In the Garvin v. Cook Investments, NW, SPNYW case, the Ninth Circuit rejected a U.S. Trustee’s argument that a confirmation of a plan of reorganization should not have been confirmed because it was proposed by means prohibited by law in violation of the Bankruptcy Code Section 1129(a)(3).
Under the plan of reorganization, the debtors would lease property to a cannabis grower who is licensed under Washington law. Despite the Washington law authorizing the growing and sale of marijuana, the U.S. Trustee argued the lease was in violation of the federal Controlled Substances Act.
The court reasoned that Section 1129(a)(3) only prevents confirmation of a plan proposed in an illegal manner, but not the illegality of the substantive provisions of such plan. The focus of the court’s analysis was on the proposal of the plan itself rather than its terms. With this ruling, the Ninth Circuit emphasized that although a plan may be confirmed, it does not protect a debtor from being prosecuted for criminal activity.
Ninth Circuit Gives A Partial Green Light to Cannabis Company Bankruptcies
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