The Value of Nonconsensual Plan Confirmation in Subchapter V

A Subchapter V proceeding is a streamlined form of small-business bankruptcy that helps owners quickly reorganize their debts and keep the business operating. One of the most significant advantages of Subchapter V is that a small business does not necessarily need creditor approval for a reorganization plan to be confirmed by the court. Traditional Chapter 11 cases can stall or even fall through when one or more creditors refuse to cooperate, but in Subchapter V, a court may confirm the plan despite creditor objections. That gives the business a better opportunity to remain viable and reorganize.

Essentially, Subchapter V recognizes that the will of a single unhappy creditor should not derail a Chapter 11 plan that would otherwise serve the greater good, which is keeping the business afloat and satisfying other creditors. This can benefit companies facing aggressive collection efforts, hostile interactions or contentious negotiations with a specific creditor.

For many small businesses, Subchapter V removes a significant obstacle to their financial recovery and eventual solvency. Rather than allowing a single creditor to block negotiations or demand concessions, Subchapter V focuses on whether the proposed plan complies with the law and offers a workable structure for repayment. That can prompt otherwise inflexible creditors to negotiate and preserve the court’s ability to allow a plan that most benefits the parties and their interests. 

However, nonconsensual confirmation is not automatic. The proposed plan must meet these requirements:

• It must be fair and equitable to all creditors, with the company’s projected disposable income committed to the plan or with other value being given to creditors.
• It must be feasible, meaning there is a reasonable likelihood that the business can make the proposed payments and successfully complete the reorganization.

These requirements are meant to safeguard creditor interests, so that confirmation of a reorganization plan is not forced through when it is unfair or unrealistic.

To meet the fairness and feasibility requirements, the debtor business needs to present detailed evidence. All financial projections must be credible, disposable income calculations must be accurate and the proposed treatment of all creditors must comply with the Bankruptcy Code. Working with an experienced Subchapter V attorney can help a business owner craft a plan that will meet court approval.

At the Law Offices of Michael Jay Berger in Beverly Hills, we assist businesses throughout Southern California in Chapter 11, Subchapter V and other bankruptcy proceedings. Schedule a free initial consultation by calling or contact us online.