Cramdown

Category: legal

A legal maneuver where a bankruptcy court forces a reorganization plan on creditors who voted against it.

A cramdown is the "judicial hammer." If a class of creditors rejects a Chapter 11 plan, the judge can still approve it—"cramming it down" their throats—as long as the plan does not discriminate unfairly and adheres to the absolute priority rule. It is a massive point of leverage for debtors.

Common Examples

• The debtor utilized a cramdown to force the secured lender to accept the new, longer repayment terms over their fierce objections.
• To execute a cramdown, at least one impaired class of creditors must have voted to accept the reorganization plan.