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Preserving Bargained for Contractual Entitlements In a Cure and Reinstate Plan
Consider the following scenario: Debtor Co. and Finance Co. are parties to an equipment finance lease governing certain equipment used by Debtor Co. in the operation of its business. Prior to the petition date, certain monetary and monetary defaults occurred under the contract, which under the terms of the contract and applicable non-bankruptcy law, entitled Finance Co. to accelerate the debt. Post-petition, Debtor Co. resumes payments under the contract and proposes a chapter 11 plan of reorganization that states it will pay or dispute claims under the contract in the ordinary course of business. The plan classifies Finance Co. as unimpaired. Great news, right? Not so fast.
Section 1124(1) of the Bankruptcy Code provides that a claim is unimpaired if the plan "leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest." Alternatively, under Section 1124(2), a debtor can render a claim unimpaired by satisfying the relevant requirements enumerated in Section 1124(2)(A) – (E). Broadly stated, in order for a claim to be classified as unimpaired, Section 1124(2) requires a debtor to cure defaults, reinstate the maturity date, compensate the creditor for certain losses, and not otherwise alter the creditor's legal, equitable, or contractual rights
Pursuant to Section 1126(f), creditors in an unimpaired class are conclusively presumed to have accepted the plan If a plan classifies a creditor as unimpaired, the creditor is not entitled to vote on the plan, which minimizes its leverage in the plan process.
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