Reorganization Plans Under Chapter 11: What Business Owners in Florida Need to Know

When going through a business bankruptcy Under Chapter 11, a key step in the process is securing confirmation of the business’s reorganization plan. While businesses can often eliminate some of their debts through the Chapter 11 bankruptcy process, the primary focus is on developing a reorganization plan that allows the business to pay its existing creditors over time without going into default. As a result, securing confirmation of a favorable reorganization plan is essential, and business owners should work closely with a Miami Chapter 11 bankruptcy lawyer to ensure that they maximize the financial benefits of their businesses’ bankruptcy filings.

For business owners who are considering a Chapter 11 filing, given the importance of the reorganization plan, it is worth taking some time to learn about the process of developing and securing confirmation of a favorable plan. With this in mind, here is an introduction to what business owners need to know:

“The Plan”: Subchapter II of Chapter 11

Subchapter II of Chapter 11 is titled, “The Plan.” It consists of nine sections that outline various stages in the process of securing approval of a reorganization plan during a business bankruptcy.

Who May File a Plan (Section 1121)

Section 1121 of Subchapter II discusses who (or what entities) can file a reorganization plan in a business bankruptcy under Chapter 11. It provides that the debtor (the business filing for bankruptcy) may submit a plan at any time—including at the time it files its Chapter 11 bankruptcy petition. Section 1121 also provides that only the debtor may file a plan for the first 120 days in most cases, and it outlines the limited circumstances in which creditors, the bankruptcy trustee and other interested parties can file a proposed plan (either in lieu of or in addition to the debtor’s plan).

Classification of Claims or Interests (Section 1122)

In Chapter 11 bankruptcy cases, creditors’ claims broadly fall into one of two classifications: secured or unsecured. Section 1122 provides guidelines for classifying creditors’ claims when developing a reorganization plan, and it provides that small unsecured claims may be placed into a separate class “for administrative convenience” with the bankruptcy court’s approval.

Contents of Plan (Section 1123)

Section 1123 of Subchapter II lists all of the information that must be included in a reorganization plan submitted under Chapter 11. Compliance with Section 1123 is critical, as omitting necessary information can lead to delays (among other issues) during the bankruptcy process. To ensure compliance, business owners pursuing reorganization should work closely with a Miami Chapter 11 bankruptcy lawyer who can use his or her experience to craft a plan that is capable of securing confirmation.

Impairment of Claims or Interests (Section 1124)

Section 1124 of Subchapter II outlines when a claim is considered “impaired” for purposes of a Chapter 11 business bankruptcy. This is important, because only impaired classes of creditors have the ability to vote on accepting or rejecting a proposed plan of reorganization. Section 1124 begins by stating that all claims included in a plan are impaired “unless . . .,” and then it goes on to explain the scenarios in which impairment is deemed not to exist. Strategically leaving certain claims unimpaired can be an effective way to help streamline the bankruptcy process while also maximizing the benefits involved.

Postpetition Disclosure and Solicitation (Section 1125)

Section 1125 of Subchapter II outlines the procedures for soliciting plan approval during the Chapter 11 process. Here, too, working with an experienced Miami Chapter 11 bankruptcy lawyer to ensure compliance is essential.

Acceptance of Plan (Section 1126)

Section 1126 of Subchapter II begins by stating that, “[t]he holder of a claim or interest allowed under section 502 of this title may accept or reject a plan.” It then goes on to discuss the procedural requirements for accepting or rejecting a plan, and it outlines two scenarios in which a plan will be deemed accepted or rejected based on communications prior to the commencement of the debtor’s bankruptcy case.

Modification of Plan (Section 1127)

Section 1127 of Subchapter II establishes the rules for modifying a reorganization plan submitted during the Chapter 11 bankruptcy process. It also states that a modification will be deemed accepted by a creditor that has previously approved the plan unless the creditor submits a timely rejection.

Confirmation Hearing (Section 1128)

Section 1128 of Subchapter II is one of the shortest sections in the entire U.S. Bankruptcy Code. It provides that the bankruptcy court will hold a confirmation plan “[a]fter notice,” and that any “party in interests” may object to confirmation during the hearing.

Confirmation of Plan (Section 1129)

Finally, Section 1129 of Subchapter II discusses the requirements for securing confirmation of a reorganization plan, and it provides that the bankruptcy court “may not” approve a proposed plan if the “principal purpose” of the plan is tax avoidance or avoidance of the securities registration requirements under federal law. Among other requirements, to secure confirmation, a plan must be “fair and equitable” with respect to each class of creditors, and it must comply with all other applicable provisions of the U.S. Bankruptcy Code.

Securing Plan Confirmation in a Small Business Bankruptcy Under Subchapter V

While these are the standard requirements for securing confirmation of a reorganization plan under Chapter 11, many businesses now file their petitions under Subchapter V. This is an option for “small businesses” (with qualifying debts of less than $7.5 million); and, by filing under Subchapter V, small businesses can avoid some of the requirements that would otherwise apply. Most notably, in Subchapter V cases, creditors do not have the opportunity to file competing reorganization plans—which means that the process generally focuses on resolving any significant concerns related to the debtor’s proposed plan before going through the confirmation process.

Schedule a Free Consultation with a Miami Chapter 11 Bankruptcy Lawyer Today

Do you have questions about pursuing a business bankruptcy (or small business bankruptcy) under Chapter 11? If so, we invite you to get in touch. Call 305-768-9909 or contact us online to schedule a free consultation with a Miami Chapter 11 bankruptcy lawyer today.