Court upholds asbestos trust funding and good faith in reorganization plan

The 4th U.S. Circuit Court of Appeals affirmed the approval of a Chapter 11 reorganization plan for two debtor companies, finding no reversible error in the U.S. District Court for the Western District of North Carolina’s conclusion that the plan was proposed in good faith and complied with the funding and equitable requirements of 11 U.S.C. § 524(g).

The case returned to the 4th Circuit after the U.S. Supreme Court held that the insurer, Truck Insurance Exchange, was a party in interest with standing to challenge the plan proposed by the debtors. On remand, the 4th Circuit addressed Truck’s substantive objections and upheld the district court’s findings.

The appellate panel agreed that the plan was proposed in good faith under § 1129(a)(3), noting that the lower court’s factual determinations—uncontested on appeal—demonstrated the plan’s alignment with the objectives of the Bankruptcy Code.

The 4th Circuit also upheld the plan’s compliance with § 524(g), which governs asbestos-related bankruptcy trusts. Truck argued that the trust’s funding mechanism failed to meet statutory standards, claiming that a single $1 million note from the debtors was inadequate. The court disagreed, finding that the trust satisfied § 524(g)(2)(B)(i)(II) because it was funded by multiple sources, including non-eroding insurance coverage, a $49 million contribution from the debtors’ parent company, and the secured note payable within five years.

Finally, the court affirmed the district court’s finding that allowing asbestos claims to proceed outside the plan would threaten its equitable purpose, satisfying § 524(g)’s “equitable necessity” requirement.

Finding no error in the district court’s analysis, the 4th Circuit affirmed the judgment in full.

The 28-page opinion is Truck Insurance Exchange v. Kaiser Gypsum Company Inc., Lawyers Weekly No. 001-115-25.