11 U.S.C. § 1126 — Acceptance of plan

Page 262 TITLE 11—BANKRUPTCY § 1126 after the commencement of the case unless, at the time of the solicitation or before, there is transmitted to the solicitee the plan or a summary of the plan, and a writ- ten disclosure statement approved by the court as con- taining adequate information. The subsection permits approval of the statement without the necessity of a valuation of the debtor or an appraisal of the debtor’s assets. However, in some cases, a valuation or appraisal will be necessary to develop adequate information. The court will be able to determine what is necessary in light of the facts and circumstances of each particular case. Subsection (c) requires that the same disclosure statement go to all members of a particular class, but permits different disclosure to different classes. Subsection (d) excepts the disclosure statements from the requirements of the securities laws (such as section 14 of the 1934 Act [15 U.S.C. 78n] and section 5 of the 1933 Act [15 U.S.C. 77e]), and from similar State securities laws (blue sky laws, for example). The sub- section permits an agency or official whose duty is to administer or enforce such laws (such as the Securities and Exchange Commission or State Corporation Com- missioners) to appear and be heard on the issue of whether a disclosure statement contains adequate in- formation, but the agencies and officials are not grant- ed the right of appeal from an adverse determination in any capacity. They may join in an appeal by a true party in interest, however. Subsection (e) is a safe harbor provision, and is nec- essary to make the exemption provided by subsection (d) effective. Without it, a creditor that solicited an ac- ceptance or rejection in reliance on the court’s ap- proval of a disclosure statement would be potentially liable under antifraud sections designed to enforce the very sections of the securities laws from which sub- section (d) excuses compliance. The subsection protects only persons that solicit in good faith and in compli- ance with the applicable provisions of the reorganiza- tion chapter. It provides protection from legal liability as well as from equitable liability based on an injunc- tive action by the SEC or other agency or official. Editorial Notes AMENDMENTS 2005—Subsec. (a)(1). Pub. L. 109–8, § 717, inserted ‘‘in- cluding a discussion of the potential material Federal tax consequences of the plan to the debtor, any suc- cessor to the debtor, and a hypothetical investor typ- ical of the holders of claims or interests in the case,’’ after ‘‘records,’’ and substituted ‘‘such a hypothetical investor’’ for ‘‘a hypothetical reasonable investor typ- ical of holders of claims or interests’’. Pub. L. 109–8, § 431(1), inserted before semicolon ‘‘and in determining whether a disclosure statement pro- vides adequate information, the court shall consider the complexity of the case, the benefit of additional in- formation to creditors and other parties in interest, and the cost of providing additional information’’. Subsec. (f). Pub. L. 109–8, § 431(2), added subsec. (f) and struck out former subsec. (f) which read as follows: ‘‘Notwithstanding subsection (b), in a case in which the debtor has elected under section 1121(e) to be consid- ered a small business— ‘‘(1) the court may conditionally approve a disclo- sure statement subject to final approval after notice and a hearing; ‘‘(2) acceptances and rejections of a plan may be so- licited based on a conditionally approved disclosure statement as long as the debtor provides adequate in- formation to each holder of a claim or interest that is solicited, but a conditionally approved disclosure statement shall be mailed at least 10 days prior to the date of the hearing on confirmation of the plan; and ‘‘(3) a hearing on the disclosure statement may be combined with a hearing on confirmation of a plan.’’ Subsec. (g). Pub. L. 109–8, § 408, added subsec. (g). 1994—Subsec. (f). Pub. L. 103–394 added subsec. (f). 1984—Subsec. (a)(1). Pub. L. 98–353, § 509(a)(1), inserted ‘‘, but adequate information need not include such in- formation about any other possible or proposed plan’’. Subsec. (a)(2)(B). Pub. L. 98–353, § 509(a)(2), inserted ‘‘the’’ after ‘‘with’’. Subsec. (a)(2)(C). Pub. L. 98–353, § 509(a)(3), inserted ‘‘of’’ after ‘‘holders’’. Subsec. (d). Pub. L. 98–353, § 509(b), inserted ‘‘required under subsection (b) of this section’’ and ‘‘, or other- wise seek review of,’’. Subsec. (e). Pub. L. 98–353, § 509(c), inserted ‘‘accept- ance or rejection of a plan’’ after ‘‘solicits’’, and ‘‘solic- itation of acceptance or rejection of a plan or’’ after ‘‘governing’’. 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 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. § 1126. Acceptance of plan (a) The holder of a claim or interest allowed under section 502 of this title may accept or re- ject a plan. If the United States is a creditor or equity security holder, the Secretary of the Treasury may accept or reject the plan on be- half of the United States. (b) For the purposes of subsections (c) and (d) of this section, a holder of a claim or interest that has accepted or rejected the plan before the commencement of the case under this title is deemed to have accepted or rejected such plan, as the case may be, if— (1) the solicitation of such acceptance or re- jection was in compliance with any applicable nonbankruptcy law, rule, or regulation gov- erning the adequacy of disclosure in connec- tion with such solicitation; or (2) if there is not any such law, rule, or regu- lation, such acceptance or rejection was solic- ited after disclosure to such holder of ade- quate information, as defined in section 1125(a) of this title. (c) A class of claims has accepted a plan if such plan has been accepted by creditors, other than any entity designated under subsection (e) of this section, that hold at least two-thirds in amount and more than one-half in number of the allowed claims of such class held by credi- tors, other than any entity designated under subsection (e) of this section, that have accepted or rejected such plan. (d) A class of interests has accepted a plan if such plan has been accepted by holders of such interests, other than any entity designated Page 263 TITLE 11—BANKRUPTCY § 1126 under subsection (e) of this section, that hold at least two-thirds in amount of the allowed inter- ests of such class held by holders of such inter- ests, other than any entity designated under subsection (e) of this section, that have accepted or rejected such plan. (e) On request of a party in interest, and after notice and a hearing, the court may designate any entity whose acceptance or rejection of such plan was not in good faith, or was not solicited or procured in good faith or in accordance with the provisions of this title. (f) Notwithstanding any other provision of this section, a class that is not impaired under a plan, and each holder of a claim or interest of such class, are conclusively presumed to have accepted the plan, and solicitation of accept- ances with respect to such class from the hold- ers of claims or interests of such class is not re- quired. (g) Notwithstanding any other provision of this section, a class is deemed not to have ac- cepted a plan if such plan provides that the claims or interests of such class do not entitle the holders of such claims or interests to receive or retain any property under the plan on ac- count of such claims or interests. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2634; Pub. L. 98–353, title III, § 510, July 10, 1984, 98 Stat. 386.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 1126 of the House amendment deletes section 1126(e) as contained in the House bill. Section 105 of the bill constitutes sufficient power in the court to des- ignate exclusion of a creditor’s claim on the basis of a conflict of interest. Section 1126(f) of the House amend- ment adopts a provision contained in section 1127(f) of the Senate bill indicating that a class that is not im- paired under a plan is deemed to have accepted a plan and solicitation of acceptances from such class is not required. SENATE REPORT NO. 95–989 Subsection (a) of this section permits the holder of a claim or interest allowed under section 502 to accept or reject a proposed plan of reorganization. The sub- section also incorporates a provision now found in sec- tion 199 of chapter X [section 599 of former title 11] that authorizes the Secretary of the Treasury to accept or reject a plan on behalf of the United States when the United States is a creditor or equity security holder. Subsection (b) governs acceptances and rejections of plans obtained before commencement of a reorganiza- tion for a nonpublic company. Paragraph (3) expressly states that subsection (b) does not apply to a public company. Prepetition solicitation is a common practice under chapter XI [chapter 11 of former title 11] today, and chapter IX [chapter 9 of former title 11] current makes explicit provision for it. Section 1126(b) counts a prepetition acceptance or rejection toward the required amounts and number of acceptances only if the solici- tation of the acceptance or rejection was in compliance with any applicable nonbankruptcy law, rule, or regu- lation governing the adequacy of disclosure in connec- tion with such solicitation. If there is not any such ap- plicable law, rule, or regulation, then the acceptance or rejection is counted only if it was solicited after disclo- sure of adequate information, to the holder, as defined in section 1125(a)(1). This permits the court to ensure that the requirements of section 1125 are not avoided by prepetition solicitation. Subsection (c) specifies the required amount and number of acceptances for a class of creditors. A class of creditors has accepted a plan if at least two-thirds in amount and more than one-half in number of the al- lowed claims of the class that are voted are cast in favor of the plan. The amount and number are com- puted on the basis of claims actually voted for or against the plan, not as under chapter X [chapter 10 of former title 11] on the basis of the allowed claims in the class. Subsection (f) excludes from all these cal- culations claims not voted in good faith, and claims procured or solicited not in good faith or not in accord- ance with the provisions of this title. Subsection (c) requires that the same disclosure statement be transmitted to each member of a class. It recognizes that the information needed for an informed judgment about the plan may differ among classes. A class whose rights under the plan center on a particular fund or asset would have no use for an extensive de- scription of other matters that could not affect them. Subsection (d) relieves the court of the need to follow any otherwise applicable Federal or state law in deter- mining the adequacy of the information contained in the disclosure statement submitted for its approval. It authorizes an agency or official, Federal or state, charged with administering cognate laws so pre-empted to advise the court on the adequacy of proposed disclo- sure statement. But they are not authorized to appeal the court’s decision. Solicitations with respect to a plan do not involve just mere requests for opinions. Acceptance of the plan vitally affects creditors and shareholders, and most fre- quently the solicitation involves an offering of securi- ties in exchange for claims or interests. The present Bankruptcy Act [former title 11] has exempted such of- ferings under each of its chapters from the registration and disclosure requirements of the Securities Act of 1933 [15 U.S.C. 77a et seq.], an exemption also continued by section 1145 of this title. The extension of the disclo- sure requirements to all chapter 11 cases is justified by the integration of the separate chapters into the single chapter 11. By the same token, no valid purpose is served by failing to provide exemption from the re- quirements of similar state laws in a matter under the exclusive jurisdiction of the Federal bankruptcy laws. Under subsection (d), with respect to a class of equity securities, it is sufficient for acceptance of the plan if the amount of securities voting for the plan is at least two-thirds of the total actually voted. Subsection (e) provides that no acceptances are re- quired from any class whose claims or interests are unimpaired under the plan or in the order confirming the plan. Subsection (g) provides that any class denied partici- pation under the plan is conclusively deemed to have rejected the plan. There is obviously no need to submit a plan for a vote by a class that is to receive nothing. But under subsection (g) the excluded class is like a class that has not accepted, and is a dissenting class for purposes of confirmation under section 1130. Editorial Notes AMENDMENTS 1984—Subsec. (b)(2). Pub. L. 98–353, § 510(a), sub- stituted ‘‘1125(a)’’ for ‘‘1125(a)(1)’’. Subsec. (d). Pub. L. 98–353, § 510(b), inserted a comma after ‘‘such interests’’. Subsec. (f). Pub. L. 98–353, § 510(c), substituted ‘‘, and each holder of a claim or interest of such class, are con- clusively presumed’’ for ‘‘is deemed’’, ‘‘solicitation’’ for ‘‘solicititation’’, and ‘‘interests’’ for ‘‘interest’’. Subsec. (g). Pub. L. 98–353, § 510(d), substituted ‘‘re- ceive or retain any property’’ for ‘‘any payment or compensation’’. 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 Page 264 TITLE 11—BANKRUPTCY § 1127 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. § 1127. Modification of plan (a) The proponent of a plan may modify such plan at any time before confirmation, but may not modify such plan so that such plan as modi- fied fails to meet the requirements of sections 1122 and 1123 of this title. After the proponent of a plan files a modification of such plan with the court, the plan as modified becomes the plan. (b) The proponent of a plan or the reorganized debtor may modify such plan at any time after confirmation of such plan and before substantial consummation of such plan, but may not modify such plan so that such plan as modified fails to meet the requirements of sections 1122 and 1123 of this title. Such plan as modified under this subsection becomes the plan only if cir- cumstances warrant such modification and the court, after notice and a hearing, confirms such plan as modified, under section 1129 of this title. (c) The proponent of a modification shall com- ply with section 1125 of this title with respect to the plan as modified. (d) Any holder of a claim or interest that has accepted or rejected a plan is deemed to have ac- cepted or rejected, as the case may be, such plan as modified, unless, within the time fixed by the court, such holder changes such holder’s pre- vious acceptance or rejection. (e) If the debtor is an individual, the plan may be modified at any time after confirmation of the plan but before the completion of payments under the plan, whether or not the plan has been substantially consummated, upon request of the debtor, the trustee, the United States trustee, or the holder of an allowed unsecured claim, to— (1) increase or reduce the amount of pay- ments on claims of a particular class provided for by the plan; (2) extend or reduce the time period for such payments; or (3) alter the amount of the distribution to a creditor whose claim is provided for by the plan to the extent necessary to take account of any payment of such claim made other than under the plan. (f)(1) Sections 1121 through 1128 and the re- quirements of section 1129 apply to any modi- fication under subsection (e). (2) The plan, as modified, shall become the plan only after there has been disclosure under section 1125 as the court may direct, notice and a hearing, and such modification is approved. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2635; Pub. L. 98–353, title III, § 511, July 10, 1984, 98 Stat. 386; Pub. L. 109–8, title III, § 321(e), Apr. 20, 2005, 119 Stat. 96; Pub. L. 111–327, § 2(a)(34), Dec. 22, 2010, 124 Stat. 3561.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 1127(a) of the House amendment adopts a pro- vision contained in the House bill permitting only the proponent of a plan to modify the plan and rejecting the alternative of open modification contained in the Senate amendment. SENATE REPORT NO. 95–989 Under subsection (a) the proponent may file a pro- posal to modify a plan prior to confirmation. In the case of a public company the modifying proposal may be filed prior to approval. Subsection (b) provides that a party in interest eligi- ble to file a plan may file instead of a plan a proposal to modify a plan filed by another. Under subsection (c) a party in interest objecting to some feature of a plan may submit a proposal to modify the plan to meet the objection. After a plan has been confirmed, but before its sub- stantial consummation, a plan may be modified by leave of court, which subsection (d) provides shall be granted for good cause. Subsection (e) provides that a proposal to modify a plan is subject to the disclosure requirements of section 1125 and as provided in sub- section (f). It provides that a creditor or stockholder who voted for or against a plan is deemed to have ac- cepted or rejected the modifying proposal. But if the modification materially and adversely affects any of their interests, they must be afforded an opportunity to change their vote in accordance with the disclosure and solicitation requirements of section 1125. Under subsection (g) a plan, if modified prior to con- firmation, shall be confirmed if it meets the require- ments of section 1130. HOUSE REPORT NO. 95–595 Subsection (a) permits the proponent of a plan to modify it at any time before confirmation, subject, of course, to the requirements of sections 1122 and 1123, governing classification and contents of a plan. After the proponent of a plan files a modification with the court, the plan as modified becomes the plan, and is to be treated the same as an original plan. Subsection (b) permits modification of a plan after confirmation under certain circumstances. The modi- fication must be proposed before substantial con- summation of the plan. The requirements of sections 1122 and 1123 continue to apply. The plan as modified under this subsection becomes the plan only if the court confirms the plan as modified under section 1129 and the circumstances warrant the modification. Subsection (c) requires the proponent of a modifica- tion to comply with the disclosure provisions of section 1125. Of course, if the modification were sufficiently minor, the court might determine that additional dis- closure was not required under the circumstances. Subsection (d) simplifies modification procedure by deeming any creditor or equity security holder that has already accepted or rejected the plan to have accepted or rejected the modification, unless, within the time fixed by the court, the creditor or equity security hold- er changes this previous acceptance or rejection. Editorial Notes AMENDMENTS 2010—Subsec. (f)(1). Pub. L. 111–327 substituted ‘‘sub- section (e)’’ for ‘‘subsection (a)’’. 2005—Subsecs. (e), (f). Pub. L. 109–8 added subsecs. (e) and (f). 1984—Subsec. (a). Pub. L. 98–353, § 511(a), inserted ‘‘of a plan’’ after ‘‘After the proponent’’, and ‘‘of such plan’’ after ‘‘modification’’. Subsec. (b). Pub. L. 98–353, § 511(b), substituted ‘‘cir- cumstances warrant such modification and the court, after notice and a hearing, confirms such plan as modi- fied, under section 1129 of this title’’ for ‘‘the court, after notice and a hearing, confirms such plan, as modi- fied, under section 1129 of this title, and circumstances warrant such modification’’. 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.