Your Roadmap For Getting Your Chapter 11 Plan of Reorganization Accepted

When your business faces overwhelming debt, Chapter 11 bankruptcy can provide the breathing room needed to restructure and emerge stronger. The heart of any successful Chapter 11 case lies in developing and gaining approval for your plan of reorganization. 

A Chapter 11 plan of reorganization serves as your business’s blueprint for financial recovery. This document details how you’ll restructure debts, modify payment terms, and reorganize operations to ensure long-term viability. Unlike Chapter 7 liquidation, Chapter 11 allows your business to continue operating while working through financial difficulties under court protection.

The plan must address several key elements including how creditors will be paid, what assets will be retained or sold, and how the business will generate sufficient cash flow moving forward.

Step 1: Developing Your Initial Plan

The first step involves working closely with your bankruptcy attorney and financial advisors to craft a realistic reorganization plan. This process typically begins within the first few months of filing your Chapter 11 case, though you generally have between 90 to 120 days from the filing date to submit your initial plan to the court.

During plan development, you’ll need to analyze your business’s financial position thoroughly. This includes reviewing assets to determine if any can be sold to pay down debt, reviewing contracts and leases to determine if they remain necessary for ongoing operations, preparing cash flow projections of what funds are available for debt service, and addressing any other operational changes that may need to be made. Your plan must demonstrate how the restructured business will generate enough income to meet its obligations while remaining competitive in the marketplace.

The plan will also address treatment of different creditor classes and how or what portion of their debts will be paid going forward. Secured creditors, unsecured creditors, and equity holders each have different rights and expectations that must be considered. Successful plans often involve negotiations with major creditors before formal submission to build support early in the process. 

Step 2: Filing and Initial Court Review

Once your plan is complete, it must be filed with the bankruptcy court, along with a disclosure statement, unless you have elected to proceed as Subchapter V small business case. The disclosure statement provides creditors with detailed information about your business’s financial condition, the value of assets, historical business operations, the proposed plan terms, and projections for future performance. 

Think of it as a comprehensive business plan that allows creditors to make informed decisions about whether to support your reorganization.

The court will review both documents to ensure they meet legal requirements. The bankruptcy judge must approve the disclosure statement before it can be distributed to creditors for voting, although some courts will approve it on a conditional basis and combine its final approval with the hearing on the plan. This initial court review focuses on whether the disclosure statement contains adequate information for creditors to evaluate the plan fairly.

During this phase, creditors and other interested parties may object to the disclosure statement or request additional information. Your attorney will work to address these concerns and modify the documents as necessary to gain court approval for distribution.

Step 3: Creditor Voting Process

After the court approves your disclosure statement, the voting process begins. All creditors entitled to vote receive copies of both the plan and disclosure statement, along with a ballot and a deadline for voting. This process typically takes 30 to 60 days, depending on the complexity of your case and the number of creditors involved. 

Creditors are organized into different classes based on their legal rights and the nature of their claims. Each class votes separately on the plan. For a class to accept the plan, creditors holding at least two-thirds of the dollar amount of claims that vote and more than half the number of voting creditors in that class must vote in favor.

During the voting period, you may need to negotiate with creditors who express concerns about the plan. Sometimes modifications are necessary to gain sufficient support. These negotiations can involve adjusting payment terms, modifying interest rates, or providing additional security for certain claims.

Step 4: Confirmation Hearing Preparation

While creditors are voting, you’ll prepare for the confirmation hearing where the bankruptcy judge will decide whether to approve your plan. Even if creditors vote in favor, the court must still find that the plan meets all legal requirements for confirmation. The court may also choose to approve the plan if some creditors vote against it. 

The court will examine whether the plan has been proposed in good faith, is feasible, and complies with bankruptcy law requirements. Feasibility is particularly important – the judge must believe your business can actually perform under the plan’s terms and make the required payments to creditors.

Preparation for this hearing involves working with your bankruptcy attorney to review the testimony to be presented at the hearing, and addressing any objections from creditors or other parties, and reviewing and making any necessary updates to your financial projections. Your attorney will help you anticipate potential challenges and develop responses that demonstrate your plan’s viability.

Step 5: The Confirmation Hearing

At the confirmation hearing, the bankruptcy judge will consider all evidence regarding your plan. This may include testimony from you and other witnesses about the business’s prospects, expert analysis of financial projections, and arguments from creditors who support or oppose confirmation.

If creditors have accepted the plan and it meets all legal requirements, confirmation is typically straightforward. However, even if some creditor classes reject the plan, the court may still confirm it under the “cramdown” provisions of bankruptcy law, provided certain conditions are met.

The judge will issue a written order either confirming the plan, denying confirmation, or requiring modifications before approval. If modifications are necessary, you may need to repeat portions of the process with an amended plan.

Step 6: Post-Confirmation Implementation

Once your plan is confirmed, the real work begins. You must implement the reorganization according to the plan’s terms while continuing to operate your business effectively. This includes making payments to creditors as scheduled, meeting operational milestones, and maintaining compliance with any ongoing court requirements.

Most confirmed plans include reporting requirements that keep the court and creditors informed about your business’s performance. These reports typically cover financial results, payment status, and progress toward achieving the plan’s objectives.

Successfully implementing your confirmed plan leads to completion of the bankruptcy case and a discharge of debts that were addressed in the reorganization. This fresh start allows your business to move forward without the burden of pre-bankruptcy financial problems.

Biggs Law Can Help With Your Chapter 11 Plan & Process

Throughout this process, there are complex legal requirements, tight deadlines, and negotiations with multiple parties who may have conflicting interests. Having knowledgeable guidance from Biggs Law Firm helps ensure you stay on track and protect your business’s interests.

If your business is considering Chapter 11 bankruptcy or if you’re ready to begin developing a reorganization plan, we’re here to help. Contact Biggs Law Firm today at (919) 375-8040 to discuss your situation and explore how Chapter 11 might provide the financial restructuring your business needs.