Florida Bankruptcy Court: Proposed DIP Financing and Sale Framework for Administratively Insolvent Debtors Did Not Violate Jevic's Prohibition of Priority-Deviating Distributions

The U.S. Supreme Court ruled in Czyzewski v. Jevic Holding Corp., 580 U.S. 451 (2017), that the Bankruptcy Code prohibits final distributions to creditors that deviate from the Bankruptcy Code's priority scheme as part of a "structured dismissal" of a chapter 11 case without the consent of affected creditors. Since then, courts have been called upon to determine whether the rationale of Jevic extends to other contexts, such as proposed settlements and bankruptcy asset sales.  

In In re Silver Airways, LLC, 2025 WL 1436258 (Bankr. S.D. Fla. May 19, 2025), the U.S. Bankruptcy Court for the Southern District of Florida weighed in on this debate in an unusual context. The court approved the debtors' motion to incur debtor-in-possession ("DIP") financing and for establishment of bidding procedures for an auction sale of assets even though the estate was administratively insolvent, and could remain administratively insolvent absent future events such as increased sale proceeds or successful prosecution of potential claims. According to the bankruptcy court, because the key administrative creditors made an informed decision to support the financing and sale framework as the only possibility of obtaining partial recovery on their claims, and no administrative creditors objected, the DIP financing and sale did not run afoul of Jevic. 

The Bankruptcy Code's Priority Scheme 

The Bankruptcy Code contains certain priority rules governing distributions to creditors in both chapter 7 and chapter 11 cases. Secured claims enjoy the highest priority under the Bankruptcy Code. See generally 11 U.S.C. § 506. Section 507(a) of the Bankruptcy Code establishes priority for certain unsecured claims, including claims for administrative expenses allowed under section 503(b) of the Bankruptcy Code, employee wages and benefits, and certain tax claims. General unsecured claims come next in the priority scheme, followed by any subordinated claims and the interests of equity holders. 

In a chapter 7 case, the order of priority for distributions on account of unsecured claims is determined by section 726 of the Bankruptcy Code. The order of distribution begins with payments on claims in the order of priority specified in section 507(a), which have the highest priority, and eventually to payment of any residual assets after satisfaction of all claims to the debtor, which has the lowest priority. Distributions are to be made pro rata to parties of equal priority within each of the six categories specified in section 726. If claimants in a higher category of distribution do not receive full payment of their claims, no distributions can be made to parties in lower categories.  

In a chapter 11 case, the plan of reorganization determines the treatment of secured and unsecured claims (as well as equity interests), subject to the requirements of the Bankruptcy Code. Notably, unless the holder of an administrative expense claim agrees otherwise, the debtor cannot confirm a chapter 11 plan without paying administrative claims in full. See 11 U.S.C. § 1129(a)(9)(A) ("Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, [a chapter 11 plan cannot be confirmed unless] the plan provides that … with respect to a claim of a kind specified in section 507(a)(2) … of this title, on the effective date of the plan, the holder of such claim will receive on account of such claim cash equal to the allowed amount of such claim.") (emphasis added). 

Jevic 

In Jevic, the Supreme Court held that the Bankruptcy Code does not allow bankruptcy courts to approve distributions to creditors in a "structured dismissal" of a chapter 11 case that violate the Bankruptcy Code's ordinary priority rules except with the consent of the creditors impacted (but not offering any "view about the legality of structured dismissals in general"). In cases where confirmation of a chapter 11 plan is not feasible, a structured dismissal of the case can be a less costly and more attractive alternative to outright dismissal or conversion of the case to a chapter 7 liquidation. An order approving a structured dismissal can include certain terms usually contained in a chapter 11 plan and confirmation order (like settlements and releases) but does not incorporate all of the substantive and procedural stakeholder protections that apply to the plan confirmation process.  

The Court distinguished the case before it from cases in which courts have approved interim settlements resulting in distributions of estate assets in violation of the priority rules, such as In re Iridium Operating LLC, 478 F.3d 452 (2d Cir. 2007). The 6–2 majority found that Iridium "does not state or suggest that the [Bankruptcy] Code authorizes nonconsensual departures from ordinary priority rules in the context of a dismissal—which is a final distribution of estate value—and in the absence of any further unresolved bankruptcy issues." Jevic, 580 U.S. at 467. In this sense, the majority explained, the situation in Iridium was similar to certain "first-day" orders, where courts have allowed for, among other things, payments ahead of secured and priority creditors to employees for prepetition wages or to critical vendors on account of their prepetition invoices. Id. at 468. But such relief typically is in support of preserving a going concern and the opportunity to reorganize and achieve an eventual final resolution of the case consistent with the Bankruptcy Code's priority scheme and other requirements. 

The Court explained that "in such instances one can generally find significant [Bankruptcy] Code-related objectives that the priority-violating distributions serve." Id. By contrast, it noted, the structured dismissal in Jevic served no such objectives (e.g., it did not benefit disfavored creditors by preserving the debtor as a going concern and enabling the debtor to confirm a plan of reorganization and emerge from bankruptcy). Rather, the distributions at issue "more closely resemble[d] proposed transactions that lower courts have refused to allow on the ground that they circumvent the [Bankruptcy] Code's procedural safeguards" (citing, among others, certain section 363 asset sales). Id. 

In the aftermath of Jevic, many courts have examined what kinds of distributions can be authorized under the Court's rationale regarding permitted exceptions to its ruling. See, e.g., In re Nordlicht, 115 F.4th 90, 118-20 (2d Cir. 2024) (affirming rulings in a chapter 7 case approving a settlement and related sale of estate claims that would distribute value to unsecured creditors without first paying disputed secured claims, where the estate claims could be sold free and clear of the purported secured creditors' interest because their liens were subject to bona fide dispute, and any funds distributed to unsecured creditors pursuant to a conditional indemnity provision did not violate the absolute priority rule); In re Veg Liquidation, Inc., 931 F.3d 730, 739 (8th Cir. 2019) (unequal distribution of the proceeds from a section 363 sale to unsecured creditors with equal priority was not prohibited by Jevic); In re Old Cold LLC, 879 F.3d 376, 388 (1st Cir. 2018) (refusing to apply Jevic to disturb an asset sale under section 363(b) and ruling that section 363(m) rendered statutorily moot an appellate challenge to a sale to a good faith purchaser); In re Romero, 2025 WL 933942, at *7 (C.D. Cal. Mar. 27, 2025) ("Jevic neither considered nor discussed whether a high-priority secured creditor can assign or carve out a portion of its own recovery for the benefit of the bankruptcy estate and low-priority general unsecured creditors, and does not support Debtors' contention that a high-priority secured creditor may not agree to carve out a portion of its recovery for the bankruptcy estate. Debtors' argument, thus, fails."); In re Micron Devices, LLC, 2021 WL 2021468, *10 (Bankr. S.D. Fla. May 20, 2021) (approving a proposed settlement agreement that could avoid violation of priority rules while noting that previous structured dismissal proposals "would not pass muster" under Jevic because, among other things, administrative claimants would not be paid in full); In re Goodrich Quality Theaters, Inc., 616 B.R. 514, 521 (Bankr. W.D. Mich. 2020) (relying on the "competing bankruptcy principles" identified in Jevic, namely preservation of going concern value and prospects for reorganization, to approve critical vendor payments), as supplemented, 2020 WL 1180534 (Bankr. W.D. Mich. Mar. 9, 2020); In re Claar Cellars, LLC, 2020 WL 1238924, *7 (Bankr. E.D. Wash. Mar. 13, 2020) (holding that the debtor's use of cash collateral to pay in part a prepetition, allegedly secured debt owed to an affiliated debtor did not violate Jevic); In re ACI Concrete Placement of Kansas, LLC, 604 B.R. 400, 407 (Bankr. D. Kan. 2019) (holding that enforcing a "carve out" from a secured creditor's collateral for payment of professional fees did not violate Jevic); In re Daily Gazette Co., 584 B.R. 540, 546 (Bankr. S.D. W. Va. 2018) (a proposed disbursement following a section 363 sale that would result in an orderly payment of administrative claims, such as attorneys' fees and U.S. Trustee fees, followed by payment to an undisputed secured creditor with essentially a blanket lien covering in excess of the net sale proceeds "neither runs afoul of Jevic nor the [Bankruptcy] Code generally"); In re Fryar, 570 B.R. 602, 610 (Bankr. E.D. Tenn. 2017) ("In light of the Supreme Court's recent ruling in Jevic, parties who seek approval of settlements that provide for a distribution in a manner contrary to the [Bankruptcy] Code's priority scheme should be prepared to prove that the settlement is not only 'fair and equitable' … but also that any deviation from the priority scheme for a portion of the assets is justified because it serves a significant [Bankruptcy] Code-related objective.") 

In Silver Airways, the bankruptcy court considered Jevic's impact on a motion for approval of DIP financing and bidding procedures governing an asset sale in an administratively insolvent chapter 11 case. 

Silver Airways 

In December 2024, Florida-based regional airline Silver Airways LLC ("Silver") and its affiliate Seaborne Virgin Islands, Inc. ("Seaborne" and, together with Silver, the "debtors") filed for chapter 11 protection in the Southern District of Florida. At the time of the bankruptcy filing, the debtors' assets consisted of 16 leased aircraft (shortly afterward reduced to eight) and related equipment, ground support infrastructure, maintenance and operations facilities, airport gate leases, receivables, and intellectual property. The debtors' liabilities included approximately $400 million in secured debt owed to two prepetition lenders (the "prepetition lenders"), aircraft lease obligations, vendor payables, and unpaid employee wages and benefits. 

Because cash collateral proved inadequate to fund the debtors' operations, they sought court approval to incur up to $5.5 million in DIP financing from a bank (the "DIP lender") to support ongoing operations and fund a process to sell substantially all of the debtors' assets. In April 2025, the bankruptcy court approved part of the financing on an interim basis under section 364(d) of the Bankruptcy Code and scheduled a May 2025 hearing to approve the remainder of the DIP financing on a final basis. 

The DIP financing was to be secured by first-priority priming liens on substantially all of the debtors' assets pursuant to section 364(d), and the DIP lender's claim was conferred with "super-priority" administrative expense status under section 364(c)(1). The interim DIP order also included various protections for the DIP lender, including milestones, a waiver of the debtors' right to surcharge the DIP lender's collateral, and provisions limiting the use of the loan proceeds to items authorized under a budget approved by the DIP lender.  

The DIP lender also served as a stalking horse bidder in a proposed section 363(b) sale of Silver's assets, which the DIP lender offered to acquire by credit bidding its approximately $5.8 million first-priority secured debt. The debtors intended to separately seek approval of a sale of Seaborne's assets and Silver's equity interests in Seaborne. 

The separate prepetition secured lenders consented to the relief requested by the debtors in their motion for approval of bidding procedures in connection with the proposed sale of Silver's assets (with the exception of a proposed payment to one of the lenders from the proceeds of any subsequent sale of Seaborne). The prepetition lenders also agreed to a "carve out" from their collateral for any unpaid administrative claims (including attorneys' fees). 

Nevertheless, the debtors projected that they would have a total of approximately $12 million in administrative expenses as of the closing date of the sale of Silver's assets, including operating expenses, cure obligations for leased aircraft, and various other claims. Because the debtors projected no more than $9 million in monthly revenue, this meant that there would be a $3 million shortfall in closing date administrative liabilities—principally trade payables, taxes, and payroll—that would remain unpaid unless assumed by a buyer. In addition, another $4 million to $5 million in administrative claims, including professionals' fees, priority vendor claims, and aircraft lease cure amounts, could be satisfied only if a purchaser outbid the DIP lender for Silver's assets or if Seaborne's assets were successfully sold or certain estate claims could be collected. There also were approximately $2.2 million in administrative claims for cure amounts payable as a condition to assuming aircraft leases, but these claims were to be paid by the purchaser rather than the estate. 

All of the debtors' principal administrative creditors actively participated in the proceedings and supported the sale process. No administrative creditors objected. But not every administrative creditor gave its affirmative consent. Many remained silent. 

The Bankruptcy Court's Ruling 

The bankruptcy court approved both the DIP financing motion and the sales procedure motion. 

The court reasoned that the shortfall in estate funds to satisfy administrative claims in full was troubling but did not warrant rejection of the proposed DIP financing and sale procedures. Bankruptcy Judge Peter D. Russin was mindful of Jevic's prohibition of priority-deviating distributions without the consent of priority creditors. However, he explained, the consent of the principal administrative creditors, who participated in the process and were aware of the attendant risks of the DIP financing and sale structure, but viewed it as the best hope of recovery on their claims, "forms the legal basis for approval under [Jevic] and aligns with the principles set forth in §1129(a)(9)(A) of the Bankruptcy Code." Silver Airways, 2025 WL 1436258, at *5. According to Judge Russin, "[n]othing in Jevic or the [Bankruptcy] Code prevents administrative creditors from agreeing to a process that may leave them underpaid, so long as they do so voluntarily, with eyes open and in the absence of better alternatives." Id. at *6. 

Judge Russin further explained that he would have denied the debtors' motions if administrative creditors objected to the proposed financing and sale structure because their claims were not being paid in full. That was not the case here, however, where "administrative creditors chose a negotiated risk over a guaranteed loss" or "the possibility of at least partial recovery through continued operations over the certainty of loss through collapse." Id. at **7–8. 

Judge Russin acknowledged the possibility that the DIP lender could argue that the motions should be granted regardless of administrative creditor consent because the DIP lender was fully secured and was simply recovering what it was owed. Although this outcome was "facially consistent with priority," he noted, it failed "to address a deeper concern"—namely, that chapter 11 should not be used by a single creditor "to extract all value through a § 363 sale while leaving those who kept the estate aloft—vendors, lessors, professionals, and employees—unpaid." Secured creditors in this position must "pay the freight." Id. at *8 (citing In re NEC Holdings Corp., No. 10-11890 (PJW) (Bankr. D. Del. July 11, 2011)). 

Judge Russin explained that: 

A secured creditor that chooses to avail itself of the protections and powers of Chapter 11—including the ability to sell its collateral free and clear under § 363(f), to provide DIP financing under § 364, or to benefit from a structured wind-down—must also accept the obligations that come with that choice. Chief among them is the requirement that the estate's administrative expenses be paid. If those expenses cannot be paid, then a plan dependent on the sale is not feasible or confirmable under the [Bankruptcy] Code. The Court is not free to disregard that reality simply because secured creditor parties prefer the sale to other alternatives. Neither convenience nor expediency justify the erosion of the [Bankruptcy] Code's structural protections. 

Id. at *8. 

However, the bankruptcy court emphasized, where, as here, administrative creditors "have assessed the circumstances, considered the alternatives, and opted to support a process that may maximize going concern value, that decision deserves respect," especially "when the alternatives are neither a confirmable chapter 11 plan nor a competitive reorganization, but certain collapse." Id. The administrative creditors therefor have "chosen potential recovery over certain loss." Id. at *1. 

Notably, the court did not require all administrative creditors to consent. The informed consent of the major administrative creditors and the lack of objection by others who were given notice was sufficient. The court explained: "Other administrative creditors—potentially including vendors and service providers—may have received notice but remained silent. Their silence does not constitute consent. But it also does not alter the reality that no party has filed an objection or proposed an alternative to the process now before the Court." Id. at *5. 

The bankruptcy court acknowledged that the relief sought by the debtors was not confirmation of a chapter 11 plan, but emphasized that "the logic is parallel." Judge Russin further noted that "[t]he Court does not relieve the estate of its obligations … [but] respects the decision of those entitled to payment to accept uncertainty in the hope of a better outcome." Id. 

Outlook 

Silver Airways is yet another example of bankruptcy courts attempting to determine the scope of Jevic in a context other than structured dismissal of a chapter 11 case. As the court explained, Jevic does not categorically reject priority-deviating distributions to creditors as part of a structured dismissal, asset sale, or settlement. Instead, the Supreme Court's decision prohibits final distributions that deviate from the Bankruptcy Code's priority scheme without the consent of senior creditors. Where senior creditors consent to such a framework—as is expressly provided with respect to administrative creditors in a chapter 11 case under section 1129(a)(9)(A)—Jevic is not an impediment to the framework.

Silver Airways is also notable because, confronted with the administrative insolvency of the debtors and the consent of administrative creditors to a DIP financing/sale framework as the only likely possibility of partial recovery, the bankruptcy court approved DIP financing that it would have rejected in almost any other case. 

Postscript 

On June 11, 2025, the debtors informed the bankruptcy court that they had ceased operating. On June 18, 2025, the court approved the Sale of Silver's assets to the DIP lender, and after the court was informed that the debtors had secured a $200,000 bid for Seaborne's assets, it scheduled bid procedure, auction, and sale approval hearings in July. 

On June 23, 2025, the DIP lender in an emergency motion asked that the court compel the debtors to close the credit-bid sale, claiming that the debtors were trying to extract additional consideration in direct contempt of the court's order approving the sale. According to the DIP lender, on June 22, 2025, the debtors demanded an additional payment of $650,000 and threatened to withhold cooperation in the transfer of assets. 

On June 24, 2025, the bankruptcy court, concerned that the debtors' principals were not acting diligently to close the Silver sale, appointed a chapter 11 trustee for the debtors. However, on June 26, 2025, Judge Russin delayed the effectiveness of his order appointing a trustee, allowing current management to continue operating the debtors and administering the going-concern sale process for the Seaborne assets until June 30. 

After approving bid procedures, the court approved the sale of Seaborne on July 3 and appointed a chapter 11 trustee. On July 31, the cases were converted to chapter 7 liquidations.