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Failure Of Creditor Class To Cast Vote On Chapter 11 Plan Does Not Equate To Acceptance.

Article Excerpt
The solicitation of creditor votes on a plan is a crucial part of the chapter 11 process. At a minimum, a chapter 11 plan can be confirmed only if at least one class of impaired creditors (or interest holders) votes to accept the plan. A plan proponent's efforts to solicit an adequate number of plan acceptances, however, may be complicated if creditors or other enfranchised stakeholders neglect (or choose not) to vote. The Bankruptcy Code does not provide a mechanism to force creditors to vote, nor does it clearly spell out the consequences of not voting where none of the creditors or interest holders in a given class have voted to accept or reject a chapter 11 plan. The lack of any clear guidance on this important issue has spawned a rift in the courts. In In re Vita Corp., an Illinois district court recently addressed the ramifications of a creditor class's failure to vote in its entirety, ruling that classes in which all impaired creditors fail to cast ballots either accepting or rejecting a plan are not deemed to have accepted the plan for purposes of confirmation.

Chapter 11 Voting and Confirmation Rules Chapter 11 plan confirmation is governed by Bankruptcy Code section 1129, which provides for both consensual and nonconsensual confirmation. The rules governing consensual confirmation, which are set forth in section 1129(a), include the requirement that "with respect to each class of claims or interests (A) such class...

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