Lesson 46: Plan Confirmation Requirements

In the context of Chapter 11 Reorganization, plan confirmation is a critical stage where the court gives a thumbs up or thumbs down to the reorganization plan submitted by the debtor. Ready to dive in? Let's break it down in a way even your grandma could understand!

Key Requirements for Plan Confirmation

According to 11 U.S. Code § 1129 (yeah, we know—legal mumbo jumbo), a reorganization plan must meet the following requirements for confirmation:

  • Compliance with Bankruptcy Code: The plan must play by the rules set out in the Bankruptcy Code.
  • Good Faith: The plan must be proposed in good faith and not by any means forbidden by law.
  • Feasibility: The court must determine that the plan is feasible and not likely to be followed by further reorganization or liquidation.
  • Best Interests of Creditors: The plan must be in the best interests of creditors, meaning that each creditor receives at least as much as they would in a Chapter 7 liquidation.
  • Acceptance by Impaired Classes: Each class of impaired claims must either accept the plan or be treated in a way that the Bankruptcy Code permits.

Feasibility Analysis

The feasibility requirement ensures that the debtor will likely be able to execute the plan successfully. This often involves financial projections and a detailed analysis of the debtor's ability to meet its obligations under the plan.

\[ \text{Feasibility} = \frac{\text{Projected Income}}{\text{Projected Expenses}} \]

Class Acceptance

For a plan to be confirmed, it must be accepted by each class of impaired claims. Acceptance is determined by a vote:

A class of claims accepts the plan if more than half the number of claimants and at least two-thirds in amount of the allowed claims vote to approve. A class of interests accepts the plan if holders of at least two-thirds in amount vote to approve.

Plan Confirmation Process

graph TD A["Debtor files plan"] --> B["Disclosure statement approved"] B --> C["Creditor voting"] C --> D["Confirmation hearing"] D --> E["Plan confirmation"] E --> F["Plan implementation"]

Cramdown Provisions

If a plan is not accepted by all impaired classes, it may still be confirmed through the cramdown provisions under Lesson 47: Cramdown Provisions. The court must find that the plan does not unfairly discriminate and is fair and equitable with respect to the dissenting classes.

Fair and Equitable Test

The "fair and equitable" test varies depending on the type of claims:

Secured Claims: Secured creditors must receive payments equal to the value of their collateral. Unsecured Claims: Unsecured creditors must receive value equal to or greater than the amount they would receive in a Chapter 7 liquidation. Equity Interests: Equity holders must receive value only if all senior classes are paid in full.
Note: For further understanding, also see Lesson 45: Developing a Reorganization Plan.
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