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tive consolidation as a remedy, the Third Circuit stated that a "fundamental ground rule" would
limit the cross-creep of liability by "respecting entity separateness." It directed courts to "respect
entity separateness absent compelling circumstances calling equity (and even then only possibly
substantive consolidation) into play." The Owens Corning test is generally viewed as the most
restrictive test for substantive consolidation. See Owens Corning, 419 F.3d 195 (3d Cir. 2005).

In determining whether the previously listed tests are satisfied, bankruptcy judges generally review a
number of factual considerations, many of which are interrelated, including:

5. The Parent-Subsidiary Relationship. The parent-subsidiary relationship has assumed a pivotal
role in substantive consolidation. Appendix E, "Parent-Subsidiary Relationship Assessment,"
consists of a number of questions that address that relationship and the independence of the two
companies. These questions include, among others, whether the parent and subsidiary’s assets
are commingled, whether the subsidiary has a legitimate business independent of the parent,
whether the subsidiary is considered a branch or division of the parent in outside communication,
whether the parent makes gratuitous intercompany transfers to the subsidiary, whether the parent
controls the subsidiary’s operations, and whether the two corporations could survive separately.

6. Basic Fairness. Courts often approach substantive consolidation with considerable reluctance if
they are uncertain as to how such consolidation will affect individual creditors. Courts are also
reluctant to order substantive consolidation when doing so would violate the absolute priority
rule (Section 507), which requires the estate to pay more senior creditors in full before paying
any monies to junior creditors and to pay creditors in full before paying any monies to share-
holders or investors. For example, a court may not want to order consolidation in a case in which
several separate bankruptcies were filed for real estate projects created by separate companies,
and the consolidation would preserve the rights of investors or shareholders at the expense of
creditors in successful projects. Accountants assisting in these cases must evaluate whether sub-
stantive consolidation results in violation of the absolute priority rule. In weighing the merits of
substantive consolidation, most courts look to the issue of basic fairness by asking the following
six questions:

1. Who would the consolidation benefit?

2. Who would the consolidation hurt?

3. Is the consolidation actually necessary to avoid benefiting one creditor at the expense of
other creditors?

4. Do the benefits of consolidation outweigh the burdens?

5. Is this the fairest outcome?

6. Can one achieve this fairest outcome short of consolidation?

Contents of a Plan

A reorganization plan is essentially a contract between the debtor, its creditors, and other interested par-
ties which outlines and incorporates the terms agreed to during the negotiating process. Section 1123 of
the Bankruptcy Code makes certain provisions of a reorganization plan mandatory. Included in these
provisions are the requirements that a plan must

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