Elements of a Chapter 11 Bankruptcy Plan of Reorganization
by Dana Griffin, Demand Media
Debtor in Possession
The goal in a Chapter 11 situation is to restructure the debt so the company, small or large, may stay in business. A business debtor may be a corporation, partnership or sole proprietorship. The debtor files an order of relief but remains in possession of the property while developing a plan to increase revenue to pay off debts. If creditors suspect fraud, they may request a trustee to handle financial arrangements until an agreed upon plan is in place. A debtor in possession also is allowed to borrow funds and may apply to receive unsecured credit without court permission.
Timetable
After submitting an order of relief, the debtor has 120 days to create and file a reorganization plan. For small businesses and businesses with debts of less than $2 million, the timetable may be fast-tracked to 100 days. All creditors must approve the plan with 180 days of the order of relief, or 160 days if fast-tracked. If the debtor does not submit a plan in time, or if any of the creditors fail to consent to it, the creditors themselves may submit a plan. Sometimes, the court extends the debtor's exclusivity period for up to 18 months. Unless an interested party or the courts cause everyone to act in a timely manner, the case can go on for years.
Mandatory Provisions
Your Chapter 11 plan must contain specific mandatory provisions. First, all claims must have a classification. Each secured claim can be classified separately, and you may use general classification for unsecured claims, while employees may be a third class. According to Lawdog Bankruptcy, you can only classify claims together if the “claim or interest is substantially similar to the other claims or interests of the same class.” The plan also must contain a method of treatment for each claim in a class. Furthermore, your plan requires a method of implementation, including a provision for electing directors with the same interests as the creditors.
Impairment Classes
You must include treatments and explanations for all impaired classes in your plan. An impaired class is a group of similar claims that will not be paid in full as of the effective date of a confirmed Chapter 11 plan. Impairment is important because unimpaired classes assume the acceptance of the creditors, and solicitation of their acceptance is not required by law.
Permissible Provisions
Permissible provisions are those not required by law but which help provide for the settlement of all claims. These provisions can impair any class, including unfulfilled lease agreements, reject or assign uncompleted contracts, provide for the liquidation of any or all assets or provide for any other relevant measures in the bankruptcy code. Permissible provisions also provide for modifying secured or unsecured creditors' rights to full payment, partial payment or the surrender of the secured property.
