Page 106 - Bankruptcy Volume 1

Pre-Effective Liquidation Post-Effective Date
Date Value Adjustment Value
Estimated payout to secured credi- $ 0.80
tors per dollar
Amount available for unsecured (500,000)
creditors
Total unsecured claims 1,200,000

Estimated payout to unsecured $ NIL
creditors per dollar

Plan Confirmation

Section 1129(a) of the Bankruptcy Code contains thirteen requirements that must be satisfied in order to
confirm — that is, obtain court approval of — a plan. The first six requirements are aimed at ensuring,
among other things, that the Bankruptcy Code was followed and that disclosure was proper. The next
requirement provides that creditors either must have accepted the plan or the best interests test must be
satisfied for such creditors. The eighth requirement is that all classes either be unimpaired or vote to ac-
cept the plan. As discussed further in the following passages, this requirement need not be satisfied if the
plan meets certain other conditions. The ninth requirement sets out the treatment that must be provided
to certain categories of claims. Requirement 10 is that the plan be accepted by at least one impaired class
of claims. Requirement 11 is that the plan be feasible such that confirmation is not likely to be followed
by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the
debtor under the plan, unless such liquidation or reorganization is proposed in the plan. Requirement 12
calls for the payment of all fees payable under 28 USC 1930, as determined by the court on confirma-
tion. Requirement 13 provides for the continuation of all retiree benefits (or such benefits as modified in
accordance with Section 1114 of the Bankruptcy Code) after the plan’s effective date. Accountants can
involve themselves in almost every aspect of the plan confirmation process and are often called upon to
testify as expert witnesses.

Accountants and other financial professionals can play an integral role in developing a plan of reorgani-
zation. Due to the complexities afforded by the Bankruptcy Code, accountants should always consult
with the attorneys with whom they work to keep abreast of local applicable rules and practices.

Cramdown

With respect to the eighth requirement, the drafters of Chapter 11 realized that if an affirmative vote of
all classes of claims was required for confirming a plan, groups of creditors or equity holders might de-
lay seemingly good reorganization plans. Accordingly, the Bankruptcy Code provides for the confirma-
tion of a reorganization plan without the affirmative vote of all classes. Thus, under certain circumstanc-
es, the court will confirm a plan even though an impaired class has rejected the plan. This is known as
cramdown.

For example, assume in the XYZ illustration that the trade creditors vote as a class to reject the debtor’s
filed plans. The plan filed could nevertheless be confirmed or crammed down on the trade creditors if
another impaired class votes to accept the plan and, among other things, the plan is deemed feasible and
fair and equitable with respect to the trade creditors’ class (and each other class of claims or interests
impaired under the plan that has not accepted it). The complexities and potential confirmation problems
associated with cramdown alone sometimes strongly motivate parties to work together to form a consen-
sual plan. To satisfy the cramdown requirements of Section 1129(b), the plan must satisfy each require-
ment of Section 1129(a) other than the requirement that each impaired class accept the plan and, addi-

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