Tony's Donuts makes a proposal to creditors whereby all secured creditors are placed in the same class and allowed to recover 100 cents on the dollar,all preferred creditors are placed in the same class and allowed to recover 80 cents on the dollar,and all unsecured general creditors are put in the same class and allowed to recover 5 cents on the dollar.Some unsecured creditors object to the proposal because they assert that the classifications proposed do not allow them to recover enough and they be in the same class as the secured creditors.In court they will not be successful.

Question

Quizplus · Accepted Answer

The proposal to divide creditors into different classes based on their level of priority is a common practice in bankruptcy cases. As long as the proposed classification scheme is reasonable and consistent with bankruptcy law, the court is likely to approve it. In this case, the secured creditors are given the highest priority and offered 100 cents on the dollar, the preferred creditors are given the second-highest priority and offered 80 cents on the dollar, and the unsecured general creditors are given the lowest priority and offered only 5 cents on the dollar. While some unsecured creditors may object to this scheme, their objections are unlikely to succeed in court as they are not in the same class as the secured creditors.

Tony's Donuts Makes a Proposal to Creditors Whereby All Secured