Plan of Reorganization

The Plan of Reorganization is the central document in a Chapter 11 bankruptcy case, proposing how the debtor will reorganize debts, restructure operations, and emerge from bankruptcy. The plan classifies claims and equity interests, specifies treatment of each class, and provides for ongoing operations post-confirmation. Plans are subject to creditor voting (for impaired classes) and court confirmation under § 1129. Plan confirmation discharges pre-petition debts to extent provided in the plan, allowing the reorganized debtor to emerge with restructured obligations.

Required plan contents, § 1123

Section 1123 requires plans to: (1) designate classes of claims and interests; (2) specify any classes that are unimpaired; (3) specify treatment of each impaired class; (4) provide same treatment within class (unless holder agrees otherwise); (5) provide adequate means for plan implementation; (6) address charter provisions and equity issuance; (7) include other provisions consistent with Bankruptcy Code. Plans typically run 50-150 pages with substantial detail on each class treatment.

Classification

Plans classify claims and interests by similar legal character. Standard classes: (1) secured claims, typically separate class per secured creditor; (2) priority claims, wage claims, tax claims; (3) general unsecured, typically one class; large general unsecured may be subdivided; (4) convenience class, small claims paid in full; (5) subordinated claims; (6) equity interests, typically separate classes for preferred and common. Classification affects voting and confirmation; gerrymandering classification to manipulate voting is closely scrutinized.

Disclosure statement, § 1125

Section 1125 requires disclosure statement providing "adequate information" for creditors to make informed plan vote. Standard contents: (1) business description; (2) events leading to bankruptcy; (3) plan terms, class treatments, timing, distributions; (4) liquidation analysis, comparing plan to Chapter 7 liquidation; (5) financial projections; (6) risk factors; (7) tax consequences; (8) voting procedures. Court approval of disclosure statement is required before plan voting begins. Disclosure statement hearing is significant pre-confirmation event.

Voting, § 1126

Plan voting mechanics: (1) impaired classes vote; unimpaired classes presumed to accept; (2) creditor class acceptance, class accepts if approved by 2/3 in amount AND more than 1/2 in number of voting creditors; (3) equity class acceptance, 2/3 in amount of voting interests; (4) insider votes excluded from majority calculation. Voting tabulation typically conducted by claims agent or trustee. Voting outcomes determine whether confirmation requires cramdown or proceeds with consent.

Confirmation requirements, § 1129

Section 1129(a) confirmation requires (16 specific findings): (1) plan complies with Code; (2) proponent complies with Code; (3) good faith proposal; (4) payments approved by court reasonable; (5) governance disclosure; (6) regulatory approvals; (7) best interests test (each creditor receives at least Chapter 7 amount); (8) acceptance by all impaired classes OR cramdown under § 1129(b); (9) priority claims paid in full or treated per § 1129(a)(9); (10) at least one impaired class consents; (11) feasibility, plan likely to succeed; (12) US Trustee fees paid; (13)-(16) various technical requirements. Cramdown under § 1129(b) permits confirmation over dissenting class with "fair and equitable" treatment.

Effect of confirmation

Plan confirmation has substantial effects: (1) discharge, pre-petition debts discharged to extent provided; (2) binding, all parties bound by plan terms whether or not they voted; (3) vesting of property, property vests in reorganized debtor free of liens (except as provided); (4) injunction, against acts inconsistent with plan; (5) res judicata, preclusive effect on issues addressed in plan; (6) discharge stay, § 524 permanent injunction against discharged claims. Confirmed plan substitutes for the debtor's pre-petition contracts and obligations.

Pre-packaged and pre-arranged plans

Increasingly common Chapter 11 strategies: (1) pre-packaged plan, plan negotiated and accepted by major creditors before petition filing; voting completed pre-petition; rapid confirmation post-petition (often 30-45 days); (2) pre-arranged plan, substantial creditor support negotiated pre-petition without completed voting; rapid plan filing post-petition. Both reduce Chapter 11 cost and uncertainty substantially. Used heavily in larger restructurings to manage timeline and cost.