1. Chapter 26 Chapter 11: Plan Confirmation

2. Disclosure Statement Hearing The disclosure statement hearing is the first step in the Chapter 11 reorganization plan confirmation process Creditors and other parties in interest are entitle to 25 days’ notice of the hearing

3. Disclosure Statement, Contents A disclosure statement must contain information sufficient to enable a creditor or interest holder to determine whether to vote for acceptance or rejection of the plan (“adequate information”) A history of the debtor should be provided along with identifying the cause of the Chapter 11 filing and disclosing all relevant factors that my have contributed to the debtor’s financial difficulties The statement should summarize the debtor’s progress during the proceeding with a summary of the most important information from the operating reports The statement should contain an easily understood summary of the plan – describing the practical effect of the plan rather than its technical terms

4. Disclosure Statement Contents, Continued... The statement should also contain a description of how the plan will be performed, i.e., if it involves a sale of assets, describe the terms of the sale, etc. The statement should have a pro forma: a financial projection of revenues and profits that a debtor expects to generate over the life of the plan It should also compare the plan to the likely results if the matter were a Chapter 7 (“liquidation analysis”)

5. Disclosure Statement Contents, Continued... The statement should describe the balloting procedure for voting on the plan and how parties in interest may file objections to the plan’s confirmation – some courts also require a description of the “cramdown” procedure BAPA makes it mandatory to include a discussion of the potential material federal tax consequences of a Chapter 11 plan Any factor relating to a finding the court must make in connection with §1129 that may be problematic should also be included BAPA further authorizes the formulation of a standard form disclosure statement to be used in all small business cases

6. Plan Confirmation Packet When the court approves the disclosure statement, the plan’s proponent must next send to all parties in interest a notice of the confirmation hearing, the, the disclosure statement, a ballot and a notice of the deadline to file acceptances or rejection to the plan All creditors and equity security holders are given an opportunity to to vote and the results are complied into a report which is filed with the court prior to the hearing

7. Voting Rules A class of interest accepts a plan if two-thirds of the class of interests (or ownership percentage) accepts the plan An effort at a composition agreement that ends up in Bankruptcy Court is referred to as a “prepackaged bankruptcy” A vote obtained in bad faith or that has been solicited in violation of the Chapter 11 rule may be disallowed A class of unimparied claims (those who are to be paid in full) is conclusively presumed to have accepted a plan

8. Modification of the Plan A plan may be modified at any time before confirmation as long as the disclosure statement requirement are complied with After confirmation, modification may be sought for reasons similar to the reasons for seeking modification of a Chapter 13 plan – either a debtor will accelerate a plan’s performance or maybe the payments will have to be reduced or the payment period extended The court won’t allow modification of a confirmed plan if the plan has been substantially consummated, except in cases involving individuals A post confirmation to modify must comply with §1125 and provide adequate disclosure

9. Confirmation Conditions The court will confirm the plan only if it finds that the plan meets each and every requirement of §1129(a) The court must first find that the plan complies with all provisions of the Bankruptcy Code The proponent of the plan must comply with any applicable provisions of the Bankruptcy Code The plan must be proposed in good faith Any fees to be paid to an issuer of securities or for acquiring property under the plan must be approved by the court as reasonable

10. Confirmation Conditions, Continued... The court must approve the debtor's post confirmation management The if the debtor’s rates are subject to governmental regulation, the Bankruptcy Court must find that any applicable regulatory agency has approved any rate changes provided for in the plan As to each impaired class of claims, the court must find that the individual claimholders have either accepted the plan or will be receiving on the effective date of the plan, an amount no less than the class would have received in a Chapter 7

11. Confirmation Conditions, Continued...Again! The court must find that each class either accepts the plan or is unimpaired – or the debtor must prove the they can successfully comply with the Chapter 11 “cramdown” provisions The court must find that the plan will pay all administrative expenses The court must also fine that at least on impaired noninsider class has accepted the plan The court must find that the reorganization is not likely to be followed by further reorganization or liquidation unless the plan so provides (“feasibility requirement”) Any fees due the court will be paid in full on the effective date of the plan Plans involving certain types of employee retirement or benefit plans must comply with the provisions of §1114

12. 3 New Confirmation Conditions Imposed by BAPA Ina Chapter 11 case for an individual, all postpetition domestic support obligations are current at the time of confirmation Applicable also to Chapter 11 individuals, if the holder of an unsecured claim objects, then the debtor must submit all disposable income for a 5- year period into the plan unless all creditor can be paid in full sooner Applicable in all cases: all transfers of property are to be made in accord with local law

13. Chapter 11 Cramdown The court must first find that the plan is in compliance with all of the other elements of §1129(a) The court must also find that the plan doesn’t discriminate unfairly and the plan is fair and equitable with regard to each class of rejecting impaired claims or interest against whom the cramdown is sought

14. 3 Situations Where a Plan may be Confirmed Over Rejection by a Class of Secured Claims If the secured class retains any collateral and will, in addition, receive payments equal to the allowed amount of the secured claim over the life of the plan If the collateral is to be sold free and clear of all liens and the claim is to be paid in full from the proceeds If the debtor provide the claimant with the “indubitable equivalent” of its claims – given property of cash equal to its claim

15. 2 Methods of Confirmation Over Rejection by a Class of Unsecured Claims If the plan proposes to pay an affected unsecured class in full on either the effective date of the plan or over time, the plan will be confirmable If a class of unsecured claims is not going to be paid in full, the court must find that no junior class of claims or interest will retain any interest in any property of the estate “absolute priority rule” – exception: if the individual Chapter 11 debtor commits all disposable income into the plan for at least 5 years (subject to a cramdown)

16. 2 Circumstance in Which the Plan may be Confirmed over the Objection of a Class of Interest Holders If the affected interest holders are paid any redemption prices to which they may be entitled, the plan may be confirmed If no junior interest holder retains any interest in the estate, the plan may be conrimed

17. Effect of Chapter 11 Confirmation A confirmed Chapter 11 plan acts as a new contract between the debtor and all of its creditors Confirmation also revests the debtor with all property of the estate free and clear of all liens and interest except as provided for by the plan Confrimation also acts to discharge all debts that arose before the date of confirmtion except as provided in the plan

18. Effect of Chapter 11 Discharge Is similar to a Chapter 7 discharge except that all Chapter 11 debtors receive a discharge, including corporate and partnership debtors A debtor liquidating its assets through a Chapter 11 plan that doesn’t plan to continue in business and would not be entitled to a Chapter 7 discharge if the proceeding were a Chapter 7 won’t be entitled to a Chapter 11 discharge – a corporation or partnership is not entitled to a Chapter 7 discharge