American Bankruptcy Institute | Chapter 11: Post Confirmation Issues

Chapter 11: Post Confirmation Issues

The following abstract summarizes the text of submissions made to the National Bankruptcy Review Commission. The abstract is organized by NBRC working group and topic.

The Final Report of the NBRC can be viewed on-line. To obtain a copy of any document shown below, contact the Center for Legislative Archives, Room 205, National Archives Building, Washington, D.C. 20408. The telephone number is 202/501-5350. Mr. R. Michael McReynolds, Deputy Director, will be able to assist with specific inquiries. (The NBRC documents will be housed at this location until June, 1999. Thereafter, the records will be transferred to the Center's archives in College Park, MD.)

ID	Name	Group	Other	Code Sec	Cross Ref	Problem Referenced	Proposed Solutions
NBRC-0031	David A. Lander	Attorney - Thompson Coburn	Invited Participant - Small Business	1141 et seq.		Possible post-confirmation compliance with plan problems.	In cases where there is an actual reorganized debtor that is able to comply with the terms of the plan, court only retains resolution of claims and perhaps preferences, but stops dealing with the case wihtin a few months after confirmation. This system works well and need no statutory change.
NBRC-0031	David A. Lander	Attorney - Thompson Coburn	Invited Participant - Small Business	1144		Parties who determine that confirmation should not have occurred and attempt to have the conficmtioan and discharge order revoked.	Section 1144 provides for revocation on account of fraud only and is only available for 180 days after confirmation is working pretty well and should not be amended.
NBRC-0031	David A. Lander	Attorney - Thompson Coburn	Invited Participant - Small Business	1112		A creditor does not get paid as provided for in the plan and is angry.	The Code provides that a creditor in this situation is free to enforce its obligation in the appropriate court but probably not in the bankruptcy court.This is woking very well after a few years of uncertainty about whether the Bankruptcy Judge should stay out of the matter.
NBRC-0031	David A. Lander	Attorney - Thompson Coburn	Invited Participant - Small Business	1112		A Plan creditor or post-confirmation creditor of the debtor wants to get the reorganized debtor beack into bankruptcy court.	They look to section 1112 which contemplates the failure of the reorganized debtor to perform and they decide to either have the case dismissed or converted. Post-confirmation dismissal is not a problem as long as it does not undo confirmation. Rather it is tantamount to closing the case. Section 349 deals with the effect of dismissal does not address post-confirmation dismissal. Nothing needs to be done as courts recognize that post-confirmation dismissal does not undo confirmation.
NBRC-0031	David A. Lander	Attorney - Thompson Coburn	Invited Participant - Small Business	1112	348	Significant confusion when a party makes a case for conversion to chapter 7 post-confirmation.	Unless the plan provides otherwise, no property in the estate post-confirmation as plan provides that all property is vested in the reorganized debtor. Thus, when a case is converted, it may have some unresolved claims and preference disputes, but generally no property. Most courts have resolved this confusion correctly and hold that if plan or post-confirmation want to be in bankruptcy court, a new case, either voluntary or involuntary must be filed. A new case also provides a clearer roadmap for dealing with claims. Only claims arising after the petition date of the new case have administrative status.
NBRC-0031	David A. Lander	Attorney - Thompson Coburn	Invited Participant - Small Business	1129	1142	The court confirms a liquidating plan. How involved should the court be with administering it.	Many judges treat a liquidating plan just like a chapter 7 wind-up. Other judges require that the plan further limit their involvement in the case and provide for a liquidating trust or an assignment for the benefit of creditors. Recent changes in the charging of fees in "open" cases may highlight this issue.
NBRC-0031	David A. Lander	Attorney - Thompson Coburn	Invited Participant - Small Business	1127	1123	Reorganized debtor hits a snag and needs a change in the Plan.	Section 1127 is clear that once certain events take place, a plan may not be modified without agreement between the parties. Many courts ignored these time limits and permitted modification. Now, most courts get it right and no need to amend this section.
NBRC-0031	David A. Lander	Attorney - Thompson Coburn	Invited Participant - Small Business	1127		Reorganized debtor realizes it is too late to modify under 1127 and files a new chapter 11 for purposes of reorganizing again.	Courts have dealt with this issue pretty well and usually reject the second 11, although they recognize that there is no absolute bar to such a case. Allow them in three instances: 1. for purposes of liquidation if 7 is appropriate; (2) where there had truly beeen an unanticipated and unanticipatable change. For instance federal regulations; and (3) very large cases such as TWA and Continental where the courts and the parties have ignored the earlier confirmed case. No need for statutory change in this area.
NBRC-0031	David A. Lander	Attorney - Thompson Coburn	Invited Participant - Small Business	157	1334	Reorganized debtor needs help of the bankruptcy court after confirmation.	Considerable disparity exists regarding degree of jurisdiction the bankruptcy judge should exercise after confirmation. Core matters such as claims and preferences court clearly has jurisdcition over. Jurisdiction over non-core matters are harder to resolve. Most cases find that the Bankr. court has as much jurisdiction over these matters pre-confirmation as they do post-confirmation. If Commission feels bankruptcy judges are holding on to cases too long, they may wish to consider statutory changes to clarify ambit of post-confirmation jurisdiction in respect to "related to" proceedings.
NBRC-0031	David A. Lander	Attorney - Thompson Coburn	Invited Participant - Small Business	727(a)(8)		Individual debtor defaults upon either its plan obligations or its post-petition obligations or its post-petition obligations and needs a chapter 7 discharge.	Because of the language of section 727(a)(8), courts have found it difficult to figure out how to let the debtor obtain a chapter 7 discharge during the six-year period after the filing of the chapter 11 case. Short article adressing problem enclosed. Article outlines conflict between individual treatment versus non-individual treatment.
NBRC-0171	Professor Karen Gross	Professor; New York Law School		524(e)		Given the language of section 524(e), it is unclear whether third party releases are permitted at all in bankruptcy. Alternatively, section 524(e) could be read as not prohibiting third party releases. This would mean that absent some express contractual or plan provision, third parties will not be released. Thus, if there is an explicit plan provision, disclosed to creditors and voted upon favorably, a third party release may be enforceable.	The language of the third party release matters, as does the language in the disclosure statement, ballot and confirmation order. The procedural hurdles that need to be considered and then implemented by lawyers are significant. While some of these issues are tactical in nature, others implicate important aspects of bankruptcy and other substantive law.
NBRC-0189	Marcia L. Goldstein, on behalf of NY City Bar Assoc., Comm. on Bankruptcy & Corp. Reorganization	Chair, Comm. on Bankruptcy and Corp. Reorganization		363(f), 1141(c)		Sections 1141(c) and 363(f) contain incompatible language with regard to asset sales. Section 1141(c), pertaining to the effect of confirmation of a plan, provides that "property dealt with by the plan is free and clear of all claims and interests of creditors, equity security holders, and of general partners in the debtor." By contrast, § 363(f), pertaining to asset sales of the debtor, provides that "[t]he trustee may sell property...free and clear of any interest in such property of an equity other than the estate." The difference in language between these two sections raises a concern that the scope of protection regarding transfers pursuant to asset sales is narrower than the protection afforded to transfers pursuant to a plan of reorganization.	Section 363(f) should be amended to provide that property can be sold under this section "free and clear of all claims and interests of creditors, equity security holders, and of general partners in the debtor." The author provides a sample redrafted version of § 363(f).
NBRC-0203	Amy M. Tonti, on behalf of the Allegheny Co. Bar Assoc.'s Bankruptcy & Commericial Law Section	Chair, Allegheny County Bar Assoc. (ACBA), Bankruptcy and Commerical Law Section	Summary of ACBA's recommendations	363(f), 1141(c)		Language in §§ 363(f) and 1141(c) is inconsistent with regard to asset sales. Under § 363(f), assets may be sold "free and clear of any interest in such property of an entity other than the estate." Section 1141(c) appears to permit assets to be conveyed under a confirmed plan "free and clear of all claims and interests of creditors, equity security holders, and of general partners to the debtors."	Supports amending §§ 363(f) and 1141(c) to ensure that all sales are free and clear of all claims and interests of creditors (both past and future), equity security holders and general partners, or any other person or entity, including successor liabilty claims arising from but not limited to, personal injury, environmental, labor and usury claims, provided that the court finds: (a) that the moving party took reasonable steps to provide due process (e.g., notice and opportunity to respond) to all persons or entities whose interest may be adversely affected by the sale; and (b) that the moving party provided for the fair and equitable treatment of claims and interests affected by the sale.
NBRC-0248	Thomas C. Ford	Chair, Bankruptcy Committee, California Association of County Treasurers and Tax Collectors		1141(d)(2)		Section 1141(d)(2) should be amended to be consistent with the Code prior to enactment of the 1978 Reform Act, and consistent with the Senate's legislative history stating that taxes would remain nondischargeable in the case of a corporate and partnership debtor emerging from a reorganization under chapter 11.	Section 1141(d)(2) should be amended to read "(2) The confirmation of a plan does not discharge A DEBTOR FROM ANY TAX DEBT, NOR AN individual from any debt excepted from discharge under § 523 of this title."
NBRC-0320	Robert M. Zinman, on behalf of the Bankruptcy Institute	American Bankruptcy Institute ("ABI")	Numerous position papers, memoranda and research material			None.	The court should not interfere with the affairs of a reorganized debtor except to the extent necessary to implement prior orders. Plan modification should only be permitted if the modification is immaterial or is approved by a resolicitation of the creditors.
NBRC-0345	Philip J. Brandl	President, National Housewares Manufacturers Association ("NHMA")				NHMA members are concerned that the same managers that presided over the decline of failing retail businesses often lead the businesses, largely unsupervised, through the bankruptcy process. Often, these managers continue the same inefficiencies in a bankruptcy as they did in the businesses.	NHMA urges the NBRC to consider any means of obtaining greater oversight over debtors-in-possession, such as increased creditors' committee participation or independent overseers.
NBRC-0556	Patrick D. Goodrich	Businessman	Motion to Convert for Material Breach filed in case of In Re Star Technologies, Inc. by Patrick D. Goodrich, with Declaration and Memorandum in support.			Author was involved in a Chapter 11 as a creditor. Debtor got the other creditors to agree to a post-confirmation "novation" of the plan, and author's business lost $92,000, which was a severe predisposing factor in the eventual dissolution of his corporation.	"I believe that a Corporation, unlike an individual, is created solely to be a profitable entity. If it proves not to be, it should be allowed to wither, therby provideing room for healthier businesses to flourish. Its survival should not be assisted using bankruptcy as a vehicle to steal from capable businesses. The idea of providing a second chance is reasonable, but not the excessive "cram-downs" that are so prevalent. I propose a minimum 50% payback to all creditors over a maximum of three years. Failing this, I propose mandatory dissolution."
NBRC-1147	Carolyn O'Connor	Credit Manager, Beeswax Designs	Post-Confirmation Issues			"Currently, a debtor can file for protection under the Bankruptcy law and then get financing by pledging unsecured creditors' unpaid inventories as security for the loan. Since the lender will only lend a percentage of the value of the goods, this puts the lender in a far better financial position than that of the creditor who must wait for the outcome to share in what equity remains, if any."	"We would suggest that if unpaid inventories are going to be allowed to be pledged for security for D.I.P. loans, that the first 50% of the loan proceeds be set aside for the unsecured creditors to ensure some repayment."