The Supreme Court held that when a bankruptcy court orders a Chapter 11 case dismissed, it can’t also order the distribution of the debtor’s assets in a way
that contradicts the order of payment in a bankruptcy liquidation.
Alternatively, the parties might have entered into a settlement, as they did here, but simply avoided the one provision
that seemed to get everyone riled up: namely, so long as the settlement did not expressly pay junior creditors when senior ones were still unpaid, no problem.
Supreme Court Ruling Draws a Vague Line in Bankruptcy Cases -
A few weeks back, the Supreme Court decided Czyzewski v. Jevic Holding Corporation.
In reaching this conclusion, Justice Breyer distinguishes most of the other priority violations
as interim distributions, which might plausibly make most creditors better off in the long run.