Confirmation of Chapter 11 Bankruptcy Plan
The process of accepting and approving a plan is called confirmation. This power is held by the Bankruptcy Court where the petition is filed or venue otherwise proper. In approaching the confirmation process the debtor can adopt a strategy of either consensual confirmation or nonconsensual confirmation.
Consensual confirmation refers to the process in which all classes of creditors vote to approve the reorganization plan or are unimpaired by the plan and the court believes that the plan satisfies all the necessary requirements of 11 USC 1129(a).
Nonconsensual confirmation is referred to as ‘cramdown’ confirmation wherein the court approves the plan despite one or more classes or creditors voting to reject the plan. In order for nonconsensual confirmation to occur, the court must find that the plan conforms to the requirements of 11 USC 1129(b).
Avoiding Nonconsensual Confirmation
The debtor should at the very least strive to avoid nonconsensual confirmation to avoid increased duration and attorney fees. Accordingly, the primary strategy for avoiding nonconsensual confirmation is to negotiate with the creditors for a plan that will be amenable to everyone. If all the creditors vote to accept a plan and there are no objections to it then a cramdown confirmation will be avoided.
However, despite the debtor’s best efforts a cramdown might still be inevitable, especially if the creditors do not have faith in the ability of the debtor. The best solution to this is to draft the plan in a manner that could still be accepted if a cramdown is deemed necessary. To succeed in nonconsensual confirmation, at least one impaired class of claims should accept the reorganization plan, so the debtor’s chapter 11 bankruptcy lawyer should endeavor to get the approval of at least one impaired class. If it is possible, the debtor could even draft a plan where there are no impaired classes, meaning that all the creditors are paid the exact amount of their claims instead of a reduced amount.