Conco’s confirmed chapter 11 plan provided that the reorganized debtor could not purchase shares of the company from the Employee Stock Ownership Plan until January 1, 2019. Other provisions of the plan prohibited the sale of the stock until that date as well.
Delfasco, a Conco competitor, sought to purchase Conco’s stock from the ESOP and asked the bankruptcy court to approve it. The court declined citing the plain language of the plan which prohibited the sale. Delfasco argued that the plan only prohibited the sale to Conco, not to third parties.
The bankruptcy court recognized that the plan was silent as to the purchase of stock by third parties other than Conco. Using Kentucky principles of contract interpretation, the Sixth Circuit held that the silence in the plan pertaining to third parties did not prohibit the bankruptcy court from finding, in its discretion, that the subject provision could apply to sales of stock by all third parties other than Conco. Under Kentucky law, “if a contract is silent on a certain point, the law will imply an obligation to carry out the purpose for which the contract was made.” In this case, the court held that “the surrounding context shows that the intent of the parties and the purpose of the Confirmed Plan, cannot accommodate any sales of equity until the Confirmed Plan term expires” (in 2018).