For a period of time after the petition is filed, a Chapter 11 debtor has the exclusive right to prepare and file a repayment plan with the court. After the debtor’s exclusivity period has expired, the trustee (if one has been appointed) and creditors may file competing plans with the court. The court will then review the plan to determine whether it should be submitted to creditors and equity security holders for a vote. If the creditors and equity security holders vote to accept the plan, the court will hold a confirmation hearing to decide whether the plan should be confirmed.
If you have questions about preparing a Chapter 11 plan, filing a Chapter 11 plan with the court, obtaining approval of the Chapter 11 plan, or the effect of plan confirmation, feel free to contact an attorney at Jon B. Clarke, P.C. in Greenwood Village, Colorodo, to schedule a consultation.
Contents of Plan
In general, the contents of a Chapter 11 plan are prescribed by law. The Bankruptcy Code sets out provisions, both mandatory and permissive, to include in the plan. 11 USCA § 1123. Section 1123(a) of the Bankruptcy Code describes the mandatory provisions of Chapter 11 plans, including the requirements that all plans must classify claims and treat each claim in a particular class the same.
- Claims classification. All Chapter 11 plans must designate the classes of claims and classes of interests. 11 USCA § 1123(a)(1). A plan may include a class of claims consisting of every unsecured claim that is less than or reduced to an amount that the court approves as reasonable and necessary for administrative convenience (administrative convenience class). 11 USCA § 1122(b). All other claims or interests may be placed in a particular class only if they are “substantially similar” to the other claims or interests of the class. 11 USCA § 1122(a)
- Treatment of classes. Unless the holder of a particular claim or interest agrees to a less favorable treatment, all Chapter 11 plans must treat each claim or interest of a particular class the same. 11 USCA § 1123(a)(4).
Filing the Plan
In most Chapter 11 cases, the debtor may file a plan at the same time as the petition or at any time before plan confirmation. 11 USCA § 1121(a). Typically, only the debtor may file a plan for the first 120 days after the filing of the petition, and if the debtor files a plan within 120 days, no other plan may be filed for the first 180 days after the filing of the petition to give the debtor time to obtain approval of the plan. 11 USCA §§ 1121(b), (c)(3). The 120- or 180-day period is known as the debtor’s exclusivity period. The debtor’s exclusivity period may be extended or reduced. 11 USCA § 1121(d). Extensions are common, but the 120-day period cannot be extended beyond 18 months, and the 180-day period cannot be extended beyond 20 months. 11 USCA § 1121(d)(2).
If a trustee has been appointed or if the debtor’s exclusivity period has expired, any party in interest (the debtor, the trustee, a creditors’ committee, an equity security holders’ committee, a creditor, an equity security holder, or any indenture trustee) may file a plan. 11 USCA § 1121(c). The U.S. trustee may not file a plan. Although more than one plan may be filed, only one plan may be confirmed.
In general, every holder of a claim or interest is not required to approve the plan, but all claim or interest holders must receive adequate information and be given an opportunity to vote.
Full disclosure. Before the debtor or plan proponent may solicit acceptances or the creditor may solicit rejections, the debtor or plan proponent must submit a disclosure statement to the court who will review it to ensure holders or claims will receive adequate information. After notice and a hearing by the court, it will typically approve the disclosure statement if it contains “adequate information”. Adequate information means “information of a kind, and in sufficient detail . . . [to enable an investor] to make an informed judgment about the plan . . .” 11 USCA § 1125(a). Whether a disclosure statement provides adequate information depends on the circumstances of each case.
Acceptance by a class of claims. A plan is accepted by a class of claims if it is approved by more than one-half of the total number of allowed claims and at least 2/3 of the allowed claims actually voting. 11 USCA § 1126(c).
Acceptance by a class of interests. A plan is accepted by a class of interests if it is approved by at least 2/3 of the allowed interests actually voting. 11 USCA § 1126(d).
Cram down. Plans that have not been accepted by every class of claims and interests may still be confirmed if certain requirements are met. This is known as cram down. 11 USCA § 1129(b). Cram down is allowed if at least one class of claims that is impaired under the plan has accepted the plan, the plan does not discriminate unfairly, and the plan is fair and equitable.
Plans accepted by every class of claims and every class of interests are typically confirmed if the requirements of section 1129(a) of the Bankruptcy Code are satisfied. Some of the requirements of section 1129(a) are:
- “Best interest of creditors.” Each dissenting member of a class, whether or not the class approved the plan, must receive at least as much under the Chapter 11 plan as it would have received under Chapter 7. 11 USCA § 1129(a)(7).
- Priority claims. Special treatment is required for certain priority claims.
- Administrative expense claims / some post-petition expense claims in involuntary cases. Unless the holder of a claim agrees to a different arrangement, the claim must be paid in cash on the plan’s effective date. 11 USCA § 1129(a)(9)(A).
- Wage, fringe benefit, and consumer creditor claims. Unless the class agrees to deferred payments at present value, claims for wages or fringe benefits and claims of some consumer creditors must be paid in cash on the plan’s effective date. 11 USCA § 1129(a)(9)(B).
- Priority tax claims. Holders of priority tax claims must receive deferred cash payments at the present value of claims. 11 USCA § 1129(a)(9)(C).
- Consent of at least one impaired class. “If a class of claims is impaired under the plan, at least one class of claims that is impaired under the plan” must have accepted the plan. 11 USCA § 1129(a)(10).
- Feasibility. The court must find that “[c]onfirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan . . .” 11 USCA § 1129(a)(11).
Speak to a Bankruptcy Lawyer
If you have questions about Chapter 11 bankruptcy or would like assistance preparing a Chapter 11 plan, contact a lawyer at Jon B. Clarke, P.C. in Greenwood Village, Colorodo, to schedule a consultation.
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