Module 3 · Chapter 7

The Relevant Alternative and the No Worse Off Test

Before the court binds creditors who said no, it asks what they would get without the plan. This chapter shows how that outcome is found, and how the plan is measured against it.

≈ 8 min read 8-question test

In this chapter

  • What would most likely happen to Valkenrade without the plan
  • How the court checks that no creditor ends up worse off
  • What the plan saves, and why new money does not count

7.1The relevant alternative in one paragraph

Most noteholders will vote for the plan, but a fund holding a third of the Notes will vote no. So the noteholders are expected to fall short of the majority they need. Valkenrade will then ask the court to bind them anyway, which is called cram down. Before the court binds a class that said no, it asks what would most likely happen without the plan.

The answer is the relevant alternative. For Valkenrade, it is the bankruptcy of the group. The court then applies the no worse off test. No creditor in the class that said no may end up worse off under the plan than without it.

Key point

A plan must beat what creditors would most likely get without it. The court, not Valkenrade, decides what that is.

Also in this chapter

  1. What would happen to Valkenrade without the plan
  2. Checking that no creditor is worse off
  3. What the plan saves, and why new money does not count
  4. Your job

Preview

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