Under Chapter 11, only the debtor may submit a plan of reorganization within 120 days of the initiation of the bankruptcy case. The court may grant extension of this exclusive period up to 18 months after the petition date.
Generally, a reorganization plan will designate classes of claims and interests for treatment under the reorganization. A plan classifies claim holders as secured creditors, unsecured creditors entitled to priority, general unsecured creditors, and equity security holders. A plan is accepted or rejected according to the votes of these classes of creditors. If the exclusive period expires before the debtor has filed and obtained acceptance of a plan, other parties in interest in a case, such as the creditors’ committee or a creditor, may file a plan. Such a plan may compete with a plan filed by another party in interest or by the debtor. If a trustee is appointed, the trustee must file a plan,or a report explaining why the trustee will not file a plan, or a recommendation for conversion or dismissal of the case.
A Chapter 11 case also allows a liquidating plan to be filed. Such a plan allows the debtor in possession to liquidate the business under more economically advantageous circumstances than chapter 7 liquidation. It also permits the creditors to take a more active role in fashioning the liquidation of the assets and the distribution of the proceeds than in a chapter 7 case.
An entire class of claim is deemed to accept 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. If there are impaired classes of claims, that is claims that are not going to be paid completely or in which some legal, equitable, or contractual right is altered, the court cannot confirm a plan unless it has been accepted by at least one class of non-insiders who hold impaired claims.
A plan proponent may modify the plan at any time before confirmation, provided the modified plan meets all the requirements of chapter 11. As there may be more than one reorganization plan filed, every proposed plan and modification must be dated and identified with the name of the entity or entities submitting the plan or modification. If more than one plan may meet the requirements for confirmation the court can decide which plan to confirm taking into consideration the preferences of the creditors and equity security holders. Objections to a reorganization plan can be filed by any interested party. Any objection will trigger a hearing on confirmation.
If no objection to confirmation has been timely filed, the Bankruptcy Code allows the court to determine whether the plan has been proposed in good faith and according to law. In order to confirm the plan, the court must find, among other things, that:
(1) the plan is feasible;
(2) it is proposed in good faith; and
(3) the plan and the proponent of the plan are in compliance with the Bankruptcy Code.
In order to satisfy the feasibility requirement, the court must find that confirmation of the plan is not likely to be followed by liquidation unless the plan is a liquidating plan or the need for further financial reorganization.