Feasibility Test
The Feasibility Test is the Chapter 11 confirmation requirement in Section 1129(a)(11) that a confirmed plan not be likely to lead to liquidation or another financial reorganization unless that liquidation or reorganization is itself proposed in the plan.
How it works
Feasibility does not require certainty of success. Courts examine whether the plan has a realistic economic path rather than being a speculative or visionary scheme. The analysis can include projected cash flow, financing commitments, debt service, capital expenditures, litigation exposure, asset-sale assumptions and the durability of the reorganized capital structure.
Section 1129(a)(11) looks forward
The court asks whether confirmation is likely to be followed by liquidation or the need for further financial reorganization, unless the plan itself proposes that outcome.
Success need not be guaranteed
Appellate decisions generally reject a certainty standard. The debtor needs credible evidence supporting a reasonable probability that the plan can perform.
Cash flow and capital structure both matter
A feasible operating forecast can still fail if debt service, maturities, covenants or required investments make the capital structure unsustainable.
Known contingent liabilities belong in the model
Pending litigation, tax disputes, pension obligations and other material exposures can affect whether the reorganized debtor can perform.
Worked example: refinancing wall
A plan projects sufficient cash for three years but leaves a $300 million maturity in year four with no credible refinancing assumption. The court can examine the full plan horizon rather than stopping at the first few years of positive cash flow.
Why it matters for distressed investors
Feasibility connects valuation to capital structure. A high enterprise value does not save a plan if cash generation cannot support required obligations or if the exit financing itself creates another near-term restructuring risk.
Common mistakes
Treating management projections as proof; requiring guaranteed success; ignoring litigation or refinancing risk; and assuming a liquidating Chapter 11 plan automatically fails the test.
Example
A debtor projects $40 million of annual EBITDA after emergence and must make $22 million of annual cash interest and mandatory debt payments. If the forecast relies on unsupported revenue growth and ignores a major pending judgment, the court can find the plan insufficiently feasible even if the arithmetic appears balanced.
Example
A debtor projects $40 million of annual EBITDA after emergence and must make $22 million of annual cash interest and mandatory debt payments. If the forecast relies on unsupported revenue growth and ignores a major pending judgment, the court can find the plan insufficiently feasible even if the arithmetic appears balanced.
Professional note
Feasibility should be tested with downside cases, not only the plan sponsor’s base forecast. A plan that technically balances under optimistic assumptions can still create a rapid second restructuring.
Related terms
- Reorganization Value
Reorganization Value is the value attributed to a company or its assets upon emergence from a bankruptcy reorganization, used in plan valuation, creditor recoveries and, when applicable, fresh-start accounting.
- Plan of Reorganization
A Plan of Reorganization is the Chapter 11 plan that sets the classification and treatment of claims and interests and establishes the transactions, distributions, governance and other steps through which the debtor will reorganize or otherwise resolve the bankruptcy case.
- Effective Date
The Effective Date of a Chapter 11 plan is the date specified under the plan when its conditions precedent have been satisfied or waived and the restructuring transactions become effective according to the plan and confirmation order.
- Exit Financing
Exit Financing is debt or other committed financing arranged for a debtor's emergence from Chapter 11 to fund plan distributions, repay or refinance DIP and other obligations, and provide liquidity for the post-emergence business.
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