Ways to Overcome Objections to Chapter 11 Plan Confirmation

Objections by creditors can complicate a Chapter 11 reorganization. In reality, though, objections to plan confirmation process can often be surmounted. Experienced attorneys routinely address them and many can be resolved without ever heading to a contested hearing.

The following are common grounds for creditor objections to plan confirmation:

• Feasibility concerns — A creditor may argue the debtor’s plan is too optimistic, with unrealistic revenue projections, insufficient cash flow or a lack of firm commitments for outside financing. 
• Unfair discrimination — A creditor may allege the plan improperly favors certain creditors or insiders, such as paying one unsecured creditor more than another. 
• Lack of good faith — Creditors may assert that the plan was proposed to hinder a specific creditor or to manipulate claim classifications for voting purposes.
• Improper classification of claims — Creditors may allege that claims were grouped in a way that unfairly creates a consenting class of creditors. 
• Failing the best interest test — Creditors may argue that they would receive a larger recovery in a Chapter 7 liquidation than under the plan. 
• Flouting the absolute priority rule — In most cases, equity holders cannot retain their interests over unsecured creditor objections unless senior claims are paid in full.

Objections do not have to derail your plan. With thoughtful planning, skilled negotiation and experienced Chapter 11 counsel, most businesses can overcome objections and secure plan confirmation. The following strategies can be effective addressing and overcoming objections:

• Strengthen the financial projections — Use conservative assumptions and provide detailed backup for revenue and expense forecasts. Engage financial advisors when needed.
• Improve transparency and communication — Share updated financials with key creditors and explain the business rationale behind plan terms. 
• Negotiate targeted modifications — Adjust payment terms, reclassify claims if appropriate and offer additional protections such as regular financial reporting.

The Bankruptcy Code provides valuable tools. Cramdown procedures allow plan confirmation over creditor dissent if legal requirements are met. The ability to restructure secured debt can enhance plan flexibility. Subchapter V eliminates the absolute priority rule for small business reorganizations.

If a consensual solution cannot be reached, preparation for litigation is essential. This includes organizing persuasive evidence and expert testimony that can demonstrate to the court that the plan is credible, fair and well-supported.

Conducting thorough financial analysis, addressing creditor concerns before filing and building a realistic, sustainable plan reduces room for objection and keeps the process on track. 

The Law Offices of Michael Jay Berger in Beverly Hills is one of Southern California’s most experienced Chapter 11 bankruptcy law firms, with 12 locations across the region. Please call us at 310-271-6223 or contact us online to schedule a consultation.