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Bankruptcy Outline1

Bankruptcy Outline1

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Published by: Nicmarie1809 on Jul 10, 2009
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09/08/2015

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1.§ 1121 gives the debtor the exclusive rights to propose a plan in the 120 days after
the order for relief
a.If the debtor filed a plan within this period and it was accepted by each
impaired class, no one else may file a plan
b.Requires the debtor to negotiate- make sure everyone is happy enough
c.If the plan was filed but not accepted by the end of the 120 day period, the
debtor has a further 60 days to try to get the plan (or an amended version of
it) accept
d.If after this 180 day period, the debtor fails to get it accepted, then any party
in interest may propose a plan
2.The possibility for competing plans gives creditors negotiating power and puts
pressure on the debtor to devise an acceptable and feasible plan as quickly as
possible

a.Dissatisfied creditors may favor a plan the debtor does not want
3.Each class forms a voting block
a.To approve plan, must have: the requisite majority of members of that class
votes in favor of the plan and this majority includes at least 2/3 the amount of
allowed claims
b.A class that is unimpaired does not vote on the plan, it is presumed to have
accepted the plan under § 1126(f)
c.A class that will receive or retain no property under the plan does not vote and
is presumed to have rejected the plan under § 1126(g)
4.Mandatory Provisions of Plan- § 1123
a.Designation of classes of claims - § 1123(a)(1)
i.Classification of claim into secured, priority and general unsecured claims
ii.rules for this in § 1122- requires that claims be substantially similar

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b.Specification of unimpaired classes of claims - § 1123(a)(2)
i.Impairment means no alteration of the creditor’s rights- § 1124
ii.Getting their full claim and what they would have gotten under
nonbankruptcy law
c.Specification of the treatment of impaired classes of claims- § 1123(a)(3)
i.How much they will get, how much on the dollar
ii.Minimum treatment in § 1129
d.Equal treatment of claims in a class- § 1123(a)(4)
e.Adequate means for the plans implementation- § 1123(a)(5)
i.Requires the plan to set out the manner in which the plan will be funded
and the course the will be followed to bring the reorganization to a
successful conclusion
G.Disclosure Statement- § 1125
1.Analogous to the prospectus published by a corp in connection with the issuance of

stock

a.but don’t have to follow SEC rules
2.Requires the proponent of the plan to draft a disclosure statement containing
adequate information
3.Statement must be approved by the court after notice and hearing
4.Must be distributed to all creditors with a copy of the plan
5.Adequate Information
a.Enough information must be given, as far as reasonably practicable in light of
the debtor’s nature and history and the state of its records, to enable a
hypothetical reasonable investor with attributes of the members of the call in
question to make an informed judgment about the plan
b.Typical adequate information
i.Description of the business

1.Debtors role in the industry and consumers or clients
ii.History of the debtor prior to filing
1.Reasons for filing
iii.Financial information

1.Statement of assets and liabilities and profit and loss analysis

iv.Description of the plan

1.To help creditors determine how their rights will be affected
v.How the plan is to be executed
vi.Liquidation analysis

1.To see if creditors are getting what they would under chap 7
vii.Management to be retained and the compensation of the personnel
retained
viii.Projection of Operations

1.To determine if the plan is feasible

ix.Litigation

1.Pending or contemplated litigation
x.Transactions with Insiders
xi.Tax Consequences

H.Confirmation- § 1129
1.Generally

a.Requires a hearing - § 1128
b.Parties in interest can object to the plan- different than rejection which is
motivated by a creditor’s preference- objection is based on legal grounds that
the plan doesn’t fit the requirements
c.Under § 1141(b) and (c) confirmation vests all the estate’s property in the
debtor free and clear of all claims and interests, except as to the plan

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d.§ 1141(d)(1) discharges the debtor upon confirmation of the plan so that the
debtor’s original obligations fall away and are replaced by the commitments
under the plan
2.Requirements of Chap 11 plan
a.Lawfulness and good faith- § 1129(a)(1), (2) and (3)
i.Court has power to refuse confirmation if it is abusive
b.Treatment of impaired claims- § 1129(a)(7)
i.§ 1129(a)(7)(a) imposes a best interest test (same as § 1325(a))
ii.If a class is impaired, each member of the class who did not vote to
accept the plan must receive a distribution under the pan at least equal
to the present value of what they would have received had the debtor
been liquidated under chap 7
iii.Part of cramdown
c.Acceptance by classes of claims- § 1129(a)(8)
i.If even one impaired class does not accept the plan, § 1129(a)(8) is not
satisfied and confirmation can only be achieved by complying with the
additional requirements for cramdown confirmation under § 1129(b)
d.Required treatment for priority claims- § 1129(a)(9)
i.All priority claims must be paid in full (can be paid in installments if class
accepted plan, but must equal the present value)
e.Acceptance by at least one impaired class- § 1129 (a)(10)
i.Part of cramdown
ii.Ensures some creditor support for the plan

f.

Plan must have a reasonable prospect of success- § 1129(a)(11)
i.The feasibility standard- places the burden on the proponent to satisfy
the court that the plan has a reasonable prospect of achieving its goals
and allows the court to refuse confirmation if the place is impracticable or
over-optimistic
3.Cramdown- § 1129(b)
a.Policy

i.The purpose is to give the debtor a means of confirmation even through
some (or most) classes of creditor have refused to accept the plan
b.Requirements of Cramdown
i.All the standards under § 1129(a) are satisfied, except for § 1129(a)(8)
ii.The plan does not discriminate unfairly against any impaired class that
has no accepted the plan
1.Discrimination is permissible if it is not unfair
2.Must evaluate the need and motive for the discrimination to
determine bad faith
iii.The plan is fair and equitable with respect to each impaired class that has
not accepted the plan
1.Broader than unfair discrimination
c.Fair and equitable for secured claims
i.Must meet one of three tests- § 1129(b)(2)(A)
1.Liens of the claimants must be preserved to the full amount
allowed of the secured claim and each claimant must receive
deferred cash payments totaling at least the allowed amount of
the value of its secured claim
2.If the debtor wishes to sell the property free and clear of liens so
that the lien cannot be preserved, the claimant is allowed to bid
at the sale
3.Some other treatment of the secured claim that assures the
claimant of receiving the indubitable equivalent of the claim

d.Fair and equitable for unsecured claims
i.Must meet one of two tests- § 1129(b)(2)(B)

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1.The plan must provide the each holder of a claim in the class
receives property of value equal to the allow amount of the claim
(present value test and paid in full)
2.No junior claim or interest receives or retains any property

Known as the absolute priority rule

I.

Prepackaged plans

1.When the debtor is able to work out a plan with creditors before filing the petition
2.§ 1121(a) allows the debtor to file a plan with the petition
3.§ 1125(g) allows for prepetition solicitation
4.§ 1126(b) treats prepetition acceptances and rejections as valid provided that
proper disclosure was made under nonbankruptcy disclosure regulations or under
the adequate information standard in § 1125(a)
5.If a prepackaged plan can be formulated, the reorganization usually proceeds must
more quickly which reduces the risk of delay and uncertainty
6.Only good for debtors who can approach creditors without the protection of the stay

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