Page 24 - US Bankruptcy Code Overview

“Cramdown”
- Requirements for approval of a plan without acceptance by all “impaired classes.” See 11 U.S.C.§ 1129(a); see also 11 U.S.C.§ 1124 (defining impairment):
• Plan must not discriminate unfairly and must be fair and equitable.
• At least one impaired class must vote in favor of confirmation.
• Creditors must receive at least as much as they would in a chapter 7 liquidation.
Effects of Confirmation of a Plan
- Property of estate vests in reorganized debtor free and clear of all claims. - Plan binds debtor and all creditors whether or not they accepted the plan. - Transfer and stamp tax exemptions. See 11 U.S.C. § 1146(a).
Upon discharge, plan provides permanent injunction to debtor from claims of pre-confirmation creditors. Discharges most debts that arose before confirmation of the plan. See 11 U.S.C. § 524.
- Limitations on third party releases. See, e.g., Securities and Exchange Commission v. Drexel Burnham Lambert Group, Inc. (In re Drexel Burnham Lambert Group, Inc.), 960 F.2d 285 (2d Cir. 1992), cert. dismissed, 506 U.S. 1088 (1993); Gillman v. Continental Airlines (In re Continental Airlines), 203 F.3d 203 (3d Cir. 2000); Resorts Int’l v. Lowenschuss (In re Lowenschuss), 67 F.3d 1394 (9th Cir. 1995), cert. denied, 517 U.S. 1243 (1996); Menard-Sanford v. Mabey (In re A.H. Robins Co.), 880 F.2d 694 (4th Cir. 1989), cert. denied, 493 U.S. 959 (1989); Feld v. Zale (In re Zale Corp.), 62 F.3d 746 (5th Cir. 1995).
- No discharge/injunction for debts exempt from discharge. See 11 U.S.C. §§ 523, 1141(d)(2).
- No discharge/injunction if plan provides for liquidation, debtor does not engage in business after consummation and debtor would be denied discharge if case were a chapter 7 case. See 11 U.S.C. § 1141(d)(3).
> PRE-PACKAGED & PRE-NEGOTIATED DISCLOSURE STATEMENTS & PLANS
• Expedited process whereby solicitation of votes occurs before case is filed (pre-packaged plan) or immediately after case is filed following negotiation with a significant group of creditors (pre-negotiated).
• May effectively restructure an entity where there are numerous creditors that cannot be brought into a wholly out-of-court restructuring, including publicly traded bond debt that would otherwise require 100% approval for any change to financial terms of an indenture.
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