By Jeffrey Ellman (Jones Day)
The U.S. Supreme Court ruled in Czyzewski v. Jevic Holding Corp., 580 U.S. 451 (2017), that the Bankruptcy Code prohibits final distributions to creditors that deviate from the Bankruptcy Code’s priority scheme as part of a “structured dismissal” of a chapter 11 case without the consent of affected creditors. Since then, courts have been called upon to determine whether the rationale of Jevic extends to other contexts, such as proposed settlements and bankruptcy asset sales. In In re Silver Airways, LLC, 671 B.R. 533 (Bankr. S.D. Fla. 2025), the U.S. Bankruptcy Court for the Southern District of Florida weighed in on this debate in an unusual context. The court approved the debtors’ motion to incur debtor-in-possession (“DIP”) financing and for establishment of bidding procedures for an auction sale of assets even though the estate was administratively insolvent, and could remain administratively insolvent absent future events such as increased sale proceeds or successful prosecution of potential claims. According to the bankruptcy court, because the key administrative creditors made an informed decision to support the financing and sale framework as the only possibility of obtaining partial recovery on their claims, and no administrative creditors objected, the DIP financing and sale did not run afoul of Jevic.
Silver Airways is yet another example of bankruptcy courts attempting to determine the scope of Jevic in a context other than structured dismissal of a chapter 11 case. As the court explained, Jevic does not categorically reject priority-deviating distributions to creditors as part of a structured dismissal, asset sale, or settlement. Instead, the Supreme Court’s decision prohibits final distributions that deviate from the Bankruptcy Code’s priority scheme without the consent of senior creditors. Where senior creditors consent to such a framework—as is expressly provided with respect to administrative creditors in a chapter 11 case under section 1129(a)(9)(A)—Jevic is not an impediment to the framework.
Silver Airways is also notable because, confronted with the administrative insolvency of the debtors and the consent of administrative creditors to a DIP financing/sale framework as the only likely possibility of partial recovery, the bankruptcy court approved DIP financing that it would have rejected in almost any other case.
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