Chapter 11 of the Bankruptcy code permits the debtor to file a protection plan of reorganization within 120 days of the initiation of the bankruptcy case. The court has authority to extend or reduce the exclusivity period. In certain cases, the bankruptcy court extends the period to file the reorganization plan before the expiry of 18 months. The acceptance of the reorganization plan is granted up to 180 days after the petition or order date. The court may extend the acceptance period up to a maximum of 20 months. If the debtor fails to submit and avail acceptance of a reorganization plan, the creditors of the business are eligible to file a plan on behalf of the debtor.
The reorganization plan is developed by the debtor must be confirmed by the bankruptcy court. Generally, there is a confirmation hearing for each reorganization plan for its confirmation or rejection. The confirmation of a reorganization plan is based on three requirements. They are:
- The reorganization plan should be a feasible one;
- The reorganization plan should be proposed in good faith; and
- The reorganization plan should comply with all provisions of the bankruptcy code.
After the expiry of reorganization plan period, other interested parties are eligible to file their own plans. Generally, there may be more than one plan either competing with the debtor’s or creditor’s plans. In such circumstances, if there is an appointed trustee, s/he should file their own plan; or report the reason for not to file a plan; or recommendation for conversion to another chapter or dismissal of the petition.
The reorganization plan should contain the classification of repayment of each category of secured and unsecured debts. Usually, the secured debtors get priority in repayments. Subsequently, unsecured debtors such as banks, bondholders etc get priority. Thereafter, other unsecured debtors followed by equity security holders. The acceptance or rejection of a reorganization plan is based on the votes of these classes of creditors. In certain cases, there may be more than one reorganization plan or amendments to the reorganization plans. In such situations, each plan and each amendment should clearly be marked with date and the name of the creditor.