well your argument this morning case fifteen six forty nine versus the holding corporation mr chief justice and may it please the court chapter eleven provides one way to distribute estate assets to creditors on account of their pre partition claims through a confirmed plan that it hears to the codes priority scheme if a chapter eleven plan can't be confirmed the bankruptcy court can convert the case to chapter seven which also requires that creditors be paid in order of priority or it can simply dismiss the case without distributing assets to creditors at all returning all parties to their pre bankruptcy position no provision of the bankruptcy code permits what happened here an order just missing a chapter eleven case that distributed all the estates assets to creditors but deliberately skipped over our clients priority claims t representing that your client in turn has to sue certain life because that's the only way to get money well let me let me respond to that just to sort of my our there are a few things that could happen if this court reverses the order below and the case is re mandated the one line tell me which one you're going to do well that's really up to the bankruptcy court what do you are you going to ask them to do what we had asked for before and what may well make the most sense is conversion to chapter seven in which case either the chapter seven trustee could pursue the fraudulent transfer claim but there's so many leaves three to do that so how will the trustee to the trustee would have to retain contingency counsel and that does happen i was involved in a chapter seven case where the trustee pursued an avoidance action successfully with contingency counsel failing that if the trustee decided not to do that after the bankruptcy is over the fraudulent transfer claim would reverse in the creditors and our clients could then bring that claim themselves and there's a difference as we leave there seems to be a difference between what you said on this point in your briefs and in your argument this morning and what you told the third circuit or what did you did your firm represent appear in the third circuit not until the rehearing stage well in the third circuit oral argument it was said over and over well we just want to make sure that the laws filed it has followed that's what we're interested in isn't that right we certainly do want to make sure that the law is followed i mean we but you were pressed as to what practical difference the case then to you and the answer was we know we want to uphold the law just as well you know i don't believe that's the case the case does make a practical difference it always has made a practical difference that's the only reason our clients have been pursuing it and the practical difference it makes is that henri man and they will have an opportunity to recover on account of their undisputed warnock claims which as of now with their they've been deprived of me can you point to anything you said in the third circuit in writing or orally that that along those lines that you that there was some practical course of action that that you some tangible thing that you were going to pursue what we told the third circuit is that if this case went back on and and were converted to chapter seven then the fraudulent transfer action could be pursued i believe that's what that's the argument that we made below and i say one other one other thing something strange seems to have happened between the petition stage and the briefing stage in the case the question that you asked us to take was whether a bankruptcy court may authorize the distribution of settlement proceeds in a manner that violates the statutory priority scheme and you said there's a square conflict on that issue with  second circuit and the third circuit on one side and the fifth circuit on the other side and we took the case but then the question that you address in your brief refers to structure dismissal there's nothing about structured dismissal in the question that you asked us to take and there is no conflict on the question of structure dismissal is there and justice alito we're not asking this court to decide the question of whether structured dismissals are valid we did not change the substance of the question you're not asking us to decide the broad question whether there can ever be a structured dismissal but you are asking us to decide whether the priorities have to be followed in a structural dismissal and unless  the answer to that question follows from the answer to the question that you presented in your petition you have changed the question that you have asked us to decide we did not change the substance of the question presented in the petition we had a paragraph of background explaining that this was done through a structured dismissal we then asked the question does the bankruptcy code may or bankruptcy court authorize the distribution of settlement proceeds in a manner that violates the codes priority scheme in the brief we condensed that a bit so that we didn't have the paragraph of background and we said may a structured dismissal distribute the state assets in violation of the priority scheme there's no substantive difference there the authorisation in this case was done a through a structured dismissal settlement proceeds are a state assets the basic question in this case has always been the same was the bankruptcy court intitled under the bankruptcy code to authorize this distribution of settlement proceeds which are state assets in violation of priorities actually so what forbid you started out by saying there is nothing in the code that permits this kind of settlement which in fact leaves out if you give some money to a lower ranking creditors given that you're quiet i think you're right i don't see anything perm problem but forbid creates in a state which includes all the debtors property and it also includes causes of action belonging to the estate that a state is then held in trust essentially for the benefit of creditors it is protected against creditors claims through the automatic stay the trustee or debtor in possession can dispose of estate assets only in accordance with strict limitations and subject to the bankruptcy court supervision and at the end of the case those assets are distributed to creditors through a confirmed chapter eleven plan which requires it here instead priority or failing that the case can be converted to chapter seven in which case the assets are also distributed and cordons with priority those careful retake elated mechanisms for the distribution of a state assets foreclose any inference that congress intended to allow courts to disregard them and create a different method for distributing assets that's not mentioned anywhere in the code that violates that back why do you already scheme why do you think though it isn't mentioned someplace in the code i mean did congress just not think that this might happen you know justice kagan i think the reason that chapter eleven doesn't expressly apply the priority rules to settlements is that settlements are not intended to be a method of distributing a state assets i think it's very important to keep those two things distinct on the one hand we have a settlement of a cause of action belonging to the state the estate relinquishes its rights in return for money and money goes into the estate that is one thing separately there is a distribution of all of the assets in the estate including the proceeds of the settlement and that is done in chapter eleven through a chapter eleven plan so congress would not have specified that priority applies to settlements because settlements are not a means for just tribulation of a state assets only  but now you are saying that their assets and the court has to do something about the distribution of those correct justice ginsburg the there are there are two methods for distributing a state assets contemplated by the corporate provisions of the bankruptcy code either chapter eleven plan or the chapter seven distribution set out in section seven twenty six both of which required here in priority a case can also be dismissed in that case there is no distribution of estate assets at all that's not contemplated in conjunction with the dismissal rather the parties are returned to their pre bankruptcy positions but of course the code three forty nine unless the court for cause orders otherwise can you tell us how that is  that fall in face of the overall description that you just gave to justice ginsburg justice kennedy what the legislative history tells us is that the four cause provision section three forty nine b was intended to protect parties who took actions in reliance on the bankruptcy and i think it's important to give me an example i can so one case that cited in our we switch is a seventh circuit case in that case there was a plan that had been confirmed that in which the debtors released their a claim against the bank that had lent the money in return for the bank's releasing its lien on some cash that they had that cash was then dispersed and couldn't be gotten back the the debtors then dismissed their case shortly after the plan was confirmed and the seventh circuit said this was an appropriate case in which to use the for cause provision typically the release that occurred in the plan would be undone but in order to avoid unfairness to the bank which had taken which had taken action in reliance on the plan the court was not going to do that instead it was going to hold the you can hear the arguments but we just talk about fairness that's that's that's different from the careful answer you gave justice ginsburg about the priority yes justice kennedy section three forty nine b doesn't create that kind of gaping hole in the scheme i just described it's important to understand what it actually does i think it's a relatively limited provision and so section three forty nine says that the the default when a bankruptcy case is dismissed is that certain transactions that occur during the case such as avoidance actions get unwound liens that have been voided are reinstated and property remaining in the estate is returned to its pre bankruptcy owner in other words the bankruptcy is as far as possible because exception is an exception to that so what the cause exception permits a bankruptcy court to do is to mean in the status quo at the time of dismissal when there is  good reason to do so and the typical good reason would be reliance by a party on something that happened during the bankruptcy case but section about section three forty nine b doesn't then permit the court to go beyond that and do something that's not contemplated in conjunction with a dismissal at all that doesn't involve maintaining the status quo but involves actually distributing assets to creditors in violation of the priority scheme you said that that reading was supported in the legislative history if i understood you correctly what is the nature of the legislative history of the legislative history essentially there's not a lot of it but what it essentially says is the bankruptcy courts should holding that you would like us to show us suppose this comes back to justice alito is question of what's actually on the table also on men's or structure dismissals just this particular kind and if just this particular kind  how would you characterize what we think this court should hold is that settlement proceeds cannot be distributed in violation of priority  is that the distributes kroto correct that it to be more specific that the order that was entered here we believe could never be lawful regardless of the stage of the case at which it was entered so we're not saying this order would only this order is only unlawful because it was part of a structured dismissal we're saying it's on lawful because it took a state assets and distributed them in violation of prior saying that there can never be a distribution of the state assets except in compliance with the priorities no there is one which that's not what you just said that well let me let me qualify what i just said then there is one express exception in the code that section five ten provides that claims can be subordinated to other claims under the principles of equitable subordination which as this court said a noland are limited to  a creditor is bad behavior that harms the estate there are also some practices that occur in bankruptcy court that whose validity i don't think this court needs to reach for instance critical vendor orders are an example courts will sometimes permit on the first day of a case a debtor to pay certain vendors on account of their preposition claims because doing so is necessary to the debtors maintaining a going concern and reorganizing and coming out the other end of viable business that's based on a doctrine that goes back many many years before the bankruptcy code called the doctrine of necessity and the reasoning behind that is because a going concern is worth so much more then the debtors assets liquidated piecemeal that creates the possibility of a greater recovery for creditors higher up the priority chain what happened here is precisely the opposite there was no possibility of reorganization this was a naked priority violation for its own sake and whatever one thinks about critical vendor orders what happened here taking value from senior creditors and giving it to junior creditors for its own sake is not permitted members are thank you thank you counsel and may it please the court i think to start if i could just as kagan's last question which is what would you like the court to hold in this case we think the court should hold that a bankruptcy court can never resolve a bankruptcy by ordering the distribution of the state assets in a manner that violates the codes detailed priority system without the consent of the impaired priority claim holder you don't even have the extraordinary circumstances exception no we don't i mean basically the extraordinary circumstances exception that the third circuit wanted to apply would bring in any case that is administratively insolvent and that's a large proportion of business bankruptcies that all that kind of exception also gives parties the wrong incentive to make essentially self serving assertions about what they would or would not do if the particular disposition that they out with the statutory provision that was just mentioned and my guess was you want to qualify that as well with the with this emergency creditor you know where you're going to sink that the person who has a preposition was just discussed the pre partition distributions that were just discussed i think that does present a separate question we feel all right all that's all i want to know you don't want to holding here that is going to knock that out right so that so i said that a court cannot resolve a case by ordering the distribution of assets that would violate the priority scheme now in our view the priority scheme is sort of a broad term that includes both acquittals subordination of subordination principles which are not a couple here and also includes the ability of the priority claim holder to consent to impairment of its rights i think it's important to keep in mind here that the priority claim holders here are petitioners did not settle this is not a case where the people whose rights were impaired agreed to it and you can't have you can't call a settlement basically the agreement of other parties whose rights were not impaired and who in fact benefited from the impairment of  what would be your principal basis for distinguishing the exception spinelli outlined at the end of her argument from what happened here i thought your argument was that the priority scheme applies to everything that happens in a chapter seven and a chapter eleven so in our view pre partition distributions in chapter eleven that violate the priority scheme are not permissible under any circumstances unless there is consent of the impaired priority claim holder and so critical vendor orders if they're done over the objection of the holder who skipped we think those are not permissible now most of the times those sort of first order distributions happen in a plan every organization not in a plan of like in the case of reorganization not a liquidation case they happen with the consent of the senior holders and they are generally premised on a on a prediction that that allowing that kind of distribution will ultimately result in every creditor getting more money at the end of the day so none of those factors apply here you didn't have consent this is not an ongoing concern and certainly no finding that everybody going to get more money at the end of this is another if i could just place there's another logically prior question and i don't know what you what you think we should do with the question of whether the bankruptcy court has to approve someone's at all we  they have to so we think that a bankruptcy court does have to approve a settlement that disposes of a claim held by the estate or asserted against the estate we don't think this court needs to reach that question in this case if it doesn't want to because we think it's very clear that a sort of settlement cannot do is provide for the distribution of estate assets i think it's important keep in mind the state assets don't belong to the debtor and they don't belong to a subset of creditors they belong to the state and so the code provides only specific ways that those assets can be distributed in chapter eleven that's through a plan just to make sure i understand the scope of what you're saying we should decide would that also knock out the thing that was approved in a radium itself yes we think it would if you limit your holding to the resolution of a case then it would not because radium did not involve the resolution of the case we think the principle applies more broadly to preposition distributions as well when you don't have consent but if the course if the court prefers not to it doesn't need to reach that question and in this case so you don't agree completely with judge to rec e we don't i mean i would point out it again that he's innocent he's a dissenter in that case and so he even he didn't think that this case would would qualify but we don't think there's anything in the in the code that would allow parties to override the prior to claim holder's assertion of their rights now is important keep in mind that chapter eleven is a very very flexible it allows basically any type of plan to be confirmed if all the parties can agree on the terms of a plan that was an innovation in chapter eleven and eight hundred seventy eight had to exist in the bankruptcy act in our screens when there's a structured dismissal of like the kind of issue here usually those the parties turn to that kind of disposition because they can't obtain the consent of the parties that they would need to get a plan confirmed and so basically what you have is an agreement that is in essence an unconfirmable plan and instead of trying to get that confirmed they call it a structured dismissal to override the consent of the party claim holders and so in those cases no but but but i think parity claim holders all the time agreed to an impairment of their rights and in fact the prior to claim holders other than petition who were paid in this case agreed to take you know some cents on the dollar like the tax collectors and the administrative expenses do you believe that the question presented here did not address the issue before us do you see a difference between the question presented that talked about the absolute priority rule as it relates to settling proceeds of the structured dismissal here i don't think so i think that the change in wording was meant to sort of give give the particular context that the that the question arises in this case and if any if there's any difference it's just a narrower sort of set of what that will are it goes to a more fundamental question which is is there a difference or in our ruling where we say no settlement proceeds can be distributed in formulation is a little bit broader than the second formulation and like i said we think the rule would apply also to pre print preplan dispositions of the state assets if you wanted to limit your holding just to sort of the resolution of a case in a way that is kind of a substitute for a plan and i think you could just say structure dismissal can't authorize the distribution of estate assets but i would like to again sort of distinguish the settlement of the claim from the distribution of estate assets the two things were put together in this case and they're put together throughout respondents brief but they're really separate things there's nothing in the  the settlement and that's ok and the other thing is the distribution of the assets but that's what the settlement provides for what the settlement should provide for is basically a liquidation of the claimant so if you have a claim by the state against a third party you hear a creditor you basically reduce that claim to a dollar amount and those dollars become property of the estate if you have a settlement of a claim that's asserted by a creditor against the estate then it's the same kind of thing you sort of liquidate the claim to reduce it to a dollar amount and that becomes the claim against the estate held by the creditor but nothing in the code would authorize and i think it's a vital be a violation of the priority system and generally of the system that distributes estate assets to have parties agree on the side of how estate assets should be distributed those estate assets are not the property of the de makes the provisions that specifically make the priorities in chapter seven chapter eleven superfoods well it doesn't because if you look at those provisions and one of them is section eleven twenty nine a nine and section i think seven twenty six in chapter seven they don't just say section five zero seven priorities came applies they also specify exceptions and they specify the manner in which it applies and so in section eleven twenty nine nine it says priority claim holders can agree to an impairment of their rights that exception is not included in section seven in the chapter seven analog it also says tells you what it means to pay a party claim holder either through cash or through deferred cash payments depending on the type of seven claim that the parties have a right to demand one or the other and so there's more to it than demand cash on the date of confirmation others have to have agreed in some circumstances to deferred cash payments and so there's definitely more content to it in the chapter seven contacts it also tells you which type of five zero seven claims are allowed based on when the associated proof of priority creditors come squeezing out the middle creditors and the court should not allow parties to make it and run around that prohibition by just slapping the names that all men are structured dismissal on what is really in essence in unconfirmable plan we think that's what happened here the parties landau thank you mr chief justice i may please the court petitioner say that the bankruptcy court here was required to reject this settlement that made all other unsecured creditors better off without making petitioners any worse off nothing in the code requires that result the absolute priority rule in this is critical applies in chapter eleven only to kill hamleys you took away a legal right from well your i had a legal right to sue some life they had a legal right to pursue their other claims and the settlement extinguished those rights and i think the question the critical question here is are we in a place where the disposition of the state assets was required to comply with the absolute prior will this is the absolute gist of the case by its terms i think this was back to a question of justice kagan asked earlier the code speaks to when the absolute party rule applies in chapter eleven and it applies to plans whenever you have dispositions of assets before plans they are subject to judicial review the use sale or lease of of assets is subject to judicial review under section three sixty b but that is a discretionary standard now when applying the discretionary standard it's absolutely critical to make sure that there is no of asian of requirements for a plan and the second circuit in a radio and the third circuit here recognize that and said this is the rare case where that's true but i don't know why this is a rare case where you want every structured settlement of this kind is trying to exclude one set of creditors no it isn't and this is the person is wearing the white had this is a person wearing a black hat i'm not i'm not i'm just trying to figure out what creates the exception the never a legal issue before this court is simply looking at the code does the absolute priority rule as such apply outside the context of plans you are you are beginning your first statement if you remember you were just about to give us a special reason which i wanted to hear what will the these petitioners receive a substantial  distribution of assets on on the first day of the bankruptcy as to pay for their pre filing their pre partition wage and benefits claims they got millions of dollars in fact far more than the settlement so this is why it's  i don't see what this has to do my problem is quite so it was this is not your asset that's right this is an asset of the estate that's correct you're all right so there is an asset of the estate right it's a claim against a third party yes very well right and now there is a person probably the trustee or a committee that's going to pursue that claim correct then the claim is settled for how at least on request when you're in chapter eleven doesn't the judge the bankruptcy judge have to approve that settlement not the settlement per se why not because there's no provision in the code just what we explained in our brief that specifically post hundred seventy eight there used to be in the pre nine hundred seventy eight world there was a provision that required review of settlements quasi settlements post seventy eight there was a provision of three sixty three b that requires a judicial review assets in this case they intersect because this settlement actually not only brought money into the estate but actually then so i suppose it settled it for a dollar and one of the creditors says this is all corrupt i'm not saying that i case i just want to get background in my mom right i think there's no power of the of the bankruptcy judge to even look at a settlement that the company in bankruptcy has made of an asset namely the claim that he has against another party there is no provision governing oka settlement squashed settlement what there is a provision i want to make this very clear on because i'm not sure this was as clear in our brief as it should have been and i apologize if it wasn't the fact that there is no provision for approving settlements quashed settlements doesn't mean which there had been under the old regime doesn't mean that when you have a settlement that actually disposes of estate assets like this settlement did that that disposition of estate assets is not subject to the traditional rule think three sixty three b  review by the court of any use a line ok that if this same they were the same but yeah i just wanted to make it clear that place once were in that place yes we have is the settlement not corrupt not crooked  perfectly fine and on honest and so forth but what it does is it takes congress's one two three four five and it says but we'd like to do is five four three two correct now what that seems to do is it seems to be quite contrary to the order of battle or the order of distribution that congress has s apply to the assets of the estate and involve which this is one and you are absolutely right and as the second circuit said in iridium and as the third circuit said in this case that is the most important concern in the three sixty three b discretionary analysis to make sure that there is no invasion of that scale well say which now you provide a case congress is one two three four  five four a state asset right you have in the state asset and you want to do exaggerate five four three two one right well so where does the bankruptcy trustee or any court get the power to say that a group of people can in fact reverse the order in which these assets will be distributed this out is that is what is bothering me and presumably the government and certainly the workers here who are who are a block what you are and i think the clear answer to that is as a general rule they can but this case providing explains exactly why radium said there may be some rare exceptions but once you are in this more discretionary three sixty three b land that the primary schemes would be the most important this case is a great example drawn out because in this case we have findings that there could be no confirmable chapter eleven plan because the state was administrating solve so that the code system that you just described the waterfall of priorities would not apply in chapter eleven because there was no way to go to a chapter eleven one hundred often happens that there can be no can from will plan because the creditors the priority creditors are not going to through that happens all the time you go through chapter seven and that's not a rare so this is not a rare case but i'm this is only the first probably your honor then the court also analyzed well the alternative then is conversion to chapter seven and we have findings there too that any conversion to a chapter seven liquidation in fact the estate asset there would be no settlement there because at that point once you've gone through the expense and delay of converting to chapter seven it wouldn't make sense to settle lots there's many reasons that you might want to will be willing to settle at the beginning of a good scene but the essence of the case is not really an objection to approval of the settlement it's the objection to the distribution absence and that's why i think that's so critical your honor and that in their objection would actually completely come back to bite them because there is no legal difference in your distribution of assets on the first day where they recovered six million dollars in this case in their preposition wage and benefit claims that's why to go back to justice alito is question earlier  it was not a slip of the pen that led them to change their question presented from the question from the petition to the merits brief they know perfectly well that a rule that the absolute priority rule applies to every distribution of assets would have creamed the workers in this case and would in future cases because such workers are often the beneficiaries of these first day orders that pay priority paid wages benefits claims that pay critical vendor orders once you're talking about a world as they seem to be suggesting that all preplanned distributions of assets are subject to the absolute priority rule that's not in the code that's the gist that's the crux of the dispute here that was a circuit split that this court granted sort to reserved to resolve i i thought they had a priority at the initial stage that required them to be paid six million dollars that you're talking about they were not that there were people above them in the chain they were ministers of creditors they were secured that they did not have the top priority not credit is who were you know were down correct and i think that that what that there was a finding here that in fact the alternative to this settlement was not a settlement where they actually would have rick was not in chapter eleven plan because they would have recovered nothing in a chapter one plan now a company finds very surprisingly that there underneath the building is john le feet gold treasure but there is somebody down there who has  he says give it to me it's ours he says i'll give it to you but i want you to use it to pay my friend who happens to be my cousin who is the nineteenth ranked creditor and as long as you give the majority to him ok then you can give the rest of  all right now that would seem to be a possibility at least from your argument in this case your honor i think what you are saying that the point that you're getting two can be resolved through the traditional three sixty three b analysis which which allows for play in the joints unlike their own yielding in absolute absolute protocol under your hypothetical your honor there would be money there and in that case it looks like that would be an evasion of  could be a plan by the way if you want me to i will make up my hypothetical so that giving half the gold to this person is just as one or full as you would like and i will also change the hypothetical around if you could do  could do so that not giving the money to this person would be just terrible my earthly come to an end so the question is do you think congress gave to the trustee or to you or to somebody else the power to deviate with john the feets go or with these particular this particular set of money or any other set of money i think seems to me a dangerous principle to get into but if you can tell me where that normally happens i'm open to well it doesn't normally happen i think that is the lesson of the radio and this case the third circuit said as a general matter if if the creditors were to come together say you know we really just don't like this one creditor even though that person has a high priority we're going to structure this so that that person gets disfavored well under the three sixty three b analysis if that person would actually have had an alternative where they would have recovered something well let me ask you that would be a problem mr on a sort of a similar question you here's two different kinds of bankruptcy schemes one scheme just says every time you distribute assets you have to follow the following order one two three four five that's and that's it you just have to follow that order correct that's one bankruptcy code here's another bankruptcy code it says presumptively you have to follow one two three four five but if there's a parade of superior solution another words a solution in which some people are made off and nobody in which some people get better outcomes and nobody gets a worse outcome if there is such a solution you can go with that and that might be a completely sensible bankruptcy provision for congress to have an acted right the question is whether congress didn't act it and what you can point to in the bankruptcy code that suggests that the continual statement that it's just one two three four five is subject to a kind of equitable exception for parade of superior outcomes yes i can i can exactly answer the question of the law in the congress true in the code is the absolute priority rule with it's with the specific one two three four five that apply as a matter of law and is unyielding applies to lands when you are not in the world of plans you are in the world of three sixty three b which has play in the joints and so the parade off the melody that you just said your honor is something that is appropriate in a story sixty three b announced its now  the second circuit pointed out into radium in the third circuit with out here a critical consideration in that discretion else this is to make sure it is not being done for the purpose of evading what would otherwise be something that could proceed to the stage where congress made the absolute priority rule applicable today i don't know interesting how you get to an extraordinary circumstance in this situation it seems to me that wanting to exclude the claims of one or more creditors is the ordinary situation every junior creditor wants money they're happy to exclude anybody they can right or anybody who can see to do it right so how do you protect the excluded creditor from being free from one of the other creditors we already know that junior creditors have a self interest absolutely our senior creditors have it happens to be that one of the biggest senior a court looks at that a court can say is the creditor who's claiming that he or she or it is being unfairly squeezed out in your hypothetical can show that there is some mechanism under which that person would otherwise absen settlement of the disposition of assets that is is contemplated at issue before the court would actually make off better the critical problem here is that there were findings there was a hearing in the bankruptcy court on this that went up to the district court and review and then to the third circuit and there were finding the findings were and these are critical that there could have been no proceeding to a chapter eleven confirmations so the idea that this would have proceeded to a place where the person squeezed out in your hypothetical would have actually recovered something in chapter eleven m i mean you might be right or you might be wrong about that let's just assume that you are right that that this is one of these extraordinary circumstances and which some people can be made better off and nobody will be made worse off still the question is where is the authorization for that in the bankruptcy code because that's like a big principle i mean and i think we would have known about it if that's the way bankruptcy proceedings were supposed to go and and and you suggest well it's in this for cause language but the this for cause language i mean this is a pretty specific provision that we're talking about what it says is that when you can't reach a plan and the case has to be dismissed this is attached to a provision that says everything has to be rolled back and and this is we're not you know maybe if there's a good reason not everything has to be rolled back to exactly the way it was but that's a really different kind of provision than saying and courts you get to decide or or or parties really you get to decide and then courts get to get to approve an outcome of a bankruptcy proceeding that does not follow the usual priority rules just because these particular parties not all of them but these particular parties think it will make some people better off without making other people's works off you are the key point is three sixty three b that is the general provision that requires bankruptcy courts to review the use sale or lease of assets when you have that what they are objecting to here in this settlement is the fact that only the brings money in but that it actually then distributes money to different people in a way that they say doesn't comply with the absolute priority so it's the three sixty three b discretion that is the standard about best interests of the state it's been phrased various ways that that's really a judicial gloss on the language of the statute and that's probably you know absolute contours of three sixty three b are not really within the question presented here the question presented here really is are we in a world where there is any discretion at all versus a world where the absolute priority rule applies by its terms this three sixty about this settlement they're not only paying in three million or whatever but they want to tell you how to distribute it and they want to tell you how to distribute it and we want you to distribute it ok reading through the rules and not according to what they say that's what you say they should have done then what they did do and in fact there was and the reason i'm worried about it is and you'll be worried about it all you have to do is represent some client or represent some a bank for example that thinks it has secured as a security interest in something and lo and behold there's a forty most important consideration for a court to look at in assessing a distribution of assets that doesn't comply with a party rule is is there a compelling reason why it doesn't do that is i think where the issue comes down i mean the reasonable miss of your position is directly related to how extraordinary the extraordinary circumstances have to be i mean you're suggesting that the main criteria in improving under three sixty three b is pretty much what the priorities are under under chapter eleven well if there is a very close requirement there than you know what you're asking for is not that extraordinary it is even going to risk well if however that it's just that priority simply informs the exercise of discretion by the judge under three sixty three b n is not as tight a requirement will then it's you know then it is pretty extraordinary and it makes a difference under under the chapter eleven regime people leverage in the go shooting the plan but pans to some extent on their priorities under the the settlement regime you know the leverage is reshuffled and it's more or less who can gang up on who but who well i'm sorry could you answer mine i just heard congress drew a line that the absolute priority rule as such applies to plans when you're talking about distributions of assets other than plans your in that discretionary regime that the question presented to this co you can see you can resolve this case by simply saying they're wrong to say the absolute priority rule applies outside the context of plans the extent to which you get into the exercise of discretion is something that they didn't present in the question presented they didn't say the third circuit in apply  if we're concerned about how extraordinary the extraordinary circumstances are in other words your position looks more reasonable the tighter the extraordinary this requirement is what type of language would you require i mean you're saying  will just say you can do this and then it'll work out over time how extraordinary it is but what would you say if you want if you felt an obligation to tighten the extraordinary requirement i don't think i could improve on the language that the second circuit used in iridium and the third circuit used here saying that it is the most important consideration is conformity with the absolute priority will so that if there is a confirmable plan that is is that where the person complaining that they were cut  out would actually get something in the absolute prior to the application up the prior rule that would be almost implausible to think that it could ever be approved the fundamental but then doesn't that run into this is what ms harrington ended her remarks by saying is that you're just saying that plans that the bankruptcy code declare not confirmable are in fact going to be confirmed through this alternative procedure no your honor i get that now we're talking about the means for terminating chapter eleven plans which is a little bit different than the question presented which is all about the distribution of assets but just to just to be clear so section eleven twelve of the code says that if if chapter eleven plan can't be confirmed you have two alternatives you either go to chapter seven conversion or to dismiss are specific findings here the chapter seven conversion made no sense because the trustee would get the state did not have the money to pursue the claim on its own and nobody would bring this case on a contingency basis the petitioners here were were participating at that hearing in the bankruptcy were this was done they didn't raise their hands and say hey we'd be willing to pursue this on a contingency basis which is why it's somewhat farfetched to say the least that they're now suggesting that the erotically well they they were deprived of this opportunity to pursue this claim outside of bankruptcy they were given the opportunity to pursue the claim on behalf of the estate in bankruptcy and nobody wanted to do that this chilling to is there a difference in your mind because there might be in between a settlement that settles an individual clean the emergency creditor claim that your opponent spoke about where there is not a total distribution of the suits of the company from a plan that's really just an alternative plan this that's what this structured settlement is in my mind something that would be an extraordinary circumstance right would be something that did something like the first thing and not necessarily the second i think your honor is making a very important point which is the application of the three sixty three b discretion may well vary depending on the circumstances of the case and just and your first hypothetical that that is not now we're talking about you know the way that that three sixty three b analysis applies and its reason for not wanting the proceeds to be distributed according to the absolute priority it wanted a global settlement of all claims they got that with all other creditors that the creditors the petitioners here some well i think that the point is that sun would not have entered into the settlement at all unless we benefited all the creditors including the junior creditors what is it care why does son son life in the absence of a global settlement of this warning claim outside of the against sawn son didn't want to have a settlement that that funded the litigation against it now  settlement would have been the one that occurred because there's two different claims the claim that was settled was the estates fraudulent conveyance claim these particular petitioners had a separate warrant claim against son and the debtor and it was in the context of settling t fraudulent conveyance claim against the estate son only wanted to have a global settlement to put this whole litigation behind it and they said we're not going to settle the fraudulent conveyance claim in a way that funds the so do you think they can still sue they can certainly sue the they could certainly pursue the warren plans and they thought that was their choice not to participate in the settlement fraudulent transfer or not the fraudulent class for payment was ended but i think the key point there are findings here that the fraudulent transfer claim was essentially worthless to them because there was no money to pursue it and you don't understand my basic question but that suddenly care if the fraudulent conveyance claim was going to be resold and release because why did it care to exclude the structure writers from receiving whatever they demanded because that would have funded the truck drivers to pursue their separate warning claims against us so we didn't want that eventually you had had already won no we only one later that it's the it's the timing of that i think your honor that really gets the point i think the fundamental point here is we're really talking about a rule where they're saying the absolute priority rule inflexibly an invariably applies even before a plan our position on the other hand is that the use sale or assets at any point before the plan is governed by three sixty three b there are that's a discretionary regime and as the second circuit said in the radio the third circuit said here it is absolutely critical to look at making sure that it's not an invasion of the plan but the question did this court was asked to resolve this is that the rigid unyielding absolute primary rule or the three sixty three b and the code answers this question and so i think in this case that the duty and the three sixty three b says is the trustee can sell the suit ok that's what it says there's nothing about says nothing about what the terms are it is nothing about the settlement is and the question for us i guess is in those words which make no reference to it when you settle it on terms that will in fact take these assets that belong to the company and distribute them in a way that is contrary to one two three four five but the distribution is a use of the estate assets your honor so it again it goes to can you what are the constraints on using the estate assets and i really encourage him to look at the very tight way in which the second circuit said we want to be super careful as to say we want to be super careful is not to say it is just to say that the fifth circuit overstated it by saying you can never do it in other words the fifth circuit has an absolute bright line rule we don't care how  is and i think the basic point was made by the bankruptcy court here the bankruptcy code is not a suicide pact so if in fact you have a situation where the settlement or and the distribution proposed makes others better without making these folks worse off there's nothing in the code that prohibits that thank you counseling two minutes two minutes mispronounce respondants position fails because section three sixty three b is not an means of distributing state assets this is the three sixty three b discretion that mr landau referred to it is discretion to approve a settlement or a sale of an estate asset not to distribute the settlement or sale proceeds in violation of priority assets or just to get it under chapter eleven through a chapter eleven plan thats it and our fundamental point here is that those assets cannot be distributed on account of preposition claims in violation of priority to the extent there's a potential exception for the doctrine of necessity that's hotly disputed courts disagree about whether that exception exists and that's not an issue this court needs to resolve because the doctrine of necessity by its nature is designed for situations in which a payment to pre position creditors is necessary to the reorganization of the debtor there's no dispute that that wasn't the case here and as for our first date order paying the wages of the drivers that was consented to and no one is saying that you're not allowed to consent to a priority violation the only point we're making about structured dismissals is that there is no super power associated with structured dismissals that provides for an exception to that general rule that one cannot distribute a state property on account of preposition claims in violation of priority respondants rule would wreak havoc on the basic process of bankruptcy if debtors distribute estate property to creditors at any time without regard to the priority scheme before a plan there wouldn't be much left of the scheme debtors could simply reach a deal with the junior creditors and distribute property leaving inadequate resources to pay senior creditors