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Confirmation Of Plan
LAWDOG is intended to assist in the understanding of basic concepts. See Disclaimer. Always obtain legal advice from legal professionals.
Acceptance
"Cram Down" Provisions
Discharge
Confirmation of a Chapter 11 plan takes place at a confirmation hearing. After notice, the court must hold a hearing on confirmation of a plan, where the Court determines whether the plan meets confirmation requirements. Any party in interest may object to the confirmation of a plan. See Section 1128 reproduced here for illustration purposes only.
Basic Requirements And Disclosure
The court may confirm a plan only if all of the requirements contained in Section 1129 (a) are met, except for the "cram-down" situation discussed below. These requirements include that the plan comply with all applicable provisions of the Bankruptcy Code, and that the plan has been proposed in good faith and not by any means forbidden by law.
The plan must comply with rules concerning the contents of the plan. See Plan of Reorganization here or from prior menu. Disclosure and Solicitation rquirements must also be met. See Disclosure Statement here or from prior menu. These links do not return to this page.
The treatment of each claim of all "impaired" classes must meet the "best interests of creditors test". Section 1129 (a) (7) (A) provides that as to each claim, the creditor holding the claim must either accept the plan ( See Acceptance below ), or the creditor must receive, under the plan, property of a value, as of the effective date of the plan, that is not less than the amount that such creditor would receive if the debtor were liquidated under a Chapter 7 bankruptcy on such date. A different rule may apply if a Section 1111 (b) election has been made by a secured creditor. See Secured Claims from previous menu or click here. Link does not return to this page.
Section 1129 (a) (8) provides that as to each claim, the creditor holding the claim must either accept the plan or not be impaired under the plan. Section 1129 (a) (10) provides that if any class of claims is impaired under the plan, at least one class of claims that is impaired under the plan has accepted the plan.
Section 1129 (a) also includes requirements for payment of certain priority claims, and Section 1129 (a) (11) requires that the plan have a reasonable probability of success, and that confirmation of the plan is not likely to be followed by liquidation. See Section 1129 (a) reproduced here for illustration purposes only.
Any creditor with an allowed claim or interest may accept or reject a plan. An acceptance or rejection must be in writing, identify the plan, be signed by the creditor or authorized agent, and conform to the appropriate official form. See Bankruptcy Rules Rule 3018 reproduced here for illustration purposes only.
A class of claims is considered to have accepted a plan, if such plan has been accepted by creditors that hold at least two-thirds in amount, and more than one-half in number, of the allowed claims of that class, that have accepted or rejected such plan. See Section 1126 (c) reproduced here for illustration purposes only.
Impairment is an important concept. A class that is not "impaired" under a plan, and each holder of a claim or interest of such class, are 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. Also see Impairment of Claims or Interests linked here. Link does not return to this page.
Conversely, a class is deemed to have rejected a plan if such plan provides that the holders of such claims receive nothing under the plan. See Section 1126 (g) reproduced here for illustration purposes only.
If all requirements for confirmation are met, except that not all impaired classes of claims have accepted the plan, the Court may still approve the plan provided that certain requirements, sometimes referred to as "cram down" rules, are met. The plan must be fair and equitable to each impaired class, and must not be unfairly discriminatory with respect to each claim that has not accepted the plan. See Section 1129 (b) reproduced here for illustration purposes only.
Section 1129 supplies guidance in the determination of whether the plan is "fair and equitable to a particular class. For allowed secured claims, the plan must provide that:
(1) The secured creditor retains lien on the property, or the proceeds of the property, and receives payments in deferred installments totalling at least the amount of the allowed secured claim, and having a present value, as of the date of the effective date of the plan, of at least the value of the collateral. If an election under Section 1111 (b) has been made, the deferred installments above must total at least the entire allowed amount, and have a present value, as of the date of the effective date of the plan, of at least the value of the collateral, or
(2) The secured creditor must receive the "indubitable" equivalent of its secured claim.
For a class of unsecured claims, the plan may be considered "fair and equitable" if the plan provides that each holder of a claim of such class receive or retain property of a value, as of the effective date of the plan, equal to the allowed amount of such claim, or the holder of any claim or interest that is junior to the claims of such class will not receive any property under the plan. See Section 1129 (b) (2) (B) reproduced here for illustration purposes only.
The provisions of a confirmed plan bind the debtor, any entity acquiring property under the plan, and any creditor, equity security holder, or general partner in the debtor, whether or not the claim or interest of such creditor, equity security holder, or general partner is impaired under the plan and whether or not such creditor, equity security holder, or general partner has accepted the plan.
The confirmation may discharge the debtor from all debts prior to confirmation, debts arising from the rejection of executory contracts or unexpired leases, and certain other items. Except as otherwise provided in the plan or the order confirming the plan, the confirmation of a plan vests all of the property of the estate in the debtor, free and clear of all claims and interests.
