Confirmation of a Chapter 11 plan of reorganization generally requires the consent of each impaired class of creditors. But, upon satisfaction of additional statutory requirements, a plan proponent can obtain confirmation of a “cramdown” plan over the dissent of one or more classes of creditors as long as “at least one class of claims that is impaired under the plan has accepted the plan.”
This straightforward application of this rule becomes more complicated in the case of a jointly administered plan for multiple debtors. Does Section 1129(a)(10) require an impaired assenting class for each debtor? Or is the rule satisfied so long as there is an impaired assenting class for any one of the debtors? In other words, does the provision apply on a per-debtor basis or a per-plan basis?
Last month, the Ninth Circuit Court of Appeals became the first Circuit Court to address this question. In Transwest, the debtor’s secured lender objected to and voted against confirmation of a plan for five debtors whose cases were jointly administered but not substantively consolidated. Several impaired classes of creditors voted to approve the plan, but the lender was the only creditor of two of the five debtors and, therefore, there was no assenting class of impaired creditors for those debtors. The lender argued that Section 1129(a)(10) was not satisfied with respect to these two debtors.
The Ninth Circuit disagreed and held that “the plain language of the statute supports the ‘per plan’ approach.”
Section 1129(a)(10) requires that one impaired class ‘under the plan’ approve ‘the plan.’ It makes no distinction concerning or reference to the creditors of different debtors under ‘the plan,’ nor does it distinguish between single-debtor and multi-debtor plans. Under its plain language, once a single impaired class accepts a plan, section 1129(a)(10) is satisfied as to the entire plan. Obviously, Congress could have required plan approval from an impaired class for each debtor involved in a plan, but it did not do so. It is not our role to modify the plain language of a statute by interpretation.
The Court rejected the premise of the lender’s argument “that Section 1129(a)(10) must apply on a per debtor basis because other subsections apply on a per debtor basis,” and held that there is “no support for [the] position that all subsections must uniformly apply on a ‘per debtor’ basis, especially when the Bankruptcy Code phrases each subsection differently.”
Finally, the Transwest Court refused to entertain what may have been the lender’s most compelling argument—i.e., that the jointly administered plan amounted to de facto substantive consolidation—because the lender failed to raise this objection before the Bankruptcy Court. But, in a concurring opinion, Judge Friedland observed that she was “not unsympathetic to lender’s argument” and that she had “concerns that entangling various estates in a complex, multi-debtor reorganization diminishes the protections afforded to creditors by the Bankruptcy Code.” Nevertheless, she concluded that “the blanket statutory solution that Lender proposes” is not the appropriate remedy. “Rather, if a creditor believes that a reorganization improperly intermingles different estates, the creditor can and should object that the plan—rather than the requirements for confirming the plan—results in de facto substantive consolidation. Such an approach would allow this issue to be assessed on a case-by-case basis, which would be appropriate given the fact-intensive nature of the substantive consolidation inquiry.”