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The Bankruptcy StrategistFeaturesBankruptcyLitigation

Eleventh Circuit Stops Plan Confirmation Stampede

By Michael L. Cook
February 01, 2023

"When a modification to a Chapter 11 reorganization plan materially and adversely affects the treatment of a class of claim or interest holders, those claim or interest holders are entitled to a new disclosure statement and another opportunity to vote." In re America-CV Station Group, Inc., 2023 WL 109967 (11th Cir. Jan. 5, 2023). In this case, the U.S. Court of Appeals for the Eleventh Circuit just upended a hastily confirmed reorganization plan. Its holding should stop the stampede known as the "confirmation express." The bankruptcy court had summarily approved a plan modification that "materially and adversely affected" the rights of objecting pre-bankruptcy shareholders (Shareholders), depriving them of procedural protections and impairing their substantive rights. In reversing, the Eleventh Circuit directed "the bankruptcy court to fashion an equitable remedy …." Id. at *8.

Relevance

Debtors routinely modify reorganization plans shortly before a confirmation hearing. These modifications usually are either immaterial or are consensual. In the words of the Eleventh Circuit, modifying the plan "before confirmation is relatively easy: the 'proponent of a plan may modify such plan any time before confirmation.'" Id. at *4, quoting Bankruptcy Code (Code) §1127(a). "Easy modification allows negotiated outcomes to quickly become part of the plan," said the court.

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