Chapter 11 Bankruptcy Reorganization Plan and Approval By The Court
A Chapter 11 bankruptcy reorganization plan outlines how you a debtor will repay its creditors. Filing for a Chapter 11 Bankruptcy is an option available to small business and individuals with a high net worth who are having difficulty meeting their obligations with their current debt schedules. In a Chapter 11 bankruptcy, a plan of reorganization is submitted with 120 days from the date of the filing of your bankruptcy petition. This period may however, be extended by the court’s approval for up to 18 months.
Who Will Vote On Your Chapter 11 Bankruptcy Reorganization Plan?
Upon submission if your reorganization plan, creditors who are impaired (this means those creditors that will receive less than the value of the submitted claim) will be permitted to vote by ballot. Before the court confirms the plan, at least one class of impaired creditors must accept the plan. Creditor whose claims will be fully paid are presumed to have voted “yes”. In certain circumstances, the court will confirm a plan even if an impaired class of unsecured creditors have voted against it. This is what is known as “cramdown”. A cramdown will only be confirmed by the court if it does not discriminate unfairly and is air and equitable with respect to each class of impaired creditors.
Changing the Chapter 11 Bankruptcy Reorganization Plan
A plan of Reorganization may be changed or modified at any time prior to confirmation of the said plan. If the ballots have been conducted, and modification takes place afterwards, a hearing will be held to determine that the proposed modification does not negatively affect any creditors who have not accepted the modification in writing. Another round of ballots must be taken before modification can be accepted if the court decides that there will be an adverse impact on those creditors.
Competing Chapter 11 Bankruptcy Reorganization Plans
Upon completion of your exclusivity period, other creditors or a case trustee (if appointed) have the option to submit their own plans of reorganization. Creditors must vote to accept these competing plans prior to moving forward to the court confirmation process. In taking a decision on which plan of reorganization to confirm, the court will take into account the interest of the creditors and equity security holders.
When Will the Court Confirm Your Chapter 11 Bankruptcy Reorganization Plan?
A confirmation hearing will be held if no one files an objection to your plan of reorganization. There are certain requirements to be met before your reorganization plan is confirmed by the court namely:
- The plan must have the potential to succeed,
- The plan must have been proposed in good faith,
- The best interests of the creditors must be at heart and this must be seen from the plan (this involve a test showing that the creditors will receive at least as much under the plan as they would have had the case been changed to a chapter 7 bankruptcy)
- The plan must be equitable and fair (in order to satisfy this test, you must repay your secured creditors at least the value of their collateral and you cannot pay creditors more than the amount of their permitted claims.
If the court is satisfied that you plan has complied with the above requirements, the court is likely to confirm your Chapter 11 bankruptcy reorganization plan.