The immediate goal of a Chapter 11 bankruptcy case is to confirm a plan of reorganization. The plan lays out the debtor’s new (and more manageable) obligations.
A bankruptcy judge is required to make a number of findings before confirming a Chapter 11 plan. If the creditors all agree to the plan, the debtor has much less to prove to secure confirmation. Even with unanimous consent, however, a judge has the power to ensure that the plan meets the requirements of the Bankruptcy Code.
A recent ruling out of Nevada serves as a reminder that a bankruptcy judge can deny confirmation even if the creditors agree. The judge there denied confirmation of the plan submitted by the Las Vegas Monorail Company. Over 97% of its bonholders had voted for the plan, and the debtor had resolved all objections to the plan. Even so, the bankruptcy judge found that the plan was not feasible: the company could service its debt for seven years, but could only afford the balloon payment if events happened that were out of its control. Since feasibility is a requirement that must be proved even in a consensual plan, the judge denied confirmation of the plan.
Other bankruptcy judges may not have questioned feasibility in an uncontested confirmation hearing, but that may not end up as a benefit to the debtor. For example, while it is usually much better to settle an objection, there is often a temptation to offer more to settle an objection than can realistically be promised.
With proper advice, debtors can avoid the experience of hearing their bankruptcy judge say: “There is a key person you seem not to have taken into account and that’s me.” If you are considering requesting Chapter 11 bankruptcy protection, you should consult with an attorney familiar with Chapter 11 bankruptcies to discuss your options. For a free consultation, call (480) 719-1152.