11 U.S.C. § 1123 — Contents of plan

Page 256 TITLE 11—BANKRUPTCY § 1122 Editorial Notes AMENDMENTS 2005—Subsec. (d). Pub. L. 109–8, § 411, designated exist- ing provisions as par. (1), substituted ‘‘Subject to para- graph (2), on’’ for ‘‘On’’, and added par. (2). Subsec. (e). Pub. L. 109–8, § 437, added subsec. (e) and struck out former subsec. (e) which read as follows: ‘‘In a case in which the debtor is a small business and elects to be considered a small business— ‘‘(1) only the debtor may file a plan until after 100 days after the date of the order for relief under this chapter; ‘‘(2) all plans shall be filed within 160 days after the date of the order for relief; and ‘‘(3) on request of a party in interest made within the respective periods specified in paragraphs (1) and (2) and after notice and a hearing, the court may— ‘‘(A) reduce the 100-day period or the 160-day pe- riod specified in paragraph (1) or (2) for cause; and ‘‘(B) increase the 100-day period specified in para- graph (1) if the debtor shows that the need for an increase is caused by circumstances for which the debtor should not be held accountable.’’ 1994—Subsec. (e). Pub. L. 103–394 added subsec. (e). 1986—Subsec. (d). Pub. L. 99–554 inserted reference to subsection (b) of this section. 1984—Subsec. (c)(3). Pub. L. 98–353, § 506(a), sub- stituted ‘‘of claims or interests that is’’ for ‘‘the claims or interests of which are’’. Subsec. (d). Pub. L. 98–353, § 506(b), inserted ‘‘made within the respective periods specified in subsection (c) of this section’’. 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 1994 AMENDMENT Amendment by Pub. L. 103–394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Amendment by Pub. L. 99–554 effective 30 days after Oct. 27, 1986, see section 302(a) of Pub. L. 99–554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. 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. § 1122. Classification of claims or interests (a) Except as provided in subsection (b) of this section, a plan may place a claim or an interest in a particular class only if such claim or inter- est is substantially similar to the other claims or interests of such class. (b) A plan may designate a separate class of claims consisting only of every unsecured claim that is less than or reduced to an amount that the court approves as reasonable and necessary for administrative convenience. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2631.) HISTORICAL AND REVISION NOTES SENATE REPORT NO. 95–989 This section codifies current case law surrounding the classification of claims and equity securities. It re- quires classification based on the nature of the claims or interests classified, and permits inclusion of claims or interests in a particular class only if the claim or in- terest being included is substantially similar to the other claims or interests of the class. Subsection (b), also a codification of existing prac- tice, contains an exception. The plan may designate a separate class of claims consisting only of every unse- cured claim that is less than or reduced to an amount that the court approves as reasonable and necessary for administrative convenience. § 1123. Contents of plan (a) Notwithstanding any otherwise applicable nonbankruptcy law, a plan shall— (1) designate, subject to section 1122 of this title, classes of claims, other than claims of a kind specified in section 507(a)(2), 507(a)(3), or 507(a)(8) of this title, and classes of interests; (2) specify any class of claims or interests that is not impaired under the plan; (3) specify the treatment of any class of claims or interests that is impaired under the plan; (4) provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest; (5) provide adequate means for the plan’s im- plementation, such as— (A) retention by the debtor of all or any part of the property of the estate; (B) transfer of all or any part of the prop- erty of the estate to one or more entities, whether organized before or after the con- firmation of such plan; (C) merger or consolidation of the debtor with one or more persons; (D) sale of all or any part of the property of the estate, either subject to or free of any lien, or the distribution of all or any part of the property of the estate among those hav- ing an interest in such property of the es- tate; (E) satisfaction or modification of any lien; (F) cancellation or modification of any in- denture or similar instrument; (G) curing or waiving of any default; (H) extension of a maturity date or a change in an interest rate or other term of outstanding securities; (I) amendment of the debtor’s charter; or (J) issuance of securities of the debtor, or of any entity referred to in subparagraph (B) or (C) of this paragraph, for cash, for prop- erty, for existing securities, or in exchange for claims or interests, or for any other ap- propriate purpose; (6) provide for the inclusion in the charter of the debtor, if the debtor is a corporation, or of any corporation referred to in paragraph (5)(B) or (5)(C) of this subsection, of a provision pro- hibiting the issuance of nonvoting equity se- curities, and providing, as to the several class- es of securities possessing voting power, an ap- propriate distribution of such power among such classes, including, in the case of any class of equity securities having a preference over another class of equity securities with re- Page 257 TITLE 11—BANKRUPTCY § 1123 spect to dividends, adequate provisions for the election of directors representing such pre- ferred class in the event of default in the pay- ment of such dividends; (7) contain only provisions that are con- sistent with the interests of creditors and eq- uity security holders and with public policy with respect to the manner of selection of any officer, director, or trustee under the plan and any successor to such officer, director, or trustee; and (8) in a case in which the debtor is an indi- vidual, provide for the payment to creditors under the plan of all or such portion of earn- ings from personal services performed by the debtor after the commencement of the case or other future income of the debtor as is nec- essary for the execution of the plan. (b) Subject to subsection (a) of this section, a plan may— (1) impair or leave unimpaired any class of claims, secured or unsecured, or of interests; (2) subject to section 365 of this title, provide for the assumption, rejection, or assignment of any executory contract or unexpired lease of the debtor not previously rejected under such section; (3) provide for— (A) the settlement or adjustment of any claim or interest belonging to the debtor or to the estate; or (B) the retention and enforcement by the debtor, by the trustee, or by a representative of the estate appointed for such purpose, of any such claim or interest; (4) provide for the sale of all or substantially all of the property of the estate, and the dis- tribution of the proceeds of such sale among holders of claims or interests; (5) modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of holders of unsecured claims, or leave unaffected the rights of holders of any class of claims; and (6) include any other appropriate provision not inconsistent with the applicable provi- sions of this title. (c) In a case concerning an individual, a plan proposed by an entity other than the debtor may not provide for the use, sale, or lease of property exempted under section 522 of this title, unless the debtor consents to such use, sale, or lease. (d) Notwithstanding subsection (a) of this sec- tion and sections 506(b), 1129(a)(7), and 1129(b) of this title, if it is proposed in a plan to cure a de- fault the amount necessary to cure the default shall be determined in accordance with the un- derlying agreement and applicable nonbank- ruptcy law. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2631; Pub. L. 98–353, title III, § 507, July 10, 1984, 98 Stat. 385; Pub. L. 103–394, title II, § 206, title III, §§ 304(h)(6), 305(a), title V, § 501(d)(31), Oct. 22, 1994, 108 Stat. 4123, 4134, 4146; Pub. L. 109–8, title III, § 321(b), title XV, § 1502(a)(7), Apr. 20, 2005, 119 Stat. 95, 216.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 1123 of the House amendment represents a compromise between similar provisions in the House bill and Senate amendment. The section has been clari- fied to clearly indicate that both secured and unsecured claims, or either of them, may be impaired in a case under title 11. In addition assumption or rejection of an executory contract under a plan must comply with sec- tion 365 of title 11. Moreover, section 1123(a)(1) has been substantively modified to permit classification of cer- tain kinds of priority claims. This is important for pur- poses of confirmation under section 1129(a)(9). Section 1123(a)(5) of the House amendment is derived from a similar provision in the House bill and Senate amendment but deletes the language pertaining to ‘‘fair upset price’’ as an unnecessary restriction. Sec- tion 1123 is also intended to indicate that a plan may provide for any action specified in section 1123 in the case of a corporation without a resolution of the board of directors. If the plan is confirmed, then any action proposed in the plan may be taken notwithstanding any otherwise applicable nonbankruptcy law in accord- ance with section 1142(a) of title 11. SENATE REPORT NO. 95–989 Subsection (a) specifies what a plan of reorganization must contain. The plan must designate classes of claims and interests, and specify, by class, the claims or interests that are unimpaired under the plan. Pri- ority claims are not required to be classified because they may not have arisen when the plan is filed. The plan must provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a different, but not better, treatment of his claim or interest. Paragraph (3) applies to claims, not creditors. Thus, if a creditor is undersecured, and thus has a secured claim and an unsecured claim, this paragraph will be applied independently to each of his claims. Paragraph (4) of subsection (a) is derived from section 216 of chapter X [section 616 of former title 11] with some modifications. It requires the plan to provide ade- quate means for the plans execution. These means may include retention by the debtor of all or any part of the property of the estate, transfer of all or any part of the property of the estate to one or more entities, whether organized pre- or postconfirmation, merger or consoli- dation of the debtor with one or more persons, sale and distribution of all or any part of the property of the es- tate, satisfaction or modification of any lien, cancella- tion or modification of any indenture or similar instru- ment, curing or waiving of any default, extension of maturity dates or change in interest rates of securities, amendment of the debtor’s charter, and issuance of se- curities. Subparagraph (C), as it applies in railroad cases, has the effect of overruling St. Joe Paper Co. v. Atlantic Coast Line R. R., 347 U.S. 298 (1954). It will allow the trustee or creditors to propose a plan of merger with another railroad without the consent of the debtor, and the debtor will be bound under proposed 11 U.S.C. 1141(a). See Hearings, pt. 3, at 1616. ‘‘Similar instru- ment’’ referred to in subparagraph (F) might include a deposit with an agent for distribution, other than an indenture trustee, such as an agent under an agreement in a railroad conditional sale or lease financing agree- ment. Paragraphs (5) and (6) and subsection (b) are derived substantially from Section 216 of Chapter X ([former] 11 U.S.C. 616). Paragraph (5) requires the plan to prohibit the issuance of nonvoting equity securities, and to pro- vide for an appropriate distribution of voting power among the various classes of equity securities. Para- graph (6) requires that the plan contain only provisions that are consistent with the interests of creditors and equity security holders, and with public policy with re- spect to the selection of officers, directors, and trust- ees, and their successors. Page 258 TITLE 11—BANKRUPTCY § 1124 Subsection (b) specifies the matters that the plan may propose. The plan may impair or leave unimpaired any claim or interest. The plan may provide for the as- sumption or rejection of executory contracts or unex- pired leases not previously rejected under section 365. The plan may also provide for the treatment of claims by the debtor against other entities that are not set- tled before the confirmation of the plan. The plan may propose settlement or adjustment of any claim or eq- uity security belonging to the estate, or may propose retention and enforcement of such claim or interest by the debtor or by an agent appointed for that purpose. The plan may also propose the sale of all or substan- tially all of the property of the estate, and the distribu- tion of the proceeds of the sale among creditors and eq- uity security holders. This would be a liquidating plan. The subsection permits the plan to include any other appropriate provision not inconsistent with the appli- cable provisions of the bankruptcy code. Subsection (c) protects an individual debtor’s exempt property by prohibiting its use, sale, or lease under a plan proposed by someone other than the debtor, unless the debtor consents. Editorial Notes AMENDMENTS 2005—Subsec. (a)(1). Pub. L. 109–8, § 1502(a)(7), sub- stituted ‘‘507(a)(2), 507(a)(3)’’ for ‘‘507(a)(1), 507(a)(2)’’. Subsec. (a)(8). Pub. L. 109–8, § 321(b), added par. (8). 1994—Subsec. (a)(1). Pub. L. 103–394, §§ 304(h)(6), 501(d)(31), substituted ‘‘507(a)(8) of this title,’’ for ‘‘507(a)(7) of this title’’. Subsec. (b)(5), (6). Pub. L. 103–394, § 206, added par. (5) and redesignated former par. (5) as (6). Subsec. (d). Pub. L. 103–394, § 305(a), added subsec. (d). 1984—Subsec. (a). Pub. L. 98–353, § 507(a)(1), in provi- sions preceding par. (1) substituted ‘‘Notwithstanding any otherwise applicable nonbankruptcy law, a’’ for ‘‘A’’. Subsec. (a)(1). Pub. L. 98–353, § 507(a)(2), inserted a comma after ‘‘classes of claims’’ and substituted ‘‘507(a)(7) of this title,’’ for ‘‘507(a)(6) of this title’’. Subsec. (a)(3). Pub. L. 98–353, § 507(a)(3), struck out ‘‘shall’’ before ‘‘specify the treatment’’. Subsec. (a)(5). Pub. L. 98–353, § 507(a)(4), substituted ‘‘implementation’’ for ‘‘execution’’. Subsec. (a)(5)(G). Pub. L. 98–353, § 507(a)(5), inserted ‘‘of’’ after ‘‘waiving’’. Subsec. (b)(2). Pub. L. 98–353, § 507(b), substituted ‘‘re- jection, or assignment’’ for ‘‘or rejection’’, and ‘‘under such section’’ for ‘‘under section 365 of this title’’. 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 1994 AMENDMENT Amendment by sections 206, 304(h)(6), and 501(d)(31) of Pub. L. 103–394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, and amendment by section 305(a) of Pub. L. 103–394 effective Oct. 22, 1994, and applicable only to agreements entered into after Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title. 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. § 1124. Impairment of claims or interests Except as provided in section 1123(a)(4) of this title, a class of claims or interests is impaired under a plan unless, with respect to each claim or interest of such class, the plan— (1) leaves unaltered the legal, equitable, and contractual rights to which such claim or in- terest entitles the holder of such claim or in- terest; or (2) notwithstanding any contractual provi- sion or applicable law that entitles the holder of such claim or interest to demand or receive accelerated payment of such claim or interest after the occurrence of a default— (A) cures any such default that occurred before or after the commencement of the case under this title, other than a default of a kind specified in section 365(b)(2) of this title or of a kind that section 365(b)(2) ex- pressly does not require to be cured; (B) reinstates the maturity of such claim or interest as such maturity existed before such default; (C) compensates the holder of such claim or interest for any damages incurred as a re- sult of any reasonable reliance by such hold- er on such contractual provision or such ap- plicable law; (D) if such claim or such interest arises from any failure to perform a nonmonetary obligation, other than a default arising from failure to operate a nonresidential real prop- erty lease subject to section 365(b)(1)(A), compensates the holder of such claim or such interest (other than the debtor or an insider) for any actual pecuniary loss in- curred by such holder as a result of such fail- ure; and (E) does not otherwise alter the legal, eq- uitable, or contractual rights to which such claim or interest entitles the holder of such claim or interest. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2633; Pub. L. 98–353, title III, § 508, July 10, 1984, 98 Stat. 385; Pub. L. 103–394, title II, § 213(d), Oct. 22, 1994, 108 Stat. 4126; Pub. L. 109–8, title III, § 328(b), Apr. 20, 2005, 119 Stat. 100.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 1124 of the House amendment is derived from a similar provision in the House bill and Senate amend- ment. The section defines the new concept of ‘‘impair- ment’’ of claims or interests; the concept differs sig- nificantly from the concept of ‘‘materially and ad- versely affected’’ under the Bankruptcy Act [former title 11]. Section 1124(3) of the House amendment pro- vides that a holder of a claim or interest is not im- paired, if the plan provides that the holder will receive the allowed amount of the holder’s claim, or in the case of an interest with a fixed liquidation preference or re- demption price, the greater of such price. This adopts the position contained in the House bill and rejects the contrary standard contained in the Senate amendment. Section 1124(3) of the House amendment rejects a pro- vision contained in section 1124(3)(B)(iii) of the House bill which would have considered a class of interest not to be impaired by virtue of the fact that the plan pro- vided cash or property for the value of the holder’s in- terest in the debtor. The effect of the House amendment is to permit an interest not to be impaired only if the interest has a fixed liquidation preference or redemption price. There- fore, a class of interests such as common stock, must either accept a plan under section 1129(a)(8), or the plan must satisfy the requirements of section 1129(b)(2)(C) in order for a plan to be confirmed.