Chapter 11 Plan

Who may file a plan. The debtor has the exclusive right to file a Chapter 11 Plan within the first 120 days of the Bankruptcy. This is called the debtor’s “exclusivity” period. This exclusivity period may be extended by the court. But the maximum exclusivity period may not exceed 18 months including all extensions.  After the exclusivity period has expired, a creditor may file a competing plan of its own. Disclosure Statement Requirement.The party that files a plan (the debtor or other plan proponent) must file and get court approval of a written disclosure statement before there can be a vote on the plan of reorganization. The disclosure statement must provide information concerning the financial affairs of the debtor. 

If the case is a “small business case,” the court may waive the requirement of a disclosure statement.  After the disclosure statement is filed, the court must hold a hearing to approve it.   After the court approves the disclosure statement, the debtor or other plan proponent can begin to solicit acceptances of the plan.

Acceptances of the Chapter 11 Plan.    The debtor has 180 days after the date the petition was filed to obtain acceptances of its plan. The court may extend this period.  However, if the exclusivity period above expires before the debtor has obtained acceptance of a plan, other parties including a creditor may file a competing plan. 

In general, under Bankruptcy Code Section 1126(c), a class of claims has “accepted” a plan if the plan is accepted by creditors that hold at least two-thirds in amount and more than one-half in number of the allowed claims in the class.

Under Bankruptcy Code Section 1129(a)(10), if there are impaired classes of claims, the Chapter 11 plan must be accepted by at least one class of impaired claims (see below). 

Mandatory Provisions of the Chapter 11 Plan. Under Bankruptcy Code Section 1123(a), a Chapter 11 Plan must:

1. Designate classes of claims and classes of interests. A plan usually classifies claims as secured, unsecured priority, unsecured general, and equity security holders;

2. Specify any class of claims or interests that is not impaired under the plan. An impaired claim is one that is not going to receive 100% distribution under the plan or is one whose contractual rights are altered;

3. Specify the treatment of any class of claims or interests that is impaired under the plan;

4. Provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest;

5. Provide adequate means for the plan’s implementation;

6. If the debtor is a corporation, provide for the inclusion in the charter of the debtor of a provision prohibiting the issuance of nonvoting equity securities, and providing, as to the several classes of securities possessing voting power, an appropriate distribution of such power among such classes;

7. Contain only provisions that are consistent with the interests of creditors and equity security holders and with public policy with respect to the manner of selection of any officer, director, or trustee under the plan and any successor to such officer, director, or trustee; and

8. In a case in which the debtor is an individual, provide for the payment to creditors under the plan of all or such portion of earnings from personal services performed by the debtor or other future income of the debtor.

Confirmation of the Chapter 11 Plan. A creditor may object to approval of the plan by the court, called a “Confirmation Hearing.” The court must hold a hearing on confirmation of a plan.  Bankruptcy Code Section 1129 specifies the requirements under which a Chapter 11 Plan may be confirmed. In general,  the court must find that the plan properly treats claims under the Bankruptcy Code; that it is proposed in good faith; and that it otherwise complies with the Bankruptcy Code.