Page 101 - Bankruptcy Volume 1

11 is that members of a class can bind the entire class to accept a plan, including those who vote to reject
the plan, provided that the requisite accepting votes on such plan are received.

A plan may be accepted by one class of creditors and not accepted by another class and still be con-
firmed by the court. Such a plan is crammed-down on the dissenting class(es), but only if the plan is
"fair and equitable" — meaning that junior creditors, interest holders, and equity holders receive nothing
unless the senior rejecting class is paid in full in money or money’s worth (absolute priority rule). For a
further discussion of cramdown procedures, see the discussion in the section entitled "Cramdown."

Disclosure Statement

A party may not solicit the acceptance of a plan from creditors or other parties in interest unless said
parties receive a written disclosure statement containing adequate information as approved by the court.
A disclosure statement is similar to a prospectus in that, in theory, it contains all of the information nec-
essary for the interested party to make an informed decision. The disclosure statement must have the
court’s approval, after notice and hearing, before being sent to creditors or shareholders for review. The
Bankruptcy Code defines adequate information as information of a kind, and in sufficient detail, as far
as is reasonably practical, that would enable a hypothetical investor of a relevant class to make an in-
formed judgment about the plan. In applying this definition, opinion varies as to what kind of infor-
mation to include in the disclosure statement. Thus, courts determine what constitutes adequate infor-
mation on a case-by-case basis.

Often, this loose interpretation creates the need for accountants and other financial professionals to be-
come more involved in the reorganization process. A disclosure statement contains numerous financial
schedules of interest to creditors and shareholders as they are assessing the potential of the debtor’s fu-
ture prospects. Although the debtor is in the best position to provide these schedules, frequently the ac-
countants for the creditors or equity security holders take responsibility for developing this information,
particularly if the creditors or equity holders are filing a plan. Examples of potential schedules (not to be
confused with the schedules submitted upon filing a Chapter 11 petition) for inclusion in a disclosure
statement include the following:

 Statements of the debtor’s financial position as of the date of the petition or at the end of a recent
fiscal year (possibly audited) or fiscal quarter

 Results of operations for the bankruptcy period

 Detailed analysis of the debtor’s assets, including current values and other relevant information

 Summary of anticipated recoveries under the plan by plan classification

 Description of reorganization value

 Description of liquidation analysis and best interests tests (discussed later in this chapter)

 Description of all outstanding obligations

 Schedules outlining the use of new capital

 Projections of future operations

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