By: Donald L Swanson
In Subchapter V of the Bankruptcy Code, the “Post-Petition Disclosure and Solicitation” provisions of § 1125 do not apply without a specific court order (see § 1181(b)).
So, a question exists on how the plan voting provisions of § 1126 and Fed.Bankr.R. 3018 might apply in Subchapter V.
Here’s why. Subchapter V:
- does not use the word “vote” or the word “ballot”;
- does not cite or even reference the acceptance or rejection provisions of § 1126;
- uses the word “consensual” only twice (in § 1183(b)(7) on trustee duties and in § 1188(c) on preparations for a status conference); and
- uses the words “accepted” or “acceptance” only four times: (i) once in § 1191(b) on confirmation when an impaired class has “accepted” the plan, and (ii) three times in § 1193(d) on “deemed” acceptance of a modified plan.
So . . . :
- How does a creditor consent to or reject a plan?
- What if no one files an objection to or votes on a plan—is that acceptance?
- What if all filed objections are resolved by the confirmation hearing—is that acceptance?
- What if ballots are distributed and only one creditor in the unsecured class submits a vote—does that vote speak for the entire class?
A couple early predictions on how voting, acceptance and rejection might work in Subchapter V were:
- The voting standards of § 1126 (i.e., counting only ballots cast and applying the >50% nose count and 2/3 in amount standards) will still control, if-and-when ballots are actually used; and
- Based on the brevity-of-process goal, a creditor’s failure to file an objection will be equivalent to acceptance, if-and-when ballots are not used.
Two Subchapter V Opinions
The bankruptcy courts now have some experience with Subchapter V and with the voting, acceptance and rejection process for plan confirmation.
What follows is a summary of the creditor “acceptance” and “rejection” analysis in plan confirmation opinions from two separate cases. Both opinions are dated September 20, 2020.
–In re Desert Lake
One opinion is In re Desert Lake Group, LLC, Case No. 20-22496 in the Utah Bankruptcy Court (decided September 20, 2020, Doc. 114).
Debtor’s Subchapter V plan is confirmed with the consent of Debtor’s creditors.
Here’s the Bankruptcy Court’s analysis on voting and acceptance.
- The plan and ballots were sent to all interested parties, including all creditors entitled to vote;
- Debtor’s solicitation of acceptance of the Plan complied with applicable provisions of the Bankruptcy Code, including § 1126 and Bankruptcy Rule 3018;
- The Plan establishes five Classes of Claims and one Class of Interests;
- All impaired Classes of Claims and Interests have accepted the Plan;
- No Class of Claims or Interests has rejected the Plan;
- All Classes of Claims or Interests in which ballots were returned – Classes 2, 3 and 5 – voted unanimously to accept the Plan;
- Classes 1, 4 and 6 neither returned any ballots nor objected to confirmation and, as such, are deemed to have accepted the Plan; and
- In summary, all Classes of Claims and Interests either accepted by affirmative vote, or are deemed to have accepted the Plan.
–In re Pearl Resources
Another opinion is In re Pearl Resources LLC, Case No. 20-31585 in the Southern Texas Bankruptcy Court (decided September 20, 2020, Doc. 238).
Debtor’s Subchapter V plan is confirmed, (i) with the consent of some creditors, and (ii) over the objection of others.
Here are the Bankruptcy Court’s findings on voting, acceptance and rejection:
- The Plan separates claims and equity interests into 14 classes, 11 of which are impaired;
- Classes 2, 13, and 14 are claims and interests held by insiders, which Classes voted to accept the Plan;
- There are no claims asserted under Classes 1, 11, and 12 and no votes were cast by members of those classes;
- Class 10 did not submit a ballot;
- Classes 3, 6, 8, and 9 voted to accept the Plan;
- Classes 4, 5, and 7 voted to reject the Plan;
- Debtors lodged objections to the claims in Classes 4, 5, and 7, and such objections remain pending; and
- Class 4, 5, and 7 creditors filed objections to the Plan, arguing that it does not provide the indubitable equivalent of their respective claims.
Here’s how the Bankruptcy Court addresses non-consenting votes:
- Where one or more impaired classes rejects the plan, § 1191(b) sets forth the rules for cramdown and replaces the requirements of § 1129(b), which do not apply in a subchapter V case;
- Under § 1191(b), the court shall confirm a subchapter V plan that satisfies confirmation requirements of § 1129, other than requirements of § 1129(a)(8) (each class has accepted or is not impaired), § 1129(a)(10) (at least one impaired class must accept), and § 1129(a)(15) (devoting projected disposable income to the plan);
- The plan must not discriminate unfairly;
- The plan must be fair and equitable to each impaired class that has rejected the plan; and
- The Debtor’s Subchapter V plan is confirmed, as a nonconsensual plan, because (as to non-accepting classes) the plan, (1) does not discriminate unfairly and (2) is fair and equitable.
Based on these two opinions, the normal voting rules for a Chapter 11 case will apply in Subchapter V.
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