Supreme Court’s ruling in Dewsnup v. Timm, — U.S. -, 112 S.Ct. 773, 116 L.Ed.2d 903 (1992), which was handed down after the bankruptcy court’s decision and which emphasized the Court’s reluctance to overturn pre-Code practice (see infra). Moreover, by the time of the district court’s opinion the relevant portion of the Fifth Circuit’s Greystone opinion had been withdrawn. 5 The district court reversed the judgment of the bankruptcy court and remanded for further proceedings consistent with its opinion. 142 B.R. 911. It refused to address Bancorp’s alternative argument that Bonner’s plan was unconfirma- *903 ble as a matter of law even if the new value exception survived. Instead, its order stated: “Confirmation of the plan proposed by the Debtor must be addressed by the bankruptcy court on remand.” Bancorp filed a timely appeal to this court. Like the district court, we resolve only the question whether the new value exception survives. 6 The issue is one of law. Accordingly, our review is de novo. See Home Sav. Bank, F.S.B. v. Gillam, 952 F.2d 1152, 1156 (9th Cir.1991).

II. JURISDICTION

The parties agree that we have jurisdiction to hear Bancorp’s appeal. Nevertheless, we have an independent duty to examine our own subject matter jurisdiction. Pizza of Hawaii, Inc. v. Shakey’s Inc. (In re Pizza of Hawaii, Inc.), 761 F.2d 1374, 1377 (9th Cir.1985). Twenty Eight U.S.C. section 158(d) provides that “[t]he courts of appeal shall have jurisdiction of appeals from all final decisions, judgments, orders, and decrees entered under subsections (a) and (b) of this section.” Subsection (a) states in relevant part that:

The district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees, and with leave of the court, from interlocutory orders, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title.

28 U.S.C. § 158(a). 7 For us to have jurisdiction, both the bankruptcy court’s and district court’s orders must be final. Allen v. Old Nat’l Bank of Wash (In re Allen), 896 F.2d 416, 418 (9th Cir.1990) (per curiam). Here, the bankruptcy court’s order granting relief from the automatic stay was clearly final. 8 Packerland Packing Co. v. Griffith Brokerage Co. (In re Kemble), 776 F.2d 802, 805 (9th Cir.1985). Moreover, if Bancorp had foreclosed on the mall, Bonner’s sole significant asset, for all intents and purposes the bankruptcy case would have ended; therefore, the bankruptcy court’s order required immediate appellate review. See Elliot v. Four Seasons Properties (In re Frontier Properties, Inc.), 979 F.2d 1358, 1363 (9th Cir.1992); Allen, 896 F.2d at 418.

The more difficult question is whether the district court’s order was final. 9 The unique nature of bankruptcy procedure dictates that we take a pragmatic approach to finality. Vylene Enter. Inc. v. Naugles (In re Vylene Enter. Inc.), 968 F.2d 887, 894 (9th Cir.1992); Mason v. Integrity Ins. Co. (In re Mason), 709 F.2d 1313, 1318 (9th Cir.1983). Our cases hold that 28 U.S.C. section 158(d) affords a more liberal finality standard than does 28 U.S.C. section 1291. 10 Vylene, 968 *904 F.2d at 893-94. 11

Under Ninth Circuit law, if the district court affirms or reverses a final bankruptcy court order, its order is final. King v. Stanton (In re Stanton), 766 F.2d 1283, 1287 (9th Cir.1985). However, difficult questions regarding finality sometimes arise when a district court reverses a final order of a bankruptcy court and remands. Vylene, 968 F.2d at 895. In such circumstances we balance two important policies: avoiding piecemeal appeals and enhancing judicial efficiency. Id.; Zolg v. Kelly (In re Kelly), 841 F.2d 908, 911 (9th Cir.1988). We also consider the systemic interest in preserving the bankruptcy court’s role as the finder of fact. Stanton, 766 F.2d at 1287. 12 On the basis of our analysis of these factors, we have concluded that when the district court remands for further factual findings related to a central issue raised on appeal, its order is ordinarily not final and we lack jurisdiction. Id. at 1286.

However, Stanton suggests that we should assert jurisdiction even though a district court has remanded a matter for factual findings on a central issue if that issue is legal in nature and its resolution either 1) could dispose of the case or proceeding and obviate the need for factfinding; 13 or 2) would materially aid the bankruptcy court in reaching its disposition on remand. 766 F.2d at 1288 n. 8; see also Farm Credit Bank of Spokane v. Fowler (In re Fowler), 903 F.2d 694, 696 (9th Cir.1990) (citing second Stanton criterion with approval). We believe that the Stanton principle is sound and we adopt it here. The present case falls squarely within the first Stanton criterion. The central question is a legal one that is clearly potentially dispositive. It involves the very existence of the rule pursuant to which the bankruptcy court would be required to make factual findings on remand. If we hold that the new value exception no longer exists, no further factual proceedings will be necessary and Bancorp will be entitled to the relief it seeks as a matter of law.

The instant case presents a situation analogous to the one we faced in Pizza of Hawaii, which was cited with approval in Stanton and Fowler. In Pizza of Hawaii the bankruptcy court confirmed Pizza’s proposed plan (a final order) over Shakey’s objection that the plan did not make sufficient provision for a debt that Pizza might owe Shakey’s on account of a pending civil case. On appeal, the district court 1) vacated the order of confirmation; 2) ordered the bankruptcy court to grant Shakey’s leave to amend its proof of claim; 3) ordered the bankruptcy court to value the claim; and 4) ordered the bankruptcy court to reconsider the plan’s feasibility in light of the value of Shakey’s claim. 761 F.2d at 1376. Pizza appealed the order to this court. Despite the fact that the *905 district court had remanded for proceedings of a factual nature, we held that we had jurisdiction. 761 F.2d at 1378, 1382. Here, as in Pizza of Hawaii, the policy of judicial economy, which militates in favor of our asserting jurisdiction, strongly outweighs the need to avoid piecemeal appeals.

For the above reasons, we conclude that we have subject matter jurisdiction over Bancorp’s appeal under 28 U.S.C. section 158(d).

III. BONNER’S PLAN, CONFIRMATION, AND THE NEW VALUE EXCEPTION

Bonner’s proposed reorganization plan (“the Plan”) provides for the transfer of all of Bonner Mall Partnership’s assets (the mall for all practical purposes) to a new corporation, Bonner Mall Properties, Inc., created by the Plan to carry out its provisions. One of the most significant features of the Plan is the treatment of Bancorp’s $6.6 million claim, for which the mall is collateral. In the course of his original order denying Ban-corp’s motion for relief from the stay, the bankruptcy judge valued the mall at $3.2 million. This meant that Bancorp’s claim against Bonner was undersecured: it was secured as to $3.2 million and unsecured as to $3.4 million. See 11 U.S.C. § 506(a). The unsecured portion of Bancorp’s claim represents the vast majority of Bonner’s unsecured debt. Under the Plan, the $3.2 million debt to Bancorp secured by the mall would be paid 32 months after the Plan’s confirmation, with interest payments payable monthly in the interim. Payment of all other secured debt would be deferred. All unsecured creditors of Bonner who are owed more than $1000 would be paid according to a pro-rata distribution of 300,000 shares of preferred stock in the new corporation. Each share would be valued at $1.00. 14 The preferred stock would be convertible to a maximum of 300,000 shares of common stock once Bonner paid off the secured part of Bancorp’s claim.

Under the Plan the equity owners, i.e. the partners, would receive nothing on their claims. However, to raise additional capital for the new corporation, the partners would contribute a total of $200,000 in cash to Bonner Mall Properties in exchange for 2 million of the 4 million authorized shares of the new corporation’s common stock. No other persons are designated to receive stock in exchange for such contributions. The Plan also states that the partners would subsidize any shortfall in working capital during the first 32 months after confirmation of the plan. 15 Moreover, the trustee for the five trust-partners of Bonner Mall Partnership is to contribute a collateral trust mortgage on a 4500-acre property as a guarantee of payment of the debts assumed by Bonner Mall Properties. 16 In exchange, the new corporation is to service part of the trustee’s debt on the property.

Section 1129(a) of Chapter 11 establishes thirteen requirements for confirmation of a reorganization plan, all of which must generally be satisfied. One such requirement is set forth in subsection (a)(8), which mandates that “[w]ith respect to each class [of claims], A) such class has voted to accept the plan or B) such class is not impaired under the plan.” 11 U.S.C. § 1129(a)(8). 17 Under Bonner’s Plan all claim classes are impaired and, therefore, all must accept the plan for a consensual confirmation. It is a foregone conclusion that at least the unsecured class of which Bancorp is the principal member will vote not to confirm the plan in view of the minimal return Bancorp will receive on the unsecured fraction of its claim.

*906 However, the Code provides that where all requirements for confirmation but section 1129(a)(8) are met, the bankruptcy court shall confirm a Chapter 11 reorganization plan over the objection of an impaired class or classes “if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.” 11 U.S.C. § 1129(b)(1) (emphasis added). This form of confirmation is commonly known in bankruptcy parlance as a “cram-down” because the plan is crammed down the throats of the objecting class(es) of creditors. The issue before the bankruptcy judge in deciding whether to grant Bancorp’s motion for relief from the stay was whether Bonner’s Plan had a reasonable possibility of confirmation in a cramdown, i.e., whether the standards set forth in section 1129(b)(1) could feasibly be satisfied.

The resolution of this question turns on whether there is a reasonable possibility that a bankruptcy judge could find Bonner’s Plan “fair and equitable.” Section 1129(b)(2) of the Code defines “fair and equitable” as including several enumerated requirements. The section, which is at the heart of the controversy between the parties, states, inter alia, that a plan will be considered “fair and equitable” only if:

(B) With respect to a class of unsecured claims—

(i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or

(ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property.

(emphasis added). Section 1129(b)(2)(B) is a two-part codification of the judge-made absolute priority rule, compliance with which was a prerequisite to any determination that a plan was “fair and equitable” under the Bankruptcy Act.

Here, each of the unsecured claims against Bonner will not be paid in full on the effective date of the Plan. As a result, section 1129(b)(2)(B)(i) cannot be satisfied. Therefore, Bonner’s Plan cannot be held to be “fair and equitable” unless it complies with the provisions of section 1129(b)(2)(B)(ii). If it fails to meet the requirements of that section it is unconfirmable as a matter of law. A critical area of dispute in this case is whether Bonner’s Plan violates section 1129(b)(2)(B)(ii) and, in turn, the absolute priority rule and the “fair and equitable” principle.

Under pre-Code Bankruptcy Act practice, a plan that allowed stockholders in the business that had filed for bankruptcy protection (old equity) to receive stock in the reorganized debtor in exchange for contributions of added capital (new value) could under certain conditions satisfy the absolute priority rule and be considered “fair and equitable” even though a senior class was not paid in full. See Case v. Los Angeles Lumber Products Co., 308 U.S. 106, 121, 60 S.Ct. 1, 10, 84 L.Ed. 110 (1939); Marine Harbor Properties, Inc. v. Manufacturers Trust Co., 317 U.S. 78, 85-86, 63 S.Ct. 93, 97-98, 87 L.Ed. 64 (1942); Mason v. Paradise Irrigation Dist., 326 U.S. 536, 541-43, 66 S.Ct. 290, 292-93, 90 L.Ed. 287 (1946). That set of conditions became known collectively as the “new value exception” to the absolute priority rule; the terms of that “exception” will be discussed below.

Although the question we must ultimately answer is whether the new value exception survived the enactment of the Bankruptcy Code, we should note, preliminarily, that the term “exception” is misleading. The doctrine is not actually an exception to the absolute priority rule but is rather a corollary principle, or, more simply a description of the limitations of the rule itself. It is, as indicated above, the set of conditions under which former shareholders may lawfully obtain a priority interest in the reorganized venture. The Supreme Court appeared to recognize as much in Case v. Los Angeles Lumber when it stated that if a new capital contribution satisfies certain conditions “the creditor cannot complain that he is not accorded full right of priority against the corporate assets.” 308 U.S. at 122, 60 S.Ct. at 10 (internal quotation *907 omitted). More properly, the new value exception should be called something like the “new capital-infusion doctrine” or as one commentator has suggested, “the scrutinize old equity participation rule.” Elizabeth Warren, A Theory of Absolute Priority, 1991 Annual Survey of American Law 9, 42.

The question whether the adoption of the Code served to eliminate the new value exception was before the Supreme Court in Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 108 S.Ct. 963, 99 L.Ed.2d 169 (1988). While there is language in the opinion questioning the viability of the doctrine, the Court explicitly stated that it was not deciding the issue. 18 Instead, the Court assumed that the doctrine existed but found that all of its requirements were not satisfied under the facts of that case. Since Ahlers, 19 several court of appeals have avoided a direct holding on the viability of the “exception” by using the same stratagem. 20

Other appellate courts have given mixed signals on whether the principle survives. The Seventh Circuit seems internally divided on the question: In one case it analyzed a reorganization plan in light of the exception, while stating that the status of the doctrine is an open question after Ahlers; another panel criticized the exception and strongly hinted that it is moribund; and a third stopped just short of holding that the exception survives. 21 The Fourth Circuit has suggested that if the new value exception exists it is narrow in scope. 22 Our own Bankruptcy Appellate Panel has recognized the continued existence of the exception. See Carson Nugget, Inc. v. Green (In re Green), 98 B.R. 981, 982 (BAP 1989) (per curiam).

While there is a division in the district and bankruptcy courts of our circuit and nationwide, the majority of courts that have considered the question have held that the new value exception is alive and well. We share the view that the doctrine remains a vital legal principle. Accordingly, we hold that the Code permits the confirmation of a reorganization plan that provides for the infusion of capital by the shareholders of the bankrupt corporation in exchange for stock if the plan meets the conditions that plans were required to meet prior to the Code’s adoption.

IV. THE NEW VALUE EXCEPTION AND THE CODE

Our explanation of why we hold that the new value exception survives will address several distinct but related issues. First, we determine that the Code provision codifying the absolute priority rule does not prohibit confirmation of a new value plan. Second, we decide that Congress’ failure expressly to include the new value doctrine as a standard to be considered in applying the “fair and equitable” principle does not reflect an intent *908 to eliminate the exception. Finally, we conclude that the new value exception is fully consistent with the structure and underlying policies of Chapter 11.

A. The Codification of the Absolute Priority Rule Does Not Serve to Eliminate the New Value Exception.

The parties take diametrically opposed positions as to the consistency of the new value exception with 11 U.S.C. section 1129(b)(2)(B)(ii). Bancorp argues that: 1) Bonner’s Plan violates the absolute priority rule because the old equity owners will have an ownership interest in the new company even though Bancorp’s unsecured claim will not be paid in full and 2) the plain meaning of 11 U.S.C. section 1129(b)(2)(B)(ii) demonstrates that the new value exception did not survive the enactment of the Code. Bonner contends that: 1) the infusion of new capital from a source outside the bankruptcy estate, even if the source is a former equity holder, is an independent act that does not violate the absolute priority rule and 2) section 1129(b)(2)(B)(ii) does not forbid confirmation of plans that meet the requirements of the new value exception.

In determining whether section 1129(b)(2)(B)(ii) abolishes the new value exception we apply the traditional tools of statutory construction. The interpretation of a statutory provision must begin with the plain meaning of its language. Pennsylvania Public Welfare Dept. v. Davenport 495 U.S. 552, 557, 110 S.Ct. 2126, 2130, 109 L.Ed.2d 588 (1990). Where statutory language is unambiguous the judicial inquiry is complete. Connecticut Nat. Bank v. Germain, — U.S. -, -, 112 S.Ct. 1146, 1149, 117 L.Ed.2d 391 (1992). It is a cardinal principle of statutory construction that a court must give effect, if possible, to every clause and word of a statute. Negonsott v. Samuels, — U.S. -, -, 113 S.Ct. 1119, 1123, 122 L.Ed.2d 457 (1993). When the statutory scheme is coherent and consistent, there generally is no need for a court to inquire beyond the plain language. United States v. Ron Pair Enterp., Inc., 489 U.S. 235, 240-41, 109 S.Ct. 1026, 1029-30, 103 L.Ed.2d 290 (1988). Applying these familiar rules, we conclude that the plain language of section 1129(b)(2)(B)(ii) demonstrates that Bonner’s, and not Ban-corp’s, reading of the provision is correct.

1. Because Qualifying New Value Plans Do Not Give Old Equity Holders Stock in the Reorganized Debtor “On Account Of” Their Prior Ownership Interests, They Do Not Violate 11 U.S.C. Section 1129(b)(2)(B)(ii).

Eleven U.S.C. section 1129(b)(2)(B)(ii) requires that a plan provide that with respect to a class of unsecured claims that has not received full payment—

the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property, (emphasis added)

In plainer English the provision bars old equity from receiving any property via a reorganization plan “on account of’ its prior equitable ownership when all senior claim classes are not paid in full. E.g, Snyder v. Farm Credit Bank of St. Louis (In re Snyder), 967 F.2d 1126, 1130 (7th Cir.1992); Teamsters Nat’l Freight Indus. Negotiating Comm. v. U.S. Truck Co. (In re U.S. Truck Co.), 800 F.2d 581, 588 (6th Cir.1986); Prudential Ins. Co. v. F.A.B. Indus. (In re F.A.B. Indus.), 147 B.R. 763, 768-69 (C.D.Cal.1992), appeal docketed, No. 93-55055 (9th Cir. Jan. 13, 1993); In re Pullman Construction Indus, 107 B.R. 909, 944 (N.D.Ill.1989). The central inquiry in determining the reach of the prohibition is the meaning of the critical words “on account of’.

We have no difficulty in reconciling the “on account of’ language with the new value exception. Under Bankruptcy Act practice, old equity was required to meet several requirements in order to take advantage of that doctrine. Former equity owners were required to offer value that was 1) new, 2) substantial, 3) money or money’s worth, 4) necessary for a successful reorganization and 5) reasonably equivalent to the value or interest received. Case v. Los Angeles Lumber, 308 U.S. at 121-22, 60 S.Ct. at 10-11; Snyder, 967 F.2d at 1131. Several courts have concluded that if a proposed plan satisfies all of these requirements, i.e. the new *909 value exception, it will not violate section 1129(b)(2)(B)(ii) of the Code and the absolute priority rule. Such a plan, they reason, will not give old equity property “on account of’ prior interests, but instead will allow the former owners to participate in the reorganized debtor on account of a substantial, necessary, and fair new value contribution. E.g., U.S. Truck, 800 F.2d at 588; The Penn Mutual Life Ins. Co. v. Woodscape Ltd. Partnership (In re Woodscape Ltd. Partnership), 134 B.R. 165, 168, 172-74 (Bankr.D.Md.1991). We agree with their analysis.

We recognize that in some larger sense the reason that former owners receive new equity interests in reorganized ventures is that they are former owners. But it is also true that in new value transactions old equity owners receive stock in exchange for the additional capital they invest. Causation for any event has many and varied levels. Here, the answer to the meaning of the phrase “on account of’ lies in the level of causation Congress had in mind when it prohibited old equity owners from receiving property “on account of’ their prior interests. A reading of the full text of section 1129(b)(2)(B)(ii) makes it clear that what Congress had in mind was direct or immediate causation rather than a more remote variety, and that it did not intend to prohibit persons who receive stock because they have provided new capital from becoming participants in the reorganized debtor simply because they were also owners of the original enterprise. 23

Had Congress intended that old equity never receive any property under a reorganization plan where senior claim classes are not paid in full, it could simply have omitted the “on account of’ language from section 1129(b)(2)(B)(ii). We would then be left with an absolute prohibition against former equity owners’ receiving or retaining property in the reorganized debtor in such circumstances. The expansive reading of the phrase “on account of such junior claim or interest” suggested by Bancorp would lead to the identical result, thus rendering the disputed phrase superfluous. Under that interpretation any distribution to old equity would always be “on account of’ its former interest in some sense. We decline Bancorp’s invitation to nullify Congress’ deliberate use of the term “on account of such junior claim or interest”, particularly since nearly identical language can be found throughout the Code. 24 Congress must have intended the “on account of’ language to have some significant meaning as well as some particular limiting effect.

We believe that Congress intended the “on account of’ phrase in section 1129(b)(2)(B)(ii) to require bankruptcy courts to determine whether a reorganization plan that gives stock to former equity holders does so primarily because of their old interests in the debtor or for legitimate business reasons. The new value doctrine provides the means by which a court can discover whether a particular new capital transaction is proposed “on account of’ old equity’s prior ownership or “on account of’ its new contribution. In other words, in evaluating whether a reorganization plan satisfies the requirements of the new value exception a court is in fact determining whether old equity is unjustifiably attempting to retain its corporate ownership powers in violation of the absolute priority rule or whether there is genuine and fair exchange of new capital for an equity interest.

Contrary to Bancorp’s contentions, section 1129(b)(2)(B)(ii) does not by its terms eliminate, or even refer to, the new value excep- *910 tíon. 25 Rather, the language of that section and the requirements of the new value principle complement each other. Consequently, the fact that a reorganization plan provides for a new value transaction does not in and of itself violate 11 U.S.C. section 1129(b)(2)(B)(ii) and the absolutely priority rule.

2. The “On Account Of’ Language of Section 1129(b)(2)(B)(ii) Does Not Bar Plans That Give Old Equity Alone the Opportunity to Acquire Stock for a New Capital Contribution.

As Bancorp notes, several courts have held that where a reorganization plan gives old equity alone the right to obtain an interest in the reorganized debtor in exchange for new value, as Bonner’s Plan does, the old equity holders are given “property” on account of their prior ownership interests and the absolute priority rule is violated. The Fourth Circuit held that such plans violate section 1129(b)(2)(B)(ii), even assuming the new value exception still exists. Travelers Ins. Co. v. Bryson Properties, XVIII (In re Bryson Properties, XVIII), 961 F.2d 496, 504 (4th Cir.), cert. denied, — U.S. -, 113 S.Ct. 191, 121 L.Ed.2d 134 (1992); 26 see also In re A.V.B.I., Inc., 143 B.R. 738, 740-41 (Bankr.C.D.Cal.1992) (holding new value exception does not survive the Code); In re Outlook/Century, Ltd., 127 B.R. 650, 654 (Bankr.N.D.Cal.1991); Lumber Exchange Ltd. Partnership v. The Mut. Life Ins. Co. of N.Y. (In re Lumber Exchange Ltd. Partnership), 125 B.R. 1000, 1008 (Bankr.D.Minn.), aff'd, 134 B.R. 354 (D.Minn