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Plan Of Reorganization
LAWDOG is intended to assist in the understanding of basic concepts. See Disclaimer. Always obtain legal advice from legal professionals.
Small Business Debtor
Exclusive Right To File Chapter 11 Plan
If the debtor has not filed a Chapter 11 plan before the end of the 120 day "exclusive" period, or has not filed a plan and obtained the acceptances of every class of impaired claims before 180 days after the date of filing, or at any time in the unusual Chapter 11 case where a trustee has been appointed, any party in interest, including the debtor, the trustee, a creditors' committee, a creditor and others, may file a plan. See Section 1121(c) reproduced here for illustration purposes only.
Mandatory Provisions
The Bankruptcy Code requires certain mandatory provisions for a Chapter 11 plan. The plan must have "classification" of all claims. For example, each secured claim may be treated as a separate class, with separate classes for general unsecured claims, and others. A plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of the same class. See Section 1122 reproduced here for illustration purposes only. Note administrative convenience exception.
Impairment of Claims or Interests
Section 1124 provides that a class of claims or interests is deemed to be "impaired" unless, with respect to each claim or interest of such class, the plan -
(1) leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest, or
(2) Regardless of contractual provision or applicable law which permits acceleration after default, the plan cures any such default that occurred before or after the commencement of the case, reinstates the maturity of such claim or interest as such maturity existed before such default, compensates the holder of such claim or interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law; and does not otherwise alter the legal, equitable, or contractual rights to which such claim or interest entitles the holder.
See Section 1124 reproduced here for illustration purposes only.
Impairment is such an important concept because a class that is not impaired under a plan, and each holder of a claim or interest of such class, is conclusively presumed to have accepted the plan, and solicitation of acceptances with respect to such class from the holders of claims or interests of such class is not required. See Section 1126 (f) reproduced here for illustration purposes only.
In addition to the mandatory provisions, a Chapter 11 plan may have permissible provisions which impair any class of claims, assume, reject or assign contracts not yet fulfilled or unexpired leases, provide for the settlement or pursuit of claims held by the debtor, provide for the liquidation of all or most of the assets of the debtor and a distribution plan, provide for the modification of rights of secured or unsecured creditors, or provide for other appropriate measures which are consistent with the Bankruptcy Code. See Permissible Provisions in Section 1123 (b) reproduced here for illustration purposes only.
Approval And Confirmation
Before the Chapter 11 plan may be implemented, the debtor in possession must send the creditors a court approved disclosure statement, and obtain acceptance of the plan by creditors. See Disclosure Statements from the previous menu or here. Links do not return to this page. If the plan proponent meets the requirements, and obtains necessary approval after proper disclosure from the creditors, the plan can be confirmed by the Court. Under certain circumstances, even with objections to the plan, the debtor in possession may obtain approval through a "cram down" procedure. See Confirmation & Discharge from the previous menu or here. Links do not return to this page. Small Business Debtors are treated below.
In a case in which the debtor is a small business and elects to be considered a small business debtor, only the debtor may file a plan until after 100 days after the date of the order for relief. All plans must be filed within 160 days after the date of the order for relief.
On request of a party in interest made within the respective periods, after notice and a hearing, the court may reduce or increase the 100-day period or the 160-day period under certain circumstances. See Section 1121 (e) reproduced here for illustration purposes only.
On request of a party in interest in a case in which the debtor is a small business and for cause, the court may order that a committee of creditors not be appointed. See Section 1102 (a)(3) reproduced here for illustration purposes only.
When the debtor qualifies and has elected to be treated as a "small business debtor", the court may conditionally approve a disclosure statement and combine the hearing for the approval of a disclosure statement with a hearing on the confirmation of a plan. The small business debtor may solicit the acceptance or rejection of a plan based upon a conditionally approved disclosure statement. The debtor must provide adequate information to each holder of a claim or interest that is solicited. A conditionally approved disclosure statement must be mailed at least 10 days prior to the confirmation hearing. See Section 1125 (f) reproduced here for illustration purposes only.
