SAI Holdings Limited, Athol Mfg Corp, Sandusky Liq

1 In their motion, Debtors also sought to terminate the collective bargaining agreements with Locals 913 and 1957
pursuant to 11 U.S.C. § 1113. However, the hearing did not go forward on the motion as it relates to termination of the collective
bargaining agreements as the parties reported that Sandusky and the Union had reached an agreement (“Closing Agreement”)
regarding the permanent closing of the Sandusky plant and the effects thereof upon the then current employees in the two
bargaining units covered by the collective bargaining agreements at issue in the motion. On February 23, 2007, the court entered
an order authorizing Sandusky to enter into the Closing Agreement, subject to the conditions and limitations set forth in that order.
UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF OHIO
WESTERN DIVISION
In Re:
SAI Holdings Limited, et al.,
Debtors.
) 	Case No. 06-33227
) 	(Jointly Administered)
)
) 	Chapter 11
)
)
) 	JUDGE MARY ANN WHIPPLE
MEMORANDUM OF DECISION AND ORDER REGARDING
MOTION TO TERMINATE RETIREE BENEFITS
This case is before the court on a motion [Doc. # 145] for an order under 11 U.S.C. § 1114
authorizing debtor Sandusky Limited to terminate retiree benefits provided for under collective bargaining
agreements with Locals 913 and 1957 of the United Automobile, Aerospace and Agricultural Implement
Workers of America (collectively, “the Union”) filed by SAI Holding Limited (“SAI”), together with its
wholly-owned debtor subsidiaries, Sandusky Limited (“Sandusky”) and Athol Manufacturing Corp.
(“Athol”) (collectively, “Debtors”), the Union’s response [Doc. # 250], the response of the Official
Committee of Unsecured Creditors (“Creditors’ Committee”) [Doc. # 248], and Debtors’ reply [Doc.
# 260].1 The court held an evidentiary hearing on the motion on January 8, 2007. Proceedings to determine
The court incorporates by reference in this paragraph and adopts as the findings and orders
of this court the document set forth below. This document has been entered electronically
in the record of the United States Bankruptcy Court for the Northern District of Ohio.
Dated: March 26 2007
06-33227-maw Doc 500 FILED 03/26/07 ENTERED 03/26/07 16:51:59 Page 1 of 12

[Doc. # 430].
2
whether a debtor should be authorized to terminate retiree benefits under § 1114 directly affect
administration of the estate and adjustment of the debtor-creditor relationship and are core proceedings that
this court may hear and determine. 28 U.S.C. § 157(b)(2)(A) and (O).
This memorandum of decision constitutes the court’s findings of fact and conclusions of law under
Fed. R. Civ. P. 52, made applicable to this contested matter by Fed. R. Bankr. P. 9014 and 7052. Regardless
of whether or not specifically referred to in this decision, the court has examined the submitted materials,
weighed the credibility of the witnesses, considered all of the evidence, and reviewed the entire record of
the case. Based upon that review, and for the following reasons, Debtors’ motion will be denied.
FACTUAL BACKGROUND
Debtors’ principal business is the design, manufacture, and marketing of high quality vinyl products
to customers primarily in the automotive industry. Athol has a manufacturing facility in Butner, North
Carolina, and Sandusky has a manufacturing facility in Sandusky, Ohio. Debtors’ principal headquarters
are based in Butner, North Carolina. Sandusky’s salaried union employees are represented by Local 913
and its hourly employees are represented by Local 1957, both of which are parties to collective bargaining
agreements with Sandusky (collectively, the “CBAs”), effective July 1, 2002, through June 30, 2007. Athol
employees are represented by a different union.
On November 8, 2006, SAI, Athol and Sandusky each filed voluntary Chapter 11 petitions and
requested joint administration of their bankruptcy cases, which the court granted on November 9, 2006. The
estates are not substantively consolidated. 	According to Debtors, they began experiencing financial
problems in late 2004. Debtors experienced a net loss on a consolidated basis of $3,847,700 during the
nine-month period ending September 30, 2006, $2,174,800 of which is attributed to Sandusky’s operations.
In its bankruptcy schedules filed on January 2, 2007, Sandusky reports total assets in the amount of
$54,084,868, including real property valued at $3,910,000 and personal property valued at $50,174,868, and
total liabilities in the amount of $40,290,171, including $27,400,122 in secured debt, $655,307 in unsecured
priority debt, and $12,234,741 in general unsecured debt. Notwithstanding the fact that its assets exceed
its liabilities by nearly $14 million, Sandusky experienced cash flow problems caused by several factors,
including what Debtors describe as uncompetitively high wage and benefit costs and high legacy costs at
the Sandusky plant, as compared to more favorable wage and benefit obligations at the Athol plant. As a
result, in the exercise of their business judgment, Debtors caused the Sandusky facility to close on
06-33227-maw Doc 500 FILED 03/26/07 ENTERED 03/26/07 16:51:59 Page 2 of 12

2 At the request of SAI, an actuarial valuation was prepared by J. Richard Hogue, an actuarial consultant, to determine
Sandusky’s accumulated post-retirement benefit obligation (APBO) as of October 1, 2004, and October, 1, 2005. In preparing
the report, Hogue relied on information provided by SAI regarding, among other things, the provisions of the healthcare and life
insurance plan provisions. See Ex. 10, p. 1. The Summary of Plan Provisions included in the assumptions upon which the
actuarial valuation is based includes a provision that termination of benefits occurs, with respect to the retiree, on the death of the
retiree, and with respect to a spouse, on the death of the spouse. Ex. 10, attached Ex. E, p. 2. Similarly, in their reply in support
of the instant motion, Debtors state that the “CBAs require that Sandusky provide the Retiree Benefits for the life of the Retirees.”
[Doc. # 260, p. 2].
3 Financial Accounting Standard 106 requires companies to annually project the cost of, among other things, projected
retiree benefit liabilities.
4 These values represent a total decrease of $387,019 as compared to projections as of one year earlier. See Ex. 10,
attached Ex. A1.
3
December 22, 2006.
The CBAs to which Sandusky is a party each require that Sandusky provide direct payment or
reimbursement for covered medical and prescription drug expenses to approximately 95 retired members
of the Union (the “Retirees”). The Retiree benefits are self-funded by Sandusky. However, pursuant to a
stock purchase agreement dated October 22, 1992, it receives reimbursement from Chrysler Corporation
of benefits paid on behalf of 42 of the Retirees who retired when the Sandusky facility was owned by
Chrysler (“Chrysler Retirees”). Edward Siemer, Director of Human Resources for SAI, testified at the
hearing that he negotiated the CBAs with the Union and that, under the CBAs, both the Retirees and their
spouses are eligible for the above described benefits, and a spouse remains eligible even after the death of
the Retiree.2
Glen Ogden, from Ogden Benefits Administration, the third-party administrator for the Sandusky
benefits plan, also testified at the hearing. Ogden explained that while the Retiree benefit plans are self-
funded, they include a stop-loss insurance policy that provides for reimbursement to Sandusky for claims
that exceed $125,000 per person. He testified that retiree claims paid by Sandusky during the fifteen month
period ending December 31, 2006, including Chrysler Retiree claims, total $632,000. 	Annualized,
Sandusky paid approximately $5,322 per retiree. This is under the $5,800 national average for employees
working in the rolled goods industry, as testified to by Siemer. Ogden also testified at length regarding an
actuarial valuation prepared in accordance with Financial Accounting Standards3 to determine Sandusky’s
accumulated post-retirement benefit obligation (APBO) as of October 1, 2004, and October 1, 2005, and
for which he provided the underlying cost data. 	See Ex. 10. 	According to the actuarial valuation, the
present value of projected costs of retiree health care benefits as of October 1, 2005, for the existing
population of individuals receiving such benefits is $5,375,182, which includes $1,387,987 attributed to
Chrysler Retirees.4 Id. at attached Ex. A1. These values are based upon the current market trend of an
06-33227-maw Doc 500 FILED 03/26/07 ENTERED 03/26/07 16:51:59 Page 3 of 12

5 This figure represents a total increase in projected premium of $18,857 as compared to projections as of one year
earlier. Id.
4
annual 1.5% increase in health care costs. In addition, the actuarial valuation indicates that, as of October
1, 2005, the present value of the projected cost of life insurance premiums for the existing population of
retirees under Sandusky’s fully insured life insurance plan is $321,088.5 Id. at attached Ex. A2.
During the course of negotiations with the Union regarding termination of the CBA, Sandusky also
made several proposals regarding Retiree health benefits. At the hearing on the instant motion, counsel for
the Union stated that the Union accepted responsibility to represent the Retirees in this matter. 	On
December 4, 2006, Sandusky proposed that it would terminate all retiree health benefits as of the plant
closing date, but that it would honor claims for covered health services incurred on or before that date, to
the extent assets are available, if submitted for payment by February 28, 2007. At least four additional
offers were submitted to the Union during December 2006. 	Each contained proposals regarding both
employees and Retirees. While proposals relating to employees were modified in each offer, the offers each
contained the same proposal with respect to Retiree health benefits and each was rejected by the Union on
behalf of Retirees. On January 4, 2007, Sandusky offered to extend the date of termination of Retiree health
benefits to January 8, 2007. It also offered to assign, subject to written approval of Chrysler, any right it
may have to receive payments from Chrysler for medical benefits for former Chrysler Retirees to a UAW-
affiliated medical plan, provided that the trustees of the UAW medical plan accept the assignment and agree
to provide coverage to the former Chrysler Retirees. While the Union engaged in active negotiations with
respect to employees rights under the CBA, it rejected all proposals relating to the Retirees, and the parties
agreed that the court would decide the motion as it relates to retiree benefits.
At the hearing, the parties also stipulated to the following facts:
1. Sandusky made proposals, and the Union made counter proposals, with respect to treatment of retiree
benefits;
2. The proposals made were based on the most complete and reliable information available to the parties
at the time of the proposals;
3. Sandusky has provided the Union information necessary to evaluate the proposals;
4. The parties met at reasonable times to reach agreement and did reach agreement on everything but the
Retiree benefits;
5. Sandusky conferred with the Union in an attempt to reach a mutually satisfactory modification of the
CBA and the retiree benefits.
06-33227-maw Doc 500 FILED 03/26/07 ENTERED 03/26/07 16:51:59 Page 4 of 12

6 Section 1114(h) also enables a debtor to obtain interim relief before a final order under § 1114(g). Different procedural
and substantive standards apply when seeking interim relief. See 11 U.S.C. § 1114(h)(1) (requiring a debtor to show either that
modification is “essential to the continuation of the debtor's business, or in order to avoid irreparable damage to the estate”). Such
5
LAW AND ANALYSIS
The Retiree Benefits Protection Act of 1988 amended the Bankruptcy Code by adding §§ 1114 and
1129(a)(13). Section 1129(a)(13) requires that as a condition to confirmation, the plan provide for the
continuation of retiree benefits at the level established under § 1114 for the duration the debtor has obligated
itself to provide such benefits. 	Section 1114 governs the modification or termination of retiree health
benefits in a Chapter 11 case and provides in relevant part as follows:
(f) (1) Subsequent to filing a petition and prior to filing an application seeking modification
of the retiree benefits, the trustee shall--
(A) make a proposal to the authorized representative of the retirees, based on the
most complete and reliable information available at the time of such proposal, which
provides for those necessary modifications in the retiree benefits that are necessary to permit
the reorganization of the debtor and assures that all creditors, the debtor and all of the
affected parties are treated fairly and equitably; and
(B) provide, subject to subsection (k)(3), the representative of the retirees with such
relevant information as is necessary to evaluate the proposal.
(2) During the period beginning on the date of the making of a proposal provided for in
paragraph (1), and ending on the date of the hearing provided for in subsection (k)(1), the
trustee shall meet, at reasonable times, with the authorized representative to confer in good
faith in attempting to reach mutually satisfactory modifications of such retiree benefits.
(g) The court shall enter an order providing for modification in the payment of retiree
benefits if the court finds that--
(1) the trustee has, prior to the hearing, made a proposal that fulfills the requirements
of subsection (f);
(2) the authorized representative of the retirees has refused to accept such proposal
without good cause; and
(3) such modification is necessary to permit the reorganization of the debtor and assures
that all creditors, the debtor, and all of the affected parties are treated fairly and equitably,
and is clearly favored by the balance of the equities. . . .
11 U.S.C. § 1114(f) and (g). A debtor may not modify and must timely pay retiree benefits unless the court
orders modification after notice and a hearing in accordance with the procedural and substantive provisions
set forth above, or unless the retirees’ authorized representative agrees to modification of benefits.6 11
06-33227-maw Doc 500 FILED 03/26/07 ENTERED 03/26/07 16:51:59 Page 5 of 12

relief is not at issue in this case.
6
U.S.C. § 1114(e)(1). In addition, § 1114(e)(2) provides that any payment for retiree benefits required to be
made before a plan confirmed under § 1129 is effective has the status of an allowed administrative expense
as provided in § 503.
I. Is § 1114 Applicable in a Liquidating Chapter 11?
As a threshold matter, the court must determine the applicability of § 1114 in this case. The Union
contends that § 1114 is not applicable in a liquidating Chapter 11 case. According to the Union, Congress
intended § 1114 to be applicable only in a Chapter 11 reorganization where the debtor plans to emerge from
bankruptcy as a viable entity. The Union argues that a debtor cannot establish that a proposed modification
to retiree benefits is “necessary to permit reorganization,” as is required under § 1114(g)(3), when the debtor
is simply liquidating. While § 1114 may not have been written with a liquidating Chapter 11 plan in mind,
see In re Ionosphere Clubs, Inc., 134 B.R. 515, 521-22 (Bankr. S.D.N.Y. 1991) (explaining that § 1114 was
enacted to address the issue of steel manufacturing LTV Corporation’s obligation to continue paying retiree
benefits during the pendency of its reorganization), as one court noted, “[t]he obvious congressional
inattentiveness to liquidating Chapter 11 cases does not make § 1114 inapplicable to such cases,” In re
Garfinckels, Inc., 124 B.R. 3, 4 (Bankr. D.C. 1991). 	Indeed, § 1114 was placed in a Chapter entitled
“Reorganization” and that contemplates implementing a Chapter 11 plan through various means, including
through the “transfer of all or any part of the property of the estate to one or more entities” or the “sale of
all or any part of the property of the estate.” 11 U.S.C. § 1123(a)(5)(B) and (D); see In re Ionosphere, 134
B.R. at 524 (stating “absent corrective or clarifying legislation, the statute’s placement in Chapter 11
requires its application to liquidating Chapter 11 cases”); United Food & Comm’l Workers Union, Local
211 v. Family Snacks, Inc. (In re Family Snacks, Inc.), 257 B.R. 884, 895 (B.A.P. 8th Cir. 2001) (stating
that “reorganization” is generally understood to include “all types of debt adjustment, including a sale of
assets, piecemeal or on a going concern basis”). 	Section 1114 itself does not distinguish between a
liquidating plan and one in which the debtor seeks to rehabilitate its business – the plain language of the
statute requires any debtor-in-possession or trustee to comply with its provisions before being entitled to
modify or terminate retiree benefits. See 11 U.S.C. § 1114(e)(1)(A); Cf. United Steelworkers of America,
AFL-CIO, CLC v. Ohio Corrugating Co., 1991 WL 213850 (N.D. Ohio 1991) (finding similar provisions
governing the rejection of a collective bargaining agreement found in § 1113(f) apply in a liquidating
Chapter 11); In re Horizon Natural Res. Co., 316 B.R. 268 (Bankr. E.D. Ky. 2004) (applying both § 1113
and § 1114 in a Chapter 11 liquidation); In re U.S. Truck Co. Holdings, 2000 Bankr. LEXIS 1376, *24
06-33227-maw Doc 500 FILED 03/26/07 ENTERED 03/26/07 16:51:59 Page 6 of 12

7
(Bankr. E.D. Mich. 2000) (“Section 1113 contains no words of limitation or exclusion, and fails to
distinguish between liquidating Chapter 11 cases and Chapter 11 cases where the debtor seeks to rehabilitate
a failing business”). 	The court is not persuaded by In re Cedar Rapids Meats, Inc., 117 B.R. 448
(Bankr. N.D. Iowa 1990), the only case cited by the Union in support of its argument that § 1114 does not
apply in a Chapter 11 liquidation. In Cedar Rapids, the debtor sought interim relief from certain provisions
of a collective bargaining agreement under § 1114(h). Different procedural and substantive standards apply
when interim relief is sought. 	See 11 U.S.C. § 1114(h)(1) (requiring a debtor to show either that
modification is “essential to the continuation of the debtor's business, or in order to avoid irreparable
damage to the estate”). The court noted that the debtor had suspended its operations and did not contend
that interim relief was essential to the continuation of its business. The issue addressed by the court was
whether the relief was warranted in order to avoid irreparable damage to the estate. The court concluded
that the accrual of potential priority claims in favor of retirees does not constitute irreparable damage under
§ 1114(h). 	Cedar Rapids does not, however, stand for the proposition that § 1114 is inapplicable in a
Chapter 11 liquidation.
II. Application of § 1114
The following nine-part test enunciated in In re American Provision Co., 44 B.R. 907 (Bankr. D.
Minn. 1984), that courts often use in considering the requirements necessary for rejection of a collective
bargaining agreement has also been applied in considering the requirements for modification of retiree
benefits under § 1114(f) and (g). 	In re Horizon Natural Res. Co., 316 B.R. at 281 (noting that the
requirements for modification of retiree benefits are substantially the same as those for rejection of
collective bargaining agreements).
1. The debtor must make a proposal to the union to modify the collective bargaining
agreement.
2. The proposal must be based on the most complete and reliable information available at
the time of the proposal.
3. The proposed modifications must be necessary to permit the reorganization of the debtor.
4. The proposed modifications must assure that all creditors, the debtor and all the affected
parties are treated fairly and equitably.
5. The debtor must provide the union such relevant information as is necessary to evaluate
the proposal.
6. Between the time of the making of the proposal and the time of the hearing on approval
of the rejection of the existing collective bargaining agreement, the debtor must meet at
reasonable times with the union.
7. At the meetings the debtor must confer in good faith in attempting to reach mutually
satisfactory modifications of the collective bargaining agreement.
8. The union must have refused to accept the proposal without good cause.
9. The balance of the equities must clearly favor rejection of the collective bargaining
06-33227-maw Doc 500 FILED 03/26/07 ENTERED 03/26/07 16:51:59 Page 7 of 12

8
agreement.
American Provision Co., 44 B.R. at 909. Debtor has the burden of proving each factor by a preponderance
of the evidence. Id.
Debtor and the Union have stipulated that Debtor has satisfied factors one, two, five, six and seven.
While Debtor contends that the Union has refused to accept its proposal without good cause, it is 	the
Union’s position that Debtor has not shown that the proposed termination of retiree benefits is necessary
to permit its reorganization, that the termination assures that all creditors, the debtor and affected parties
are treated fairly and equitably, or that the balance of equities clearly favor termination of Retiree benefits.
Because Debtor’s failure to meet its burden as to any of the requirements under § 1114(f) and (g) must result
in denial of its motion to terminate Retiree benefits, and because the court agrees that Debtor has not shown
that termination of retiree benefits is necessary to permit its reorganization, this opinion addresses only that
factor.
Courts have addressed the meaning of § 1114(g)’s requirement that a proposed modification or
termination of retiree benefits be “necessary to permit the reorganization of the debtor” and have concluded
that the requirement must be interpreted to mean “necessary to accommodate confirmation of a Chapter 11
plan” when applied in a liquidating Chapter 11 case. 	In re Ionosphere, 134 B.R. at 525; In re Family
Snacks, Inc., 257 B.R. at 896; cf. In re Timbers of Inwood Forest Assocs., Ltd., 808 F.2d 363, 371 n.14 (5th
Cir. 1987), aff’d, 484 U.S. 365 (1988) (explaining that because a plan of reorganization under Chapter 11
can consist of a liquidation of the debtor, a debtor could satisfy the “necessary to an effective
reorganization” test under § 362(d)(2) by showing that the property at issue “is necessary to an effective
liquidation of the debtor under Chapter 11, as distinguished from an effective rehabilitation of the debtor”).
In this case, Debtors’ main impetus for seeking termination of the Retiree benefits is to eliminate
significant administrative expenses. 	For a Chapter 11 plan to be confirmed, § 1129(a)(9)(A) requires that
a debtor pay allowed administrative expenses in cash on the effective date of the plan unless the holder of
the claim has agreed to a different treatment of such claim. Retiree benefits required to be made before a
confirmed Chapter 11 plan becomes effective are administrative expenses. 11 U.S.C. § 1114(e)(2). Debtors
offered evidence that Sandusky paid approximately $5,322 annually per retiree for health benefits, for a total
of $505,600 per year, an amount that includes benefits paid for the 42 Chrysler Retirees for which it receives
reimbursement from Chrysler. To the extent that similar payments can be anticipated to be paid before the
effective date of a confirmed plan, Debtors contend that it will be unable to confirm a plan unless the Retiree
benefits are terminated. 	In any event, Debtors argue that they are under a duty to limit ongoing
06-33227-maw Doc 500 FILED 03/26/07 ENTERED 03/26/07 16:51:59 Page 8 of 12

7 According to the parties, any assignment of Sandusky’s right to receive payments from Chrysler requires the written
approval of Chrysler.
9
administrative expenses.
In addition, § 1129(a)(13) requires a Chapter 11 debtor to continue retiree benefits after the effective
date of a Chapter 11 plan at the levels established under § 1114. In a liquidating Chapter 11, this requires
Sandusky to provide the Retirees with the present value of the future benefits to which they are entitled.
Debtors presented evidence that the present value of the projected cost of life insurance premiums for the
Retirees is $321,088 and that the present value of projected costs of Retiree health care benefits as of
October 1, 2005, for the existing population of individuals receiving such benefits is $5,375,182, which
includes the Chrysler Retiree benefits of $1,387,987. There is, of course, the possibility that health benefits
to which Chrysler Retirees are entitled may be handled differently, that is, it may be possible to assign any
right Sandusky has to receive payments from Chrysler for Chrysler Retiree benefits to a UAW-affiliated
medical plan. That would then allow continued coverage to the Chrysler Retirees without the attendant cost
to Sandusky. 	This avenue apparently has not yet been thoroughly explored and the parties are unsure
whether or not such an assignment would be approved by both Chrysler and a UAW-affiliated medical
plan.7 To the extent it would not be approved, Sandusky will be facing a liability under § 1129(a)(13) of
approximately $5.7 million. Debtors argue that it will be unable to meet this obligation and, therefore,
unable to propose a confirmable plan unless the Retiree benefits are terminated.
While Debtors have presented evidence of the cost of Retiree benefits, Sandusky has not yet
proposed a liquidation plan. It is difficult, although perhaps not impossible, to determine whether or not
the termination of Retiree benefits is necessary to accommodate confirmation of a Chapter 11 plan when
no plan has been proposed. Debtors are attempting to sell Athol as a going concern and have indicated that
some of Sandusky’s assets will be sold in conjunction with the sale of Athol. In addition, Debtors have
proposed a sale at auction of other assets of Sandusky. But there is no evidence of the range of value that
Debtors anticipate receiving for either Athol or Sandusky’s assets. There is also no evidence or testimony
regarding how the Athol sale will affect any class of creditors of Sandusky or how it will affect the
liquidation of assets that are the property of Sandusky’s bankruptcy estate. 	Information regarding the
projected liquidation value of assets of Sandusky’s bankruptcy estate is essential to the court’s determination
as to whether termination of the Retiree benefits is necessary to accommodate confirmation of a Chapter
11 plan. 	To the extent that the sale of Sandusky’s assets will yield sufficient funds to satisfy any
administrative expense under § 1114(e)(2) and its obligations under § 1129(a)(9)(A) and (a)(13), it is not
06-33227-maw Doc 500 FILED 03/26/07 ENTERED 03/26/07 16:51:59 Page 9 of 12

10
necessary to terminate Retiree benefits. The only evidence before the court of the value of Sandusky’s
assets, which, because the Debtors’ cases are not substantively consolidated, are the only assets relevant to
the court’s determination, are the values set forth in Sandusky’s bankruptcy schedules. Those schedules
show that Sandusky’s assets exceed its scheduled liabilities by nearly $14 million. While the court does not
suggest that a liquidation sale of Sandusky’s assets will yield proceeds in the amount of values set forth in
its bankruptcy schedules, on the evidence before it, the court cannot conclude that Sandusky will be unable
to propose a plan that complies with the requirements of § 1129(a)(9)(A) and (a)(13) unless the Retiree
benefits are terminated.
Debtors also argue that they have a duty to limit administrative expenses and, thus, are entitled to
seek termination of the Retiree benefits. However, § 1114 provides the sole basis for termination of such
benefits, and the priorities assigned to Retiree benefits are a matter of legislative enactment that may not
be altered except as set forth in that section. See Cedar Rapids Meats, Inc., 117 B.R. at 450 (finding that
“the priorities assigned to . . . the retirees . . . are a matter of legislative enactment, not of ‘inequitable
distribution’ to creditors of the estate”).
Finally, Debtors argue that Sandusky will be unable to satisfy the best interests of creditors test
under § 1129(a)(7) unless Retiree benefits are terminated. Under the best interests of creditors test, a plan
may not be confirmed unless all impaired creditors either accept the plan or “receive or retain under the plan
on account of such claim or interest property of a value, as of the effective date of the plan, that is not less
than the amount that such holder would so receive or retain if the debtor were liquidated under chapter 7
of this title on such date.” 11 U.S.C. § 1129(a)(7)(A). As one commentator explains, “[t]his means that,
absent consent, a creditor . . . must receive property that has a present value equal to that participant’s
hypothetical chapter 7 distribution if the debtor were liquidated instead of reorganized on the plan’s effective
date.” 7 Alan N. Resnick, et al., Collier on Bankruptcy ¶ 1129.03[7][b] (15th ed. 2004) (emphasis added).
This provision provides an individual guaranty to each creditor or interest holder that it will receive, as of
the effective date of the plan, at least as much in reorganization as it would in liquidation. 	Id. at ¶
1129.03[7].
First, by its express terms, § 1129(a)(7) applies only to holders of impaired claims or interests. As
discussed above, Debtors have not yet proposed a Chapter 11 plan and have provided no evidence of the
liquidation value of Sandusky’s assets and, thus, no evidence from which the court may conclude that any
claim will be impaired. Nevertheless, in arguing that Sandusky will be unable to satisfy the best interests
of creditors test unless Retiree benefits are terminated, Debtors rely on the following reasoning set forth by
the court in Ionosphere Clubs:
06-33227-maw Doc 500 FILED 03/26/07 ENTERED 03/26/07 16:51:59 Page 10 of 12

11
Since, under Chapter 7, the retiree's claim for unaccrued benefits would be a prepetition
general unsecured claim, all other creditors would necessarily receive a greater distribution
under Chapter 7. Therefore, absent a modification of the benefits which is either accepted
by Eastern's creditors or reduces the cost of the benefits to the point at which the value of
confirming a Chapter 11 plan exceeds the cost of the modified benefits, the Trustee would
not be able to propose a confirmable plan of liquidation. In other words, without
modification or termination of the benefits, the retirees will receive a maximum recovery in
Chapter 11 while the other unsecured creditors will receive their maximum recovery in
Chapter 7.
In re Ionosphere Clubs, Inc., 134 B.R. at 525-26. This reasoning, however, ignores the date on which the
best interests of creditors is determined. Under § 1129(a)(7)A)(ii), the court must determine the amount an
impaired creditor would receive if liquidated in a Chapter 7 case on the effective date of the plan. In order
to make this determination, the court must consider two factors – the amount of the creditors’ claims and
the liquidation value of assets of the estate. Both of these factors are considered as of the plan’s effective
date. 	Again, having no evidence of Sandusky’s projected liquidation value, the court cannot make the
determination necessary under the best interests of creditors test.
To the extent Ionoshpere Clubs stands for the proposition that, regardless of the actual liquidation
value, unsecured creditors will always receive less than they would if the estate were liquidated under
Chapter 7 since § 1114(e)(2), which applies only in a Chapter 11 case, provides retirees with an
administrative claim for benefits payable before the plan’s effective date while Chapter 7 provides them
with only a general unsecured claim, the court disagrees. Again, the date on which the court determines the
best interests of creditors is the effective date of the plan. If the retiree benefits have not been terminated,
they have an administrative claim for benefits payable before that date. If on that date the debtor is then
liquidated under Chapter 7, existing Chapter 11 administrative claims do not disappear. 	They remain
administrative claims; however, they are subordinated to any Chapter 7 administrative claims that accrue.
See 11 U.S.C. § 726(b). Thus, the claims of retirees, along with claims of other holders of administrative
claims that are unique to Chapter 11, such as, for example, counsel for an unsecured creditors’ committee,
will still have priority over general unsecured creditors. To interpret the best interests of creditors test in
any other manner would nullify the provisions of § 1114(e)(2) in all cases except those that provide 100%
distribution to unsecured creditors. 	That is a result that is not required by the plain language of §
1129(a)(7)(A) nor, does the court believe, a result intended by Congress. 	Having failed to show that
termination of Retiree benefits is necessary to accommodate confirmation of a Chapter 11 plan, Debtors’
motion will be denied.
THEREFORE, for the foregoing reasons, good cause appearing,
06-33227-maw Doc 500 FILED 03/26/07 ENTERED 03/26/07 16:51:59 Page 11 of 12

12
IT IS ORDERED that Debtors’ motion for order authorizing termination of retiree benefits [Doc.
# 145] be, and hereby is, DENIED, without prejudice.
06-33227-maw Doc 500 FILED 03/26/07 ENTERED 03/26/07 16:51:59 Page 12 of 12