Sub V Task Force Report In A Nutshell: Part 4—Plan Confirmation & The Silent Class

By: Donald L Swanson

On April 23, 2024, the American Bankruptcy Institute’s Subchapter V Task Force issued its Final Report.

This article is the fourth in a series summarizing and condensing the Task Force’s Final Report into “a nutshell.”  The subject of this article is:

• whether a plan should be confirmed as consensual or as non-consensual when a class of claims remains silent (i.e., when the entire class fails to object to debtor’s plan and fails to vote on debtor’s plan). [Fn. 1]

Recommendation

The Task Force recommends amending § 1191(a) to allow a consensual plan confirmation, even when a class remains silent—i.e., fails to object to debtor’s plan and fails to vote on debtor’s plan.

Analysis

Consensual v. Non-Consensual Plan Confirmation

Subchapter V has two types of plan confirmations: consensual and non-consensual. 

Consensual.  § 1191(a) provides for consensual plan confirmation when all impaired classes have accepted the plan.

Non-consensual.  § 1191(b) provides for non-consensual plan confirmation when at least one impaired class does not accept, requiring debtors to show that the plan:

• does not discriminate unfairly;
• is “fair and equitable”; and
• commits debtor’s projected disposable income to creditors for 3 to 5 years.

Differing consequences, between consensual and non-consensual plan confirmations, include the following:

• discharge,
  • consensual = immediate discharge
  • non-consensual = discharge occurs when plan payments are complete;
• Subchapter V trustee services,
  • consensual = trustee is promptly terminated (upon substantial consummation, as defined in § 1101(2))
  • non-consensual = trustee remains in place for entire 3 to 5 years term of the plan;
• debtor’s property acquired post-petition,
  • consensual = debtor retains as own property
  • non-consensual = remains property of the bankruptcy estate; and 
• post-confirmation plan modification,
  • consensual = plan cannot be modified after substantial consummation
  • non-consensual = plan can be modified.

The Bankruptcy Code encourages consensual confirmation by:

• creating a Subchapter V trustee’s duty to facilitate the development of a consensual plan; and
• providing more favorable consequences for the debtor than under a non-consensual confirmation.

The Silent Class

An obstacle to consensual confirmation exists when (i) all active parties agree on a plan, but (ii) one class remains silent–i.e., fails or refuses to either vote on the plan or object to confirmation. 

Courts have developed three differing approaches for dealing with the silent class:

1. silence is a rejection of the plan that makes confirmation non-consensual (the prevailing view);
2. failure to vote or object is deemed a plan acceptance; and
3. a silent class is disregarded and cannot prevent a plan confirmation from being consensual.

Courts applying the third approach observe that the plan acceptance statute requires a class vote of at least, (i) two-thirds of the claim amounts, and (i) one-half of the number of claimants.  This require mathematical calculations based on votes actually cast.

Proposed Statutory Change

The Task Force believes that a silent class should not automatically prevent a plan confirmation from being consensual. 

So, the Task Force recommends amending § 1191(a) to permit a consensual confirmation in Subchapter V, despite the existence of a silent class, when the plan meets all other confirmation requirements as to the silent class.   

The proposed change:

• is in line with Subchapter V objectives; and
• allows creditors to participate in confirmation by objecting and/or voting; but
• does not alter other creditor protections.  

Sec. 1191(a) currently states: “The court shall confirm a plan under this subchapter only if all of the requirements of section 1129(a), other than paragraph (15) of that section, of this title are met.”

The Task Force recommends the following amendment to § 1191(a) (added language is italicized).

§ 1191.  Confirmation of plan.  (a)  Terms. – The court shall confirm a plan under this subchapter only if either –(1) all of the requirements of section 1129(a), other than paragraph (15) of that section, of this title are met; or (2) (A) all of the requirements of section 1129(a), other than paragraphs (8), (10), and (15) of that section, of this title are met; (B) all of the requirements of section 1191(b) are met; and (C) no class of claims or interests that is impaired under the plan votes to reject the plan and no creditor within such class objects to confirmation of the plan.

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Footnote 1.  Discussion of this subject is on pages 56 to 61 of the Final Report.

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