Plan Modification
Plan Modification is a change to a Chapter 11 plan made under Section 1127 before confirmation or, subject to stricter limits, after confirmation but before Substantial Consummation.
How it works
Before confirmation, the plan proponent may modify the plan as long as the modified plan continues to satisfy Sections 1122 and 1123. After confirmation, Section 1127(b) generally allows the proponent or reorganized debtor to modify before Substantial Consummation if circumstances warrant and the court confirms the modified plan under Section 1129. Disclosure and prior votes are governed by Section 1127(c) and (d), with special rules for individual Chapter 11 debtors.
Preconfirmation modification is comparatively flexible
Section 1127(a) allows the plan proponent to modify before confirmation, subject to the classification and plan-content requirements of Sections 1122 and 1123.
Postconfirmation modification has a statutory cutoff
For ordinary corporate Chapter 11 cases, Section 1127(b) generally requires modification after confirmation to occur before Substantial Consummation.
The court must confirm a postconfirmation modification
The modified plan becomes the operative plan only if circumstances warrant the change and the court confirms it under Section 1129 after notice and a hearing.
Disclosure requirements continue to matter
Section 1127(c) requires compliance with Section 1125 for the modified plan. Prior voters are generally deemed to retain their prior vote unless changed within the time fixed by the court.
Worked example: material economic change
A plan originally pays a class 20% in cash. A proposed modification changes consideration to long-dated notes worth materially less. The court can require appropriate additional disclosure and an opportunity to reconsider prior votes under the applicable procedures.
Individual Chapter 11 debtors have additional modification rules
Section 1127(e) permits specified postconfirmation modifications in individual cases before completion of plan payments even when Substantial Consummation has occurred.
Common mistakes
Assuming any party in interest can modify a plan; ignoring disclosure after a material change; attempting ordinary corporate modification after Substantial Consummation; and treating an amendment to implementation documents as automatically equivalent to a Section 1127 plan modification.
Example
A plan proposes $50 million of cash and new equity for unsecured creditors. Before confirmation, a settlement adds $10 million to the distribution pool. The proponent files a modification, updates disclosure as required and proceeds with the modified plan. A major change after confirmation faces the additional Substantial Consummation limit.
Example
A plan proposes $50 million of cash and new equity for unsecured creditors. Before confirmation, a settlement adds $10 million to the distribution pool. The proponent files a modification, updates disclosure as required and proceeds with the modified plan. A major change after confirmation faces the additional Substantial Consummation limit.
Professional note
Do not assume a confirmed plan can be freely rewritten by agreement among major parties. Section 1127 establishes who may modify, when modification is permitted and when the court must reconfirm the modified plan.
Related terms
- 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.
- Confirmation Order
A Confirmation Order is the bankruptcy court order confirming a Chapter 11 plan after the court determines that the applicable confirmation requirements have been satisfied.
- 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.
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