Where a creditor blocked a bankruptcy plan by buying available claims to get sufficient votes to do so, it was held that this was not a bad faith purchase. A finding of bad faith requires evidence of an ulterior motive. If a creditor seeks to protect its claim to the fullest extent by a strategic claim purchase it does not show bad faith. Bad faith does not include enlightened self-interest even if it appears selfish to those who do not benefit from it.
A plastic manufacturer had defaulted on a loan and foreclosure proceedings were commenced. A reorganisation plan classified claims into four classes, one of which required a vote in favour by impaired creditors. One of the creditors sought to block acceptance of the plan by purchasing enough unsecured claims to give them more than one-half in number of allowed claims and voted to reject the plan. It was alleged by other creditors that the claims had not been acquired in good faith. The court said “creditors do not need to approach reorganisation plans with a high degree of altruism and with a desire to help the debtor and their fellow creditors”. They acquired an advantage but not an unfair advantage. Self-interest is not equivalent to an ulterior purpose.
[In re Fagerdala USA-Lompoc, Inc., 2018 WL 2472874 (9th Cir. June 4, 2018)]