A Rule Unvanquished: The New Value Exception to the Absolute Priority Rule

Authors

Clifford S. Harris, University of Michigan Law School

Abstract

This Note examines whether the new value exception remains part of the revised Bankruptcy Code. Part I discusses the background of the new value exception. Part II traces the development of the conflict concerning the survival of the new value exception subsequent to the adoption of the Code. It then discusses the Supreme Court's opinions in Mid/antic National Bank v. New Jersey Department of Environmental Protection and its progeny, which established the methodology for determining the impact of the revised Bankruptcy Code on preexisting bankruptcy law. Based on an analysis of the Midlantic doctrine, Part II concludes that Congress did not intend to eliminate the new value exception when it revised the Code.

Part III discusses the future of the new value exception. This Part proposes a revision of this rule which would protect the rights of unsecured creditors without discarding the equitable principles underlying the rule. As such, the suggested revision responds to the critics of the new value exception without wholly eliminating this time-honored principle of bankruptcy law.

Recommended Citation

Clifford S. Harris, A Rule Unvanquished: The New Value Exception to the Absolute Priority Rule, 89 Mich. L. Rev. 2301 (1991).
Available at: https://repository.law.umich.edu/mlr/vol89/iss8/7