Chapter II, C. Standing to Pursue Substantive Consolidation

• Jurisdiction: United States

C. Standing to Pursue Substantive Consolidation

Typically, to obtain standing in a chapter 11 case, "a party must satisfy statutory standing under 11 U.S.C. § 1109, constitutional standing under Article III, and the evolving prudential standing requirements.⁷⁹ Those requirements are in the conjunctive, meaning that to have standing, a party must satisfy all three standards. Statutory standing under § 1109(b) provides any "party in interest, including the debtor, the trustee, a creditors' committee, an equity security holders' committee, a creditor, an equity security holder, or any indenture trustee," with the right to "raise and [] appear and be heard on any issue in a case under this chapter."⁸⁰ Because the Bankruptcy Code defines "party in interest" broadly, it provides few limits on who can pursue substantive consolidation.

Constitutional standing is obtained when "the plaintiff [] show[s] that it has suffered an 'injury in fact' that is: concrete and particularized and actual or imminent; fairly traceable to the challenged action of the defendant; and likely to be redressed by a favorable decision."⁸¹ A party seeking substantive consolidation will likely satisfy this test by demonstrating that it relied to its detriment on a debtor's representations that it and another entity functioned as separate entities. Such a creditor could point to the would-be consolidated entity and allege that it will be harmed if it cannot assert claims against that entity because that is the entity with whom it presumed to do business.

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