11 U.S.C. § 1173 — Confirmation of plan

Page 287 TITLE 11—BANKRUPTCY § 1173 their payment. Subsection (4) requires that the plan specify the means by which, and the extent to which, the debtor’s rail service is to be continued, and shall identify any rail service to be terminated. Subsection (5) permits other appropriate provisions not incon- sistent with the chapter. With the exception of sub- section (4), the requirements are comparable to those of present section 77(b) [section 205(b) of former title 11]; subsection (4) emphasizes the public interest in the preservation of rail transportation. Section 1171 imposes on the court, rather than the Interstate Commerce Commission, as in present section 77 [section 205 of former title 11], the responsibility for the plan of reorganization. The Commission is empow- ered to make final decisions subject only to review by the court under the standards of the Administrative Procedure Act [5 U.S.C. 551 et seq. and 701 et seq.] as to any part of the plan which deals with transportation matters, such as the grant of operating rights of or over, or transfer of, the debtor’s rail lines to other car- riers. Subsection (a) requires the trustee to file a plan of re- organization within 18 months after the petition is filed, and permits the court, for good cause shown, to extend such time limit. Subsection (b) permits a plan to be proposed by any interested person, and permits the trustee to revise his plan at any time before it is approved by the court. Subsections (c), (d) and (e) require the court, when a plan is submitted by the trustee or, if the court deems it worthy of consideration, a plan submitted is pro- posed by any other person proposes the transfer of, or operation of or over, any of the debtor’s lines by other carriers, to refer to such provisions of the plan to the Interstate Commerce Commission. The Commission, within 240 days, and after a hearing if the Commission so determines, is to report to the court the effects of such provisions of the plan in the light of national transportation policy and sections 5(3)(f)(A), (B), and (D), (F)–(I) of the Interstate Commerce Act [49 U.S.C. 11350(b)(1), (2), (4), (6)–(9)]. The report of the Commis- sion is conclusive in all further hearings on the plan by the court, subject only to review pursuant to 5 U.S.C. 706(2)(A)–(D). HOUSE REPORT NO. 95–595 [Section 1171 (enacted as section 1172)] A plan in a railroad reorganization case may include provisions in addition to those required and permitted under an ordi- nary reorganization plan. It may provide for the trans- fer of any or all of the operating railroad lines of the debtor to another operating railroad. Paragraph (1) contemplates a liquidating plan for the debtor’s rail lines, much as occurred in the Penn Cen- tral case by transfer of operating lines to ConRail. Such a liquidating plan is not per se contrary to the public interest, and the court will have to determine on a case-by-case basis, with the guidance of the Inter- state Commerce Commission and of other parties in in- terest, whether the particular plan proposed is in the public interest, as required under proposed 11 U.S.C. 1172(3). The plan may also provide for abandonment in ac- cordance with section 1169, governing abandonment generally. Neither of these provisions in a plan, trans- fer or abandonment of lines, requires ICC approval. Confirmation of the plan by the court authorizes the debtor to comply with the plan in accordance with sec- tion 1142(a) notwithstanding any bankruptcy law to the contrary. Editorial Notes AMENDMENTS 2005—Subsec. (c)(1). Pub. L. 109–8 substituted ‘‘section 11326(a)’’ for ‘‘section 11347’’. 1995—Subsecs. (b), (c)(1). Pub. L. 104–88 substituted ‘‘Board’’ for ‘‘Commission’’ wherever appearing. 1980—Subsec. (c). Pub. L. 96–448 added subsec. (c). Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1995 AMENDMENT Amendment by Pub. L. 104–88 effective Jan. 1, 1996, see section 2 of Pub. L. 104–88, set out as an Effective Date note under section 1301 of Title 49, Transpor- tation. EFFECTIVE DATE OF 1980 AMENDMENT Amendment by Pub. L. 96–448 effective Oct. 1, 1980, see section 710(a) of Pub. L. 96–448, set out as a note under section 1170 of this title. NONAPPLICATION OF SUBSEC. (c) For provision that subsec. (c) of this section does not apply to Amtrak and its employees, see section 142(d) of Pub. L. 105–134, set out in an Employee Protection Reforms note under section 24706 of Title 49, Transpor- tation. § 1173. Confirmation of plan (a) The court shall confirm a plan if— (1) the applicable requirements of section 1129 of this title have been met; (2) each creditor or equity security holder will receive or retain under the plan property of a value, as of the effective date of the plan, that is not less than the value of property that each such creditor or equity security holder would so receive or retain if all of the oper- ating railroad lines of the debtor were sold, and the proceeds of such sale, and the other property of the estate, were distributed under chapter 7 of this title on such date; (3) in light of the debtor’s past earnings and the probable prospective earnings of the reor- ganized debtor, there will be adequate cov- erage by such prospective earnings of any fixed charges, such as interest on debt, amor- tization of funded debt, and rent for leased railroads, provided for by the plan; and (4) the plan is consistent with the public in- terest. (b) If the requirements of subsection (a) of this section are met with respect to more than one plan, the court shall confirm the plan that is most likely to maintain adequate rail service in the public interest. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2644; Pub. L. 98–353, title III, § 523, July 10, 1984, 98 Stat. 388.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 1173 of the House amendment concerns con- firmation of a plan of railroad reorganization and is de- rived from section 1172 of the House bill as modified. In particular, section 1173(a)(3) of the House amendment is derived from section 1170(3) of the Senate amendment. Section 1173(b) is derived from section 1173(a)(8) of the Senate amendment. SENATE REPORT NO. 95–989 Section 1173 adapts the provisions dealing with reor- ganization plans generally contained in section 1130 to the particular requirements of railroad reorganization Page 288 TITLE 11—BANKRUPTCY § 1174 plans, as set out in present section 77(e) [section 205(e) of former title 11]. Subsection (a) specifies the findings which the court must make before approving a plan: (1) The plan complies with the applicable provisions of the chapter; (2) the proponent of the plan complies with the applicable provisions of the chapter; (3) the plan has been proposed in good faith; (4) any payments for serv- ices or for costs or expenses in connection with the case or the plan are disclosed to the court and are reason- able, or, if to be paid later, are subject to the approval of the court as reasonable; (5) the proponent of the plan has disclosed the identity and affiliations of the indi- viduals who will serve as directors, officers, or voting trustees, such appointments or continuations in office are consistent with the interests of creditors, equity se- curity holders, and the proponent the public, and has disclosed the identity and compensation of any insider who will be employed or retained under the plan; (6) that rate changes proposed in the plan have been ap- proved by the appropriate regulatory commission, or that the plan is contingent on such approval; (7) that confirmation of the plan is not likely to be followed by further reorganization or liquidation, unless it is con- templated by the plan; (8) that the plan, if there is more than one, is the one most likely to maintain ade- quate rail service and (9) that the plan provides the pri- ority traditionally accorded by section 77(b) [section 205(b) of former title 11] to claims by rail creditors for necessary services rendered during the 6 months pre- ceding the filing of the petition in bankruptcy. Subsection (b) continues the present power of the court in section 77(e) [section 205(e) of former title 11] to confirm a plan over the objections of creditors or eq- uity security holders who are materially and adversely affected. The subsection also confirms the authority of the court to approve a transfer of all or part of a debt- or’s property or its merger over the objections of eq- uity security holders if it finds (1) that the ‘‘public in- terest’’ in continued rail transportation outweighs any adverse effect on creditors and equity security holders, and (2) that the plan is fair and equitable, affords due recognition to the rights of each class, and does not discriminate unfairly against any class. Subsection (c) permits modification of a plan con- firmed by a final order only for fraud. HOUSE REPORT NO. 95–595 [Section 1172] This section [enacted as section 1173] requires the court to confirm a plan if the applicable requirements of section 1129 (relating to confirmation of reorganization plans generally) are met, if the best interest test is met, and if the plan is compatible with the public interest. The test in this paragraph is similar to the test pre- scribed for ordinary corporate reorganizations. How- ever, since a railroad cannot liquidate its assets and sell them for scrap to satisfy its creditors, the test fo- cuses on the value of the railroad as a going concern. That is, the test is based on what the assets, sold as op- erating rail lines, would bring. The public interest requirement, found in current law, will now be decided by the court, with the ICC rep- resenting the public interest before the court, rather than in the first instance by the ICC. Liquidation of the debtor is not, per se, contrary to the public interest. Editorial Notes AMENDMENTS 1984—Subsec. (a)(4). Pub. L. 98–353 substituted ‘‘con- sistent’’ for ‘‘compatible’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. § 1174. Liquidation On request of a party in interest and after no- tice and a hearing, the court may, or, if a plan has not been confirmed under section 1173 of this title before five years after the date of the order for relief, the court shall, order the trustee to cease the debtor’s operation and to collect and reduce to money all of the property of the estate in the same manner as if the case were a case under chapter 7 of this title. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2644.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 1174 of the House amendment represents a compromise between the House bill and Senate amend- ment on the issue of liquidation of a railroad. The pro- vision permits a party in interest at any time to re- quest liquidation. In addition, if a plan has not been confirmed under section 1173 of the House amendment before 5 years after the date of order for relief, the court must order the trustee to cease the debtor’s oper- ation and to collect and reduce to money all of the property of the estate in the same manner as if the case were a case under chapter 7 of title 11. The approach differs from the conversion to chapter 7 under section 1174 of the Senate bill in order to make special provi- sions contained in subchapter IV of chapter 11 applica- ble to liquidation. However, maintaining liquidation in the context of chapter 11 is not intended to delay liq- uidation of the railroad to a different extent than if the case were converted to chapter 7. Although the House amendment does not adopt provi- sions contained in sections 1170(1), (2), (3), or (5), of the Senate amendment such provisions are contained ex- plicitly or implicitly in section 1123 of the House amendment. SENATE REPORT NO. 95–989 Section 1174 permits the court to convert the case to a liquidation under chapter 7 if the court finds that the debtor cannot be reorganized, or if various time limits specified in the subchapter are not met. Section 77 [sec- tion 205 of former title 11] does not authorize a liquida- tion of a railroad under the Bankruptcy Act [former title 11]. If the railroad is not reorganizable, the only action open to the court is to dismiss the petition, which would in all likelihood be followed by a State court receivership, with all of its attendant disadvan- tages. If reorganization is impossible, the debtor should be liquidated under the Bankruptcy Act. SUBCHAPTER V—SMALL BUSINESS DEBTOR REORGANIZATION § 1181. Inapplicability of other sections (a) IN GENERAL.—Sections 105(d), 1101(1), 1104, 1105, 1106, 1107, 1108, 1115, 1116, 1121, 1123(a)(8), 1123(c), 1127, 1129(a)(15), 1129(b), 1129(c), 1129(e), and 1141(d)(5) of this title do not apply in a case under this subchapter. (b) COURT AUTHORITY.—Unless the court for cause orders otherwise, paragraphs (1), (2), and (4) of section 1102(a) and sections 1102(b), 1103, and 1125 of this title do not apply in a case under this subchapter. (c) SPECIAL RULE FOR DISCHARGE.—If a plan is confirmed under section 1191(b) of this title, sec- tion 1141(d) of this title shall not apply, except as provided in section 1192 of this title. (Added Pub. L. 116–54, § 2(a), Aug. 23, 2019, 133 Stat. 1079.)