Class Acceptance
Class Acceptance is the Chapter 11 voting determination under Section 1126 that establishes whether a class of claims or interests has accepted a proposed plan based on the votes actually cast by eligible holders.
How it works
For a class of claims, Section 1126(c) requires acceptance by creditors holding at least two-thirds in amount and more than one-half in number of the allowed claims in that class that actually vote, excluding designated votes. For a class of interests, Section 1126(d) uses at least two-thirds in amount of the allowed interests actually voting. Unimpaired classes are conclusively presumed to accept, while classes receiving no property on account of their claims or interests are deemed not to accept.
Claims classes have a two-part threshold
Acceptance requires at least two-thirds in amount and more than one-half in number of the allowed claims actually voting, after excluding votes designated under Section 1126(e).
Equity classes use a different test
A class of interests accepts if holders of at least two-thirds in amount of the allowed interests actually voting accept the plan.
Unimpaired classes do not need solicitation
Section 1126(f) conclusively presumes an unimpaired class and each holder in it to have accepted the plan.
Zero-recovery classes are deemed to reject
Section 1126(g) treats a class receiving or retaining no property on account of its claims or interests as not accepting the plan.
Worked example: nonvoters do not enter the denominator
A class contains $200 million of allowed claims, but only $90 million votes. If $65 million of the voting amount accepts and the creditor-number test is also met, the class can accept even though $110 million of the class did not vote.
Why the number test matters
A single large creditor can control the dollar threshold but still fail the creditor-number threshold in a claims class. Plan proponents therefore track both claim amount and number of voting creditors.
Common mistakes
Using two-thirds of the entire class rather than votes cast; forgetting the creditor-number test; applying the claims test to equity interests; and assuming an unimpaired class must return ballots.
Example
A class has ten voting creditors holding $100 million of claims. Seven creditors holding $70 million vote yes; three creditors holding $30 million vote no. The class satisfies both the amount threshold and the more-than-one-half-in-number threshold and therefore accepts the plan.
Example
A class has ten voting creditors holding $100 million of claims. Seven creditors holding $70 million vote yes; three creditors holding $30 million vote no. The class satisfies both the amount threshold and the more-than-one-half-in-number threshold and therefore accepts the plan.
Professional note
Do not calculate acceptance from the entire scheduled class unless those claims actually vote. Section 1126(c) measures the required percentages from allowed claims in the class that accept or reject the plan.
Related terms
- Impaired Class
An Impaired Class is a Chapter 11 class of claims or interests whose legal, equitable or contractual rights are altered by the plan in a manner that does not qualify as unimpaired treatment under Bankruptcy Code Section 1124.
- Unimpaired Class
An Unimpaired Class is a Chapter 11 class whose legal, equitable and contractual rights are left unaltered by the plan or otherwise receive treatment that satisfies Bankruptcy Code Section 1124.
- Disclosure Statement
A Disclosure Statement is the Chapter 11 document that provides creditors and other voting stakeholders with information about the debtor, proposed plan, risks, recoveries and restructuring terms sufficient to satisfy the Bankruptcy Code's disclosure requirements for plan solicitation.
- 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.
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