-CITE-

11 USC CHAPTER 11 - REORGANIZATION 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

.

-HEAD-

CHAPTER 11 - REORGANIZATION

-MISC1-

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

Sec.

1101. Definitions for this chapter.

1102. Creditors' and equity security holders' committees.

1103. Powers and duties of committees.

1104. Appointment of trustee or examiner.

1105. Termination of trustee's appointment.

1106. Duties of trustee and examiner.

1107. Rights, powers, and duties of debtor in possession.

1108. Authorization to operate business.

1109. Right to be heard.

1110. Aircraft equipment and vessels.

1111. Claims and interests.

1112. Conversion or dismissal.

1113. Rejection of collective bargaining agreements.

1114. Payment of insurance benefits to retired employees.

SUBCHAPTER II - THE PLAN

1121. Who may file a plan.

1122. Classification of claims or interests.

1123. Contents of plan.

1124. Impairment of claims or interests.

1125. Postpetition disclosure and solicitation.

1126. Acceptance of plan.

1127. Modification of plan.

1128. Confirmation hearing.

1129. Confirmation of plan.

SUBCHAPTER III - POSTCONFIRMATION MATTERS

1141. Effect of confirmation.

1142. Implementation of plan.

1143. Distribution.

1144. Revocation of an order of confirmation.

1145. Exemption from securities laws.

1146. Special tax provisions.

SUBCHAPTER IV - RAILROAD REORGANIZATION

1161. Inapplicability of other sections.

1162. Definition.

1163. Appointment of trustee.

1164. Right to be heard.

1165. Protection of the public interest.

1166. Effect of subtitle IV of title 49 and of Federal, State, or

local regulations.

1167. Collective bargaining agreements.

1168. Rolling stock equipment.

1169. Effect of rejection of lease of railroad line.

1170. Abandonment of railroad line.

1171. Priority claims.

1172. Contents of plan.

1173. Confirmation of plan.

1174. Liquidation.

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Chapter 11 of the House amendment is derived in large part from

chapter 11 as contained in the House bill. Unlike chapter 11 of

the Senate amendment, chapter 11 of the House amendment does not

represent an extension of chapter X of current law (chapter 10 of

former title 11) or any other chapter of the Bankruptcy Act (former

title 11). Rather chapter 11 of the House amendment takes a new

approach consolidating subjects dealt with under chapters VIII, X,

XI, and XII of the Bankruptcy Act (chapters 8, 10, 11, and 12 of

former title 11). The new consolidated chapter 11 contains no

special procedure for companies with public debt or equity security

holders. Instead, factors such as the standard to be applied to

solicitation of acceptances of a plan of reorganization are left to

be determined by the court on a case-by-case basis. In order to

insure that adequate investigation of the debtor is conducted to

determine fraud or wrongdoing on the part of present management, an

examiner is required to be appointed in all cases in which the

debtor's fixed, liquidated, and unsecured debts, other than debts

for goods, services, or taxes, or owing to an insider, exceed $5

million. This should adequately represent the needs of public

security holders in most cases. However, in addition, section 1109

of the House amendment enables both the Securities and Exchange

Commission and any party in interest who is creditor, equity

security holder, indenture trustee, or any committee representing

creditors or equity security holders to raise and appear and be

heard on any issue in a case under chapter 11. This will enable the

bankruptcy court to evaluate all sides of a position and to

determine the public interest. This approach is sharply contrasted

to that under chapter X of present law in which the public interest

is often determined only in terms of the interest of public

security holders. The advisory role of the Securities and Exchange

Commission will enable the court to balance the needs of public

security holders against equally important public needs relating to

the economy, such as employment and production, and other factors

such as the public health and safety of the people or protection of

the national interest. In this context, the new chapter 11 deletes

archaic rules contained in certain chapters of present law such as

the requirement of an approval hearing and the prohibition of

prepetition solicitation. Such requirements were written in an age

before the enactment of the Trust Indenture Act (15 U.S.C. 77aaa et

seq.) and the development of securities laws had occurred. The

benefits of these provisions have long been outlived but the

detriment of the provisions served to frustrate and delay effective

reorganization in those chapters of the Bankruptcy Act in which

such provisions applied. Chapter 11 thus represents a much needed

revision of reorganization laws. A brief discussion of the history

of this important achievement is useful to an appreciation of the

monumental reform embraced in chapter 11.

Under the existing Bankruptcy Act (former title 11) debtors

seeking reorganization may choose among three reorganization

chapters, chapter X, chapter XI, and chapter XII (chapters 10, 11,

and 12 of former title 11). Individuals and partnerships may file

under chapter XI or, if they own property encumbered by mortgage

liens, they may file under chapter XII. A corporation may file

under either chapter X or chapter XI, but is ineligible to file

under chapter XII. Chapter X was designed to facilitate the

pervasive reorganization of corporations whose creditors include

holders of publicly issued debt securities. Chapter XI, on the

other hand, was designed to permit smaller enterprises to negotiate

composition or extension plans with their unsecured creditors. The

essential differences between chapters X and XI are as follows.

Chapter X mandates that, first, an independent trustee be appointed

and assume management control from the officers and directors of

the debtor corporation; second, the Securities and Exchange

Commission must be afforded an opportunity to participate both as

an adviser to the court and as a representative of the interests of

public security holders; third, the court must approve any proposed

plan of reorganization, and prior to such approval, acceptances of

creditors and shareholders may not be solicited; fourth, the court

must apply the absolute priority rule; and fifth, the court has the

power to affect, and grant the debtor a discharge in respect of,

all types of claims, whether secured or unsecured and whether

arising by reason of fraud or breach of contract.

The Senate amendment consolidates chapters X, XI, and XII

(chapters 10, 11, and 12 of former title 11), but establishes a

separate and distinct reorganization procedure for ''public

companies.'' The special provisions applicable to ''public

companies'' are tantamount to the codification of chapter X of the

existing Bankruptcy Act and thus result in the creation of a

''two-track system.'' The narrow definition of the term ''public

company'' would require many businesses which could have been

rehabilitated under chapter XI to instead use the more cumbersome

procedures of chapter X, whether needed or not.

The special provisions of the Senate amendment applicable to a

''public company'' are as follows:

(a) Section 1101(3) defines a ''public company'' as a debtor who,

within 12 months prior to the filing of the petition, had

outstanding $5 million or more in debt and had not less than 1000

security holders;

(b) Section 1104(a) requires the appointment of a disinterested

trustee irrespective of whether creditors support such appointment

and whether there is cause for such appointment;

(c) Section 1125(f) prohibits the solicitation of acceptances of

a plan of reorganization prior to court approval of such plan even

though the solicitation complies with all applicable securities

laws;

(d) Section 1128(a) requires the court to conduct a hearing on

any plan of reorganization proposed by the trustee or any other

party;

(e) Section 1128(b) requires the court to refer any plans

''worthy of consideration'' to the Securities and Exchange

Commission for their examination and report, prior to court

approval of a plan; and

(f) Section 1128(c) and section 1130(a)(7) requires the court to

approve a plan or plans which are ''fair and equitable'' and comply

with the other provisions of chapter 11.

The record of the Senate hearings on S. 2266 and the House

hearings on H.R. 8200 is replete with evidence of the failure of

the reorganization provisions of the existing Bankruptcy Act

(former title 11) to meet the needs of insolvent corporations in

today's business environment. Chapter X (chapter 10 of former

title 11) was designed to impose rigid and formalized procedures

upon the reorganization of corporations and, although designed to

protect public creditors, has often worked to the detriment of such

creditors. As the House report has noted:

The negative results under chapter X (chapter 10 of former title

11) have resulted from the stilted procedures, under which

management is always ousted and replaced by an independent trustee,

the courts and the Securities and Exchange Commission examine the

plan of reorganization in great detail, no matter how long that

takes, and the court values the business, a time consuming and

inherently uncertain procedure.

The House amendment deletes the ''public company'' exception,

because it would codify the well recognized infirmities of chapter

X (chapter 10 of former title 11), because it would extend the

chapter X approach to a large number of new cases without regard to

whether the rigid and formalized procedures of chapter X are

needed, and because it is predicated upon the myth that provisions

similar to those contained in chapter X are necessary for the

protection of public investors. Bankruptcy practice in large

reorganization cases has also changed substantially in the 40 years

since the Chandler Act (June 22, 1938, ch. 575, 52 Stat. 883,

amending former title 11) was enacted. This change is, in large

part, attributable to the pervasive effect of the Federal

securities laws and the extraordinary success of the Securities and

Exchange Commission in sensitizing both management and members of

the bar to the need for full disclosure and fair dealing in

transactions involving publicly held securities.

It is important to note that Congress passed the Chandler Act

(June 22, 1938, ch. 575, 52 Stat. 883, amending former title 11)

prior to enactment of the Trust Indenture Act of 1939 (15 U.S.C.

section 77aaa et seq.) and prior to the definition and enforcement

of the disclosure requirements of the Securities Act of 1933 (15

U.S.C. 77a et seq.) and the Securities Exchange Act of 1934 (15

U.S.C. 78a et seq.). The judgments made by the 75th Congress in

enacting the Chandler Act are not equally applicable to the

financial markets of 1978. First of all, most public debenture

holders are neither weak nor unsophisticated investors. In most

cases, a significant portion of the holders of publicly issued

debentures are sophisticated institutions, acting for their own

account or as trustees for investment funds, pension funds, or

private trusts. In addition, debenture holders, sophisticated, and

unsophisticated alike, are represented by indenture trustees,

qualified under section 77ggg of the Trust Indenture Act (probably

should be ''section 307'' which is 15 U.S.C. 77ggg). Given the high

standard of care to which indenture trustees are bound, they are

invariably active and sophisticated participants in efforts to

rehabilitate corporate debtors in distress.

It is also important to note that in 1938 when the Chandler Act

(June 22, 1938, ch. 575, 52 Stat. 883, amending former title 11)

was enacted, public investors commonly held senior, not

subordinated, debentures and corporations were very often privately

owned. In this environment, the absolute priority rule protected

debenture holders from an erosion of their position in favor of

equity holders. Today, however, if there are public security

holders in a case, they are likely to be holders of subordinated

debentures and equity and thus the application of the absolute

priority rule under chapter X (chapter 10 of former title 11) leads

to the exclusion, rather than the protection, of the public.

The primary problem posed by chapter X (chapter 10 of former

title 11) is delay. The modern corporation is a complex and

multifaceted entity. Most corporations do not have a significant

market share of the lines of business in which they compete. The

success, and even the survival, of a corporation in contemporary

markets depends on three elements: First, the ability to attract

and hold skilled management; second, the ability to obtain credit;

and third, the corporation's ability to project to the public an

image of vitality. Over and over again, it is demonstrated that

corporations which must avail themselves of the provisions of the

Bankruptcy Act (former title 11) suffer appreciable deterioration

if they are caught in a chapter X proceeding for any substantial

period of time.

There are exceptions to this rule. For example, King Resources

filed a chapter X (chapter 10 of former title 11) petition in the

District of Colorado and it emerged from such proceeding as a

solvent corporation. The debtor's new found solvency was not,

however, so much attributable to a brilliant rehabilitation program

conceived by a trustee, but rather to a substantial appreciation in

the value of the debtor's oil and uranium properties during the

pendency of the proceedings.

Likewise, Equity Funding is always cited as an example of a

successful chapter X (chapter 10 of former title 11) case. But it

should be noted that in Equity Funding there was no question about

retaining existing management. Rather, Equity Funding involved

fraud on a grand scale. Under the House amendment with the

deletion of the mandatory appointment of a trustee in cases

involving ''public companies,'' a bankruptcy judge, in a case like

Equity Funding, would presumably have little difficulty in

concluding that a trustee should be appointed under section

1104(6).

While I will not undertake to list the chapter X (chapter 10 of

former title 11) failures, it is important to note a number of

cases involving corporations which would be ''public companies''

under the Senate amendment which have successfully skirted the

shoals of chapter X and confirmed plans of arrangement in chapter

XI (chapter 11 of former title 11). Among these are Daylin, Inc.

(''Daylin'') and Colwell Mortgage Investors (''Colwell'').

Daylin filed a chapter XI (chapter 11 of former title 11)

petition on February 26, 1975, and confirmed its plan of

arrangement on October 20, 1976. The success of its turnaround is

best evidenced by the fact that it had consolidated net income of

$6,473,000 for the first three quarters of the 1978 fiscal year.

Perhaps the best example of the contrast between chapter XI and

chapter X (chapters 11 and 10 of former title 11) is the recent

case of In re Colwell Mortgage Investors. Colwell negotiated a

recapitalization plan with its institutional creditors, filed a

proxy statement with the Securities and Exchange Commission, and

solicited consents of its creditors and shareholders prior to

filing its chapter XI petition. Thereafter, Colwell confirmed its

plan of arrangement 41 days after filing its chapter XI petition.

This result would have been impossible under the Senate amendment

since Colwell would have been a ''public company.''

There are a number of other corporations with publicly held debt

which have successfully reorganized under chapter XI (chapter 11 of

former title 11). Among these are National Mortgage Fund (NMF),

which filed a chapter XI petition in the northern district of Ohio

on June 30, 1976. Prior to commencement of the chapter XI

proceeding, NMF filed a proxy statement with the Securities and

Exchange Commission and solicited acceptances to a proposed plan of

arrangement. The NMF plan was subsequently confirmed on December

14, 1976. The Securities and Exchange Commission did not file a

motion under section 328 of the Bankruptcy Act (section 728 of

former title 11) to transfer the case to chapter X (chapter 10 of

former title 11) and a transfer motion which was filed by private

parties was denied by the court.

While there are other examples of large publicly held companies

which have successfully reorganized in chapter XI (chapter 11 of

former title 11), including Esgrow, Inc. (C.D.Cal. 73-02510),

Sherwood Diversified Services Inc. (S.D.N.Y. 73-B-213), and United

Merchants and Manufacturers, Inc. (S.D.N.Y. 77-B-1513), the

numerous successful chapter XI cases demonstrate two points: first,

the complicated and time-consuming provisions of chapter X (chapter

10 of former title 11) are not always necessary for the successful

reorganization of a company with publicly held debt, and second,

the more flexible provisions in chapter XI permit a debtor to

obtain relief under the Bankruptcy Act (former title 11) in

significantly less time than is required to confirm a plan of

reorganization under chapter X of the Bankruptcy Act.

One cannot overemphasize the advantages of speed and simplicity

to both creditors and debtors. Chapter XI (chapter 11 of former

title 11) allows a debtor to negotiate a plan outside of court and,

having reached a settlement with a majority in number and amount of

each class of creditors, permits the debtor to bind all unsecured

creditors to the terms of the arrangement. From the perspective of

creditors, early confirmation of a plan of arrangement: first,

generally reduces administrative expenses which have priority over

the claims of unsecured creditors; second, permits creditors to

receive prompt distributions on their claims with respect to which

interest does not accrue after the filing date; and third,

increases the ultimate recovery on creditor claims by minimizing

the adverse effect on the business which often accompanies efforts

to operate an enterprise under the protection of the Bankruptcy Act

(former title 11).

Although chapter XI (chapter 11 of former title 11) offers the

corporate debtor flexibility and continuity of management,

successful rehabilitation under chapter XI is often impossible for

a number of reasons. First, chapter XI does not permit a debtor to

''affect'' secured creditors or shareholders, in the absence of

their consent. Second, whereas a debtor corporation in chapter X

(chapter 10 of former title 11), upon the consummation of the plan

or reorganization, is discharged from all its debts and

liabilities, a corporation in chapter XI may not be able to get a

discharge in respect of certain kinds of claims including fraud

claims, even in cases where the debtor is being operated under new

management. The language of chapter 11 in the House amendment

solves these problems and thus increases the utility and

flexibility of the new chapter 11, as compared to chapter XI of the

existing Bankruptcy Act (chapter 11 of former title 11).

Those who would urge the adoption of a two-track system have two

major obstacles to meet. First, the practical experience of those

involved in business rehabilitation cases, practitioners, debtors,

and bankruptcy judges, has been that the more simple and

expeditious procedures of chapter XI (chapter 11 of former title

11) are appropriate in the great majority of cases. While attempts

have been made to convince the courts that a chapter X (chapter 10

of former title 11) proceeding is required in every case where

public debt is present, the courts have categorically rejected such

arguments. Second, chapter X has been far from a success. Of the

991 chapter X cases filed during the period of January 1, 1967,

through December 31, 1977, only 664 have been terminated. Of those

cases recorded as ''terminated,'' only 140 resulted in consummated

plans. This 21 percent success rate suggests one of the reasons

for the unpopularity of chapter X.

In summary, it has been the experience of the great majority of

those who have testified before the Senate and House subcommittees

that a consolidated approach to business rehabilitation is

warranted. Such approach is adopted in the House amendment.

Having discussed the general reasons why chapter 11 of the House

amendment is sorely needed, a brief discussion of the differences

between the House bill, Senate amendment, and the House amendment,

is in order. Since chapter 11 of the House amendment rejects the

concept of separate treatment for a public company, sections

1101(3), 1104(a), 1125(f), 1128, and 1130(a)(7) of the Senate

amendment have been deleted.

AMENDMENTS

1988 - Pub. L. 100-334, Sec. 2(c), June 16, 1988, 102 Stat. 613,

added item 1114.

1984 - Pub. L. 98-353, title III, Sec. 514(b), 541(b), July 10,

1984, 98 Stat. 387, 391, added item 1113 and substituted

''Implementation'' for ''Execution'' in item 1142.

1983 - Pub. L. 97-449, Sec. 5(a)(1), Jan. 12, 1983, 96 Stat.

2442, substituted ''subtitle IV of title 49'' for ''Interstate

Commerce Act'' in item 1166.

-SECREF-

CHAPTER REFERRED TO IN OTHER SECTIONS

This chapter is referred to in sections 103, 105, 109, 303, 326,

327, 329, 346, 347, 362, 363, 365, 502, 503, 524, 546, 706, 1102,

1203, 1301, 1306, 1307 of this title; title 7 section 2008h; title

20 sections 1002, 1087; title 21 section 356c; title 26 sections

108, 1398, 6012; title 28 sections 157, 586, 1930; title 29

sections 1341, 1342; title 49 sections 521, 13905.

-CITE-

11 USC SUBCHAPTER I - OFFICERS AND ADMINISTRATION 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

.

-HEAD-

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-SECREF-

SUBCHAPTER REFERRED TO IN OTHER SECTIONS

This subchapter is referred to in section 103 of this title.

-CITE-

11 USC Sec. 1101 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1101. Definitions for this chapter

-STATUTE-

In this chapter -

(1) ''debtor in possession'' means debtor except when a person

that has qualified under section 322 of this title is serving as

trustee in the case;

(2) ''substantial consummation'' means -

(A) transfer of all or substantially all of the property

proposed by the plan to be transferred;

(B) assumption by the debtor or by the successor to the

debtor under the plan of the business or of the management of

all or substantially all of the property dealt with by the

plan; and

(C) commencement of distribution under the plan.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2626.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

This section contains definitions of three terms that are used in

chapter 11. Paragraph (1) defines debtor in possession to mean the

debtor, except when a trustee who has qualified in serving in the

case.

Paragraph (2), derived from section 229a of current law (section

629(a) of former title 11), defines substantial consummation.

Substantial consummation of a plan occurs when transfer of all or

substantially all of the property proposed by the plan to be

transferred is actually transferred; when the debtor (or its

successor) has assumed the business of the debtor or the management

of all or substantially all of the property dealt with by the plan;

and when distribution under the plan has commenced.

Paragraph (3) defines for purposes of Chapter 11 a public company

to mean ''a debtor who, within 12 months prior to the filing of a

petition for relief under this chapter, had outstanding liabilities

of $5 million or more, exclusive of liabilities for goods,

services, or taxes and not less than 1,000 security holders.''

There are, as noted, special safeguards for public investors

related to the reorganization of a public company, as so defined.

Both requirements must be met: liabilities, excluding tax

obligations and trade liabilities, must be $5 million or more; and

(2) the number of holders of securities, debt or equity, or both,

must be not less than 1,000. The amount and number are to be

determined as of any time within 12 months prior to the filing of

the petition for reorganization.

-CITE-

11 USC Sec. 1102 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1102. Creditors' and equity security holders' committees

-STATUTE-

(a)(1) Except as provided in paragraph (3), as soon as

practicable after the order for relief under chapter 11 of this

title, the United States trustee shall appoint a committee of

creditors holding unsecured claims and may appoint additional

committees of creditors or of equity security holders as the United

States trustee deems appropriate.

(2) On request of a party in interest, the court may order the

appointment of additional committees of creditors or of equity

security holders if necessary to assure adequate representation of

creditors or of equity security holders. The United States trustee

shall appoint any such committee.

(3) On request of a party in interest in a case in which the

debtor is a small business and for cause, the court may order that

a committee of creditors not be appointed.

(b)(1) A committee of creditors appointed under subsection (a) of

this section shall ordinarily consist of the persons, willing to

serve, that hold the seven largest claims against the debtor of the

kinds represented on such committee, or of the members of a

committee organized by creditors before the commencement of the

case under this chapter, if such committee was fairly chosen and is

representative of the different kinds of claims to be represented.

(2) A committee of equity security holders appointed under

subsection (a)(2) of this section shall ordinarily consist of the

persons, willing to serve, that hold the seven largest amounts of

equity securities of the debtor of the kinds represented on such

committee.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2626; Pub. L. 98-353, title

III, Sec. 499, July 10, 1984, 98 Stat. 384; Pub. L. 99-554, title

II, Sec. 221, Oct. 27, 1986, 100 Stat. 3101; Pub. L. 103-394, title

II, Sec. 217(b), Oct. 22, 1994, 108 Stat. 4127.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 1102(a) of the House amendment adopts a compromise

between the House bill and Senate amendment requiring appointment

of a committee of creditors holding unsecured claims by the court;

the alternative of creditor committee election is rejected.

Section 1102(b) of the House amendment represents a compromise

between the House bill and the Senate amendment by preventing the

appointment of creditors who are unwilling to serve on a creditors

committee.

SENATE REPORT NO. 95-989

This section provides for the election and appointment of

committees. Subsection (c) provides that this section does not

apply in case of a public company, as to which a trustee, appointed

under section 1104(a) will have responsibility to administer the

estate and to formulate a plan as provided in section 1106(a).

There is no need for the election or appointment of committees

for which the appointment of a trustee is mandatory. In the case

of a public company there are likely to be several committees, each

representing a different class of security holders and seeking

authority to retain accountants, lawyers, and other experts, who

will expect to be paid. If in the case of a public company

creditors or stockholders wish to organize committees, they may do

so, as authorized under section 1109(a). Compensation and

reimbursement will be allowed for contributions to the

reorganization pursuant to section 503(b) (3) and (4).

HOUSE REPORT NO. 95-595

This section provides for the appointment of creditors' and

equity security holders' committees, which will be the primary

negotiating bodies for the formulation of the plan of

reorganization. They will represent the various classes of

creditors and equity security holders from which they are

selected. They will also provide supervision of the debtor in

possession and of the trustee, and will protect their constituents'

interests.

Subsection (a) requires the court to appoint at least one

committee. That committee is to be composed of creditors holding

unsecured claims. The court is authorized to appoint such

additional committees as are necessary to assure adequate

representation of creditors and equity security holders. The

provision will be relied upon in cases in which the debtor proposes

to affect several classes of debt or equity holders under the plan,

and in which they need representation.

Subsection (b) contains precatory language directing the court to

appoint the persons holding the seven largest claims against the

debtor of the kinds represented on a creditors' committee, or the

members of a prepetition committee organized by creditors before

the order for relief under chapter 11. The court may continue

prepetition committee members only if the committee was fairly

chosen and is representative of the different kinds of claims to be

represented. The court is restricted to the appointment of persons

in order to exclude governmental holders of claims or interests.

Paragraph (2) of subsection (b) requires similar treatment for

equity security holders' committees. The seven largest holders are

normally to be appointed, but the language is only precatory.

Subsection (c) authorizes the court, on request of a party in

interest, to change the size or the membership of a creditors' or

equity security holders' committee if the membership of the

committee is not representative of the different kinds of claims or

interests to be represented. This subsection is intended, along

with the nonbinding nature of subsection (b), to afford the court

latitude in appointing a committee that is manageable and

representative in light of the circumstances of the case.

AMENDMENTS

1994 - Subsec. (a). Pub. L. 103-394 substituted ''Except as

provided in paragraph (3), as'' for ''As'' in par. (1) and added

par. (3).

1986 - Subsec. (a). Pub. L. 99-554, Sec. 221(1), amended subsec.

(a) generally, substituting ''chapter 11 of this title, the United

States trustee shall appoint a committee of creditors holding

unsecured claims and may appoint additional committees of creditors

or of equity security holders as the United States trustee deems

appropriate'' for ''this chapter, the court shall appoint a

committee of creditors holding unsecured claims'' in par. (1) and

''United States trustee'' for ''court'' in par. (2).

Subsec. (c). Pub. L. 99-554, Sec. 221(2), struck out subsec. (c)

which read as follows: ''On request of a party in interest and

after notice and a hearing, the court may change the membership or

the size of a committee appointed under subsection (a) of this

section if the membership of such committee is not representative

of the different kinds of claims or interests to be represented.''

1984 - Subsec. (b)(1). Pub. L. 98-353 substituted ''commencement

of the case'' for ''order for relief''.

EFFECTIVE DATE OF 1994 AMENDMENT

Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not

applicable with respect to cases commenced under this title before

Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a

note under section 101 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Effective date and applicability of amendment by Pub. L. 99-554

dependent upon the judicial district involved, see section 302(d),

(e) of Pub. L. 99-554, set out as a note under section 581 of Title

28, Judiciary and Judicial Procedure.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 101, 328, 348, 503, 901,

1103, 1114 of this title.

-CITE-

11 USC Sec. 1103 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1103. Powers and duties of committees

-STATUTE-

(a) At a scheduled meeting of a committee appointed under section

1102 of this title, at which a majority of the members of such

committee are present, and with the court's approval, such

committee may select and authorize the employment by such committee

of one or more attorneys, accountants, or other agents, to

represent or perform services for such committee.

(b) An attorney or accountant employed to represent a committee

appointed under section 1102 of this title may not, while employed

by such committee, represent any other entity having an adverse

interest in connection with the case. Representation of one or

more creditors of the same class as represented by the committee

shall not per se constitute the representation of an adverse

interest.

(c) A committee appointed under section 1102 of this title may -

(1) consult with the trustee or debtor in possession concerning

the administration of the case;

(2) investigate the acts, conduct, assets, liabilities, and

financial condition of the debtor, the operation of the debtor's

business and the desirability of the continuance of such

business, and any other matter relevant to the case or to the

formulation of a plan;

(3) participate in the formulation of a plan, advise those

represented by such committee of such committee's determinations

as to any plan formulated, and collect and file with the court

acceptances or rejections of a plan;

(4) request the appointment of a trustee or examiner under

section 1104 of this title; and

(5) perform such other services as are in the interest of those

represented.

(d) As soon as practicable after the appointment of a committee

under section 1102 of this title, the trustee shall meet with such

committee to transact such business as may be necessary and proper.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2627; Pub. L. 98-353, title

III, Sec. 324, 500, July 10, 1984, 98 Stat. 358, 384.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

This section defines the powers and duties of a committee elected

or appointed under section 1102.

Under subsection (a) the committee may, if authorized by the

court, employ one or more attorneys, accountants, or other agents

to represent or perform services for the committee. Normally one

attorney should suffice; more than one may be authorized for good

cause. The same considerations apply to the services of others, if

the need for any at all is demonstrated.

Under subsections (c) and (d) the committee, like any party in

interest, may confer with the trustee or debtor regarding the

administration of the estate; may advise the court on the need for

a trustee under section 1104(b). The committee may investigate

matters specified in paragraph (2) of subsection (c), but only if

authorized by the court and if no trustee or examiner is appointed.

HOUSE REPORT NO. 95-595

Subsection (a) of this section authorizes a committee appointed

under section 1102 to select and authorize the employment of

counsel, accountants, or other agents, to represent or perform

services for the committee. The committee's selection and

authorization is subject to the court's approval, and may only be

done at a meeting of the committee at which a majority of its

members are present. The subsection provides for the employment of

more than one attorney. However, this will be the exception, and

not the rule; cause must be shown to depart from the normal

standard.

Subsection (b) requires a committee's counsel to cease

representation of any other entity in connection with the case

after he begins to represent the committee. This will prevent the

potential of severe conflicts of interest.

Subsection (c) lists a committee's functions in a chapter 11

case. The committee may consult with the trustee or debtor in

possession concerning the administration of the case, may

investigate the acts, conduct, assets, liabilities and financial

condition of the debtor, the operation of the debtor's business,

and the desirability of the continuance of the business, and any

other matter relevant to the case or to the formulation of a plan.

The committee may participate in the formulation of a plan, advise

those it represents of the committee's recommendation with respect

to any plan formulated, and collect and file acceptances. These

will be its most important functions. The committee may also

determine the need for the appointment of a trustee, if one has not

previously been appointed, and perform such other services as are

in the interest of those represented.

Subsection (d) requires the trustee and each committee to meet as

soon as practicable after their appointments to transact such

business as may be necessary and proper.

AMENDMENTS

1984 - Subsec. (b). Pub. L. 98-353, Sec. 324, 500(a), substituted

''An attorney or accountant'' for ''A person'', substituted

''entity having an adverse interest'' for ''entity'', and inserted

provision that representation of one or more creditors of the same

class as represented by the committee shall not per se constitute

the representation of an adverse interest.

Subsec. (c)(3). Pub. L. 98-353, Sec. 500(b)(1), substituted

''determinations'' for ''recommendations'', and ''acceptances or

rejections'' for ''acceptances''.

Subsec. (c)(4). Pub. L. 98-353, Sec. 500(b)(2), struck out ''if a

trustee or examiner, as the case may be, has not previously been

appointed under this chapter in the case'' after ''section 1104 of

this title''.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 328, 330, 331, 901, 1114

of this title.

-CITE-

11 USC Sec. 1104 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1104. Appointment of trustee or examiner

-STATUTE-

(a) At any time after the commencement of the case but before

confirmation of a plan, on request of a party in interest or the

United States trustee, and after notice and a hearing, the court

shall order the appointment of a trustee -

(1) for cause, including fraud, dishonesty, incompetence, or

gross mismanagement of the affairs of the debtor by current

management, either before or after the commencement of the case,

or similar cause, but not including the number of holders of

securities of the debtor or the amount of assets or liabilities

of the debtor; or

(2) if such appointment is in the interests of creditors, any

equity security holders, and other interests of the estate,

without regard to the number of holders of securities of the

debtor or the amount of assets or liabilities of the debtor.

(b) Except as provided in section 1163 of this title, on the

request of a party in interest made not later than 30 days after

the court orders the appointment of a trustee under subsection (a),

the United States trustee shall convene a meeting of creditors for

the purpose of electing one disinterested person to serve as

trustee in the case. The election of a trustee shall be conducted

in the manner provided in subsections (a), (b), and (c) of section

702 of this title.

(c) If the court does not order the appointment of a trustee

under this section, then at any time before the confirmation of a

plan, on request of a party in interest or the United States

trustee, and after notice and a hearing, the court shall order the

appointment of an examiner to conduct such an investigation of the

debtor as is appropriate, including an investigation of any

allegations of fraud, dishonesty, incompetence, misconduct,

mismanagement, or irregularity in the management of the affairs of

the debtor of or by current or former management of the debtor, if

-

(1) such appointment is in the interests of creditors, any

equity security holders, and other interests of the estate; or

(2) the debtor's fixed, liquidated, unsecured debts, other than

debts for goods, services, or taxes, or owing to an insider,

exceed $5,000,000.

(d) If the court orders the appointment of a trustee or an

examiner, if a trustee or an examiner dies or resigns during the

case or is removed under section 324 of this title, or if a trustee

fails to qualify under section 322 of this title, then the United

States trustee, after consultation with parties in interest, shall

appoint, subject to the court's approval, one disinterested person

other than the United States trustee to serve as trustee or

examiner, as the case may be, in the case.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2627; Pub. L. 99-554, title

II, Sec. 222, Oct. 27, 1986, 100 Stat. 3102; Pub. L. 103-394, title

II, Sec. 211(a), title V, Sec. 501(d)(30), Oct. 22, 1994, 108 Stat.

4125, 4146.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 1104 of the House amendment represents a compromise

between the House bill and the Senate amendment concerning the

appointment of a trustee or examiner. The method of appointment

rather than election, is derived from the House bill; the two

alternative standards of appointment are derived with modifications

from the Senate amendment, instead of the standard stated in the

House bill. For example, if the current management of the debtor

gambled away rental income before the filing of the petition, a

trustee should be appointed after the petition, whether or not

postpetition mismanagement can be shown. However, under no

circumstances will cause include the number of security holders of

the debtor or the amount of assets or liabilities of the debtor.

The standard also applies to the appointment of an examiner in

those circumstances in which mandatory appointment, as previously

detailed, is not required.

SENATE REPORT NO. 95-989

Subsection (a) provides for the mandatory appointment of a

disinterested trustee in the case of a public company, as defined

in section 1101(3), within 10 days of the order for relief, or of a

successor, in the event of a vacancy, as soon as practicable.

Section 156 of chapter X ((former) 11 U.S.C. 516 (556)) requires

the appointment of a disinterested trustee if the debtor's

liabilities are $250,000 or over. Section 1104(a) marks a

substantial change. The appointment of a trustee is mandatory only

for a public company, which under section 1101(3), has $5 million

in liabilities, excluding tax and trade obligations, and 1,000

security holders. In view of past experience, cases involving

public companies will under normal circumstances probably be

relatively few in number but of vast importance in terms of public

investor interest.

In case of a nonpublic company, the appointment or election of a

trustee is discretionary if the interests of the estate and its

security holders would be served thereby. A test based on probable

costs and benefits of a trusteeship is not practical. The

appointment may be made at any time prior to confirmation of the

plan.

In case of a nonpublic company, if no trustee is appointed, the

court may under subsection (c) appoint an examiner, if the

appointment would serve the interests of the estate and security

holders. The purpose of his appointment is specified in section

1106(b).

HOUSE REPORT NO. 95-595

Subsection (a) of this section governs the appointment of

trustees in reorganization cases. The court is permitted to order

the appointment of one trustee at any time after the commencement

of the case if a party in interest so requests. The court may

order appointment only if the protection afforded by a trustee is

needed and the costs and expenses of a trustee would not be

disproportionately higher than the value of the protection

afforded.

The protection afforded by a trustee would be needed, for

example, in cases where the current management of the debtor has

been fraudulent or dishonest, or has grossly mismanaged the

company, or where the debtor's management has abandoned the

business. A trustee would not necessarily be needed to investigate

misconduct of former management of the debtor, because an examiner

appointed under this section might well be able to serve that

function adequately without displacing the current management.

Generally, a trustee would not be needed in any case where the

protection afforded by a trustee could equally be afforded by an

examiner. Though the device of examiner appears in current chapter

X (chapter 10 of former title 11), it is rarely used because of the

nearly absolute presumption in favor of the appointment of a

trustee. Its use here will give the courts, debtors, creditors,

and equity security holders greater flexibility in handling the

affairs of an insolvent debtor, permitting the court to tailor the

remedy to the case.

The second test, relating to the costs and expenses of a trustee,

is not intended to be a strict cost/benefit analysis. It is

included to require the court to have due regard for any additional

costs or expenses that the appointment of a trustee would impose on

the estate.

Subsection (b) permits the court, at any time after the

commencement of the case and on request of a party in interest, to

order the appointment of an examiner, if the court has not ordered

the appointment of a trustee. The examiner would be appointed to

conduct such an investigation of the debtor as is appropriate under

the particular circumstances of the case, including an

investigation of any allegations of fraud, dishonesty, or gross

mismanagement of the debtor of or by current or former management

of the debtor. The standards for the appointment of an examiner

are the same as those for the appointment of a trustee: the

protection must be needed, and the costs and expenses must not be

disproportionately high.

By virtue of proposed 11 U.S.C. 1109, an indenture trustee and

the Securities and Exchange Commission will be parties in interest

for the purpose of requesting the appointment of a trustee or

examiner.

Subsection (c) directs that the United States trustee actually

select and appoint the trustee or examiner ordered appointed under

this section. The United States trustee is required to consult

with various parties in interest before selecting and appointing a

trustee. He is not bound to select one of the members of the panel

of private trustees established under proposed 28 U.S.C. 586(a)(1)

which exists only for the purpose of providing trustees for chapter

7 cases. Neither is he precluded from selecting a panel member if

the member is qualified to serve as chapter 11 trustee.

Appointment by the United States trustee will remove the court from

the often criticized practice of appointing an officer that will

appear in litigation before the court against an adverse party.

AMENDMENTS

1994 - Subsec. (b). Pub. L. 103-394, Sec. 211(a)(2), added

subsec. (b). Former subsec. (b) redesignated (c).

Subsec. (c). Pub. L. 103-394, Sec. 211(a)(1), redesignated

subsec. (b) as (c). Former subsec. (c) redesignated (d).

Subsec. (d). Pub. L. 103-394, Sec. 211(a)(1), 501(d)(30),

redesignated subsec. (c) as (d) and inserted comma after

''interest''.

1986 - Subsecs. (a), (b). Pub. L. 99-554, Sec. 222(1), (2),

inserted ''or the United States trustee'' after ''party in

interest''.

Subsec. (c). Pub. L. 99-554, Sec. 222(3), substituted ''the

United States trustee, after consultation with parties in interest

shall appoint, subject to the court's approval, one disinterested

person other than the United States trustee to serve'' for ''the

court shall appoint one disinterested person to serve''.

EFFECTIVE DATE OF 1994 AMENDMENT

Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not

applicable with respect to cases commenced under this title before

Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a

note under section 101 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Effective date and applicability of amendment by Pub. L. 99-554

dependent upon the judicial district involved, see section 302(d),

(e) of Pub. L. 99-554, set out as a note under section 581 of Title

28, Judiciary and Judicial Procedure.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 322, 546, 557, 1103,

1106, 1161 of this title.

-CITE-

11 USC Sec. 1105 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1105. Termination of trustee's appointment

-STATUTE-

At any time before confirmation of a plan, on request of a party

in interest or the United States trustee, and after notice and a

hearing, the court may terminate the trustee's appointment and

restore the debtor to possession and management of the property of

the estate and of the operation of the debtor's business.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2628; Pub. L. 98-353, title

III, Sec. 501, July 10, 1984, 98 Stat. 384; Pub. L. 99-554, title

II, Sec. 223, Oct. 27, 1986, 100 Stat. 3102.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

This section authorizes the court to terminate the trustee's

appointment and to restore the debtor to possession and management

of the property of the estate and to operation of the debtor's

business. Section 1104(a) provides that this section does not

apply in the case of a public company, for which the appointment of

a trustee is mandatory.

HOUSE REPORT NO. 95-595

This section authorizes the court to terminate the trustee's

appointment and to restore the debtor to possession and management

of the property of the estate, and to operation of the debtor's

business. This section would permit the court to reverse its

decision to order the appointment of a trustee in light of new

evidence.

AMENDMENTS

1986 - Pub. L. 99-554 inserted ''or the United States trustee''

after ''party in interest''.

1984 - Pub. L. 98-353 substituted ''estate and of the'' for

''estate, and''.

EFFECTIVE DATE OF 1986 AMENDMENT

Effective date and applicability of amendment by Pub. L. 99-554

dependent upon the judicial district involved, see section 302(d),

(e) of Pub. L. 99-554, set out as a note under section 581 of Title

28, Judiciary and Judicial Procedure.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 1161 of this title.

-CITE-

11 USC Sec. 1106 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1106. Duties of trustee and examiner

-STATUTE-

(a) A trustee shall -

(1) perform the duties of a trustee specified in sections

704(2), 704(5), 704(7), 704(8), and 704(9) of this title;

(2) if the debtor has not done so, file the list, schedule, and

statement required under section 521(1) of this title;

(3) except to the extent that the court orders otherwise,

investigate the acts, conduct, assets, liabilities, and financial

condition of the debtor, the operation of the debtor's business

and the desirability of the continuance of such business, and any

other matter relevant to the case or to the formulation of a

plan;

(4) as soon as practicable -

(A) file a statement of any investigation conducted under

paragraph (3) of this subsection, including any fact

ascertained pertaining to fraud, dishonesty, incompetence,

misconduct, mismanagement, or irregularity in the management of

the affairs of the debtor, or to a cause of action available to

the estate; and

(B) transmit a copy or a summary of any such statement to any

creditors' committee or equity security holders' committee, to

any indenture trustee, and to such other entity as the court

designates;

(5) as soon as practicable, file a plan under section 1121 of

this title, file a report of why the trustee will not file a

plan, or recommend conversion of the case to a case under chapter

7, 12, or 13 of this title or dismissal of the case;

(6) for any year for which the debtor has not filed a tax

return required by law, furnish, without personal liability, such

information as may be required by the governmental unit with

which such tax return was to be filed, in light of the condition

of the debtor's books and records and the availability of such

information; and

(7) after confirmation of a plan, file such reports as are

necessary or as the court orders.

(b) An examiner appointed under section 1104(d) of this title

shall perform the duties specified in paragraphs (3) and (4) of

subsection (a) of this section, and, except to the extent that the

court orders otherwise, any other duties of the trustee that the

court orders the debtor in possession not to perform.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2628; Pub. L. 98-353, title

III, Sec. 311(b)(1), 502, July 10, 1984, 98 Stat. 355, 384; Pub. L.

99-554, title II, Sec. 257(c), Oct. 27, 1986, 100 Stat. 3114; Pub.

L. 103-394, title II, Sec. 211(b), Oct. 22, 1994, 108 Stat. 4125.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

Subsection (a) of this section prescribes the trustee's duties.

He is required to perform the duties of a trustee in a liquidation

case specified in section 704 (2), (4), (6), (7), (8), and (9).

These include reporting and informational duties, and

accountability for all property received. Paragraph (2) of this

subsection requires the trustee to file with the court, if the

debtor has not done so, the list of creditors, schedule of assets

and liabilities, and statement of affairs required under section

521(1).

Paragraph (3) of S. 1106 requires the trustee to investigate the

acts, conduct, assets, liabilities, and financial condition of the

debtor, the operation of the debtor's business, and the

desirability of the continuance of the business, and any other

matter relevant to the case or to the formulation of a plan.

Paragraph (4) requires the trustee to report the results of his

investigation to the court and to creditors' committees, equity

security holders' committees, indenture trustees and any other

entity the court designates.

Paragraph (5) requires the trustee to file a plan or to report

why a plan cannot be formulated, or to recommend conversion to

liquidation or to an individual repayment plan case, or dismissal.

It is anticipated that the trustee will consult with creditors and

other parties in interest in the formulation of a plan, just as the

debtor in possession would.

Paragraph (6) (enacted as (7)) requires final reports by the

trustee, as the court orders.

Subsection (b) gives the trustee's investigative duties to an

examiner, if one is appointed. The court is authorized to give the

examiner additional duties as the circumstances warrant.

Paragraphs (3), (4), and (5) of subsection (a) are derived from

sections 165 and 169 of chapter X (sections 565 and 569 of former

title 11).

AMENDMENTS

1994 - Subsec. (b). Pub. L. 103-394 substituted ''1104(d)'' for

''1104(c)''.

1986 - Subsec. (a)(5). Pub. L. 99-554 inserted reference to

chapter 12.

1984 - Subsec. (a)(1). Pub. L. 98-353, Sec. 311(b)(1),

substituted ''704(5), 704(7), 704(8), and 704(9)'' for ''704(4),

704(6), 704(7) and 704(8)''.

Subsec. (b). Pub. L. 98-353, Sec. 502, inserted '', except to the

extent that the court orders otherwise,''.

EFFECTIVE DATE OF 1994 AMENDMENT

Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not

applicable with respect to cases commenced under this title before

Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a

note under section 101 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by Pub. L. 99-554 effective 30 days after Oct. 27,

1986, but not applicable to cases commenced under this title before

that date, see section 302(a), (c)(1) of Pub. L. 99-554, set out as

a note under section 581 of Title 28, Judiciary and Judicial

Procedure.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

PAYMENT OF CERTAIN BENEFITS TO RETIRED FORMER EMPLOYEES

Pub. L. 99-500, Sec. 101(b) (title VI, Sec. 608), Oct. 18, 1986,

100 Stat. 1783-39, 1783-74, and Pub. L. 99-591, Sec. 101(b) (title

VI, Sec. 608), Oct. 30, 1986, 100 Stat. 3341-39, 3341-74, as

amended by Pub. L. 100-41, May 15, 1987, 101 Stat. 309; Pub. L.

100-99, Aug. 18, 1987, 101 Stat. 716; Pub. L. 100-334, Sec. 3(a),

June 16, 1988, 102 Stat. 613, provided that:

''(a)(1) Subject to paragraphs (2), (3), (4), and (5), and

notwithstanding title 11 of the United States Code, the trustee

shall pay benefits to retired former employees under a plan, fund,

or program maintained or established by the debtor prior to filing

a petition (through the purchase of insurance or otherwise) for the

purpose of providing medical, surgical, or hospital care benefits,

or benefits in the event of sickness, accident, disability, or

death.

''(2) The level of benefits required to be paid by this

subsection may be modified prior to confirmation of a plan under

section 1129 of such title if -

''(A) the trustee and an authorized representative of the

former employees with respect to whom such benefits are payable

agree to the modification of such benefit payments; or

''(B) the court finds that a modification proposed by the

trustee meets the standards of section 1113(b)(1)(A) of such

title and the balance of the equities clearly favors the

modification.

If such benefits are covered by a collective bargaining agreement,

the authorized representative shall be the labor organization that

is signatory to such collective bargaining agreement unless there

is a conflict of interest.

''(3) The trustee shall pay benefits in accordance with this

subsection until -

''(A) the dismissal of the case involved; or

''(B) the effective date of a plan confirmed under section 1129

of such title which provides for the continued payment after

confirmation of the plan of all such benefits at the level

established under paragraph (2) of this subsection, at any time

prior to the confirmation of the plan, for the duration of the

period the debtor (as defined in such title) has obligated itself

to provide such benefits.

''(4) No such benefits paid between the filing of a petition in a

case covered by this section and the time a plan confirmed under

section 1129 of such title with respect to such case becomes

effective shall be deducted or offset from the amount allowed as

claims for any benefits which remain unpaid, or from the amount to

be paid under the plan with respect to such claims for unpaid

benefits, whether such claims for unpaid benefits are based upon or

arise from a right to future benefits or from any benefit not paid

as a result of modifications allowed pursuant to this section.

''(5) No claim for benefits covered by this section shall be

limited by section 502(b)(7) of such title.

''(b)(1) Notwithstanding any provision of title 11 of the United

States Code, the trustee shall pay an allowable claim of any person

for a benefit paid -

''(A) before the filing of the petition under title 11 of the

United States Code; and

''(B) directly or indirectly to a retired former employee under

a plan, fund, or program described in subsection (a)(1);

if, as determined by the court, such person is entitled to recover

from such employee, or any provider of health care to such

employee, directly or indirectly, the amount of such benefit for

which such person receives no payment from the debtor.

''(2) For purposes of paragraph (1), the term 'provider of health

care' means a person who -

''(A) is the direct provider of health care (including a

physician, dentist, nurse, podiatrist, optometrist, physician

assistant, or ancillary personnel employed under the supervision

of a physician); or

''(B) administers a facility or institution (including a

hospital, alcohol and drug abuse treatment facility, outpatient

facility, or health maintenance organization) in which health

care is provided.

''(c) This section is effective with respect to cases commenced

under chapter 11, of title 11, United States Code, in which a plan

for reorganization has not been confirmed by the court and in which

any such benefit is still being paid on October 2, 1986, and in

cases that become subject to chapter 11, title 11, United States

Code, after October 2, 1986 and before the date of the enactment of

the Retiree Benefits Bankruptcy Protection Act of 1988 (June 16,

1988).

''(d) This section shall not apply during any period in which a

case is subject to chapter 7, title 11, United States Code.''

Similar provisions were contained in Pub. L. 99-656, Sec. 2, Nov.

14, 1986, 100 Stat. 3668, as amended by Pub. L. 100-41, May 15,

1987, 101 Stat. 309; Pub. L. 100-99, Aug. 18, 1987, 101 Stat. 716,

and were repealed by Pub. L. 100-334, Sec. 3(b), June 16, 1988, 102

Stat. 614.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 1107, 1111, 1202, 1203,

1301 of this title.

-CITE-

11 USC Sec. 1107 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1107. Rights, powers, and duties of debtor in possession

-STATUTE-

(a) Subject to any limitations on a trustee serving in a case

under this chapter, and to such limitations or conditions as the

court prescribes, a debtor in possession shall have all the rights,

other than the right to compensation under section 330 of this

title, and powers, and shall perform all the functions and duties,

except the duties specified in sections 1106(a)(2), (3), and (4) of

this title, of a trustee serving in a case under this chapter.

(b) Notwithstanding section 327(a) of this title, a person is not

disqualified for employment under section 327 of this title by a

debtor in possession solely because of such person's employment by

or representation of the debtor before the commencement of the

case.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2628; Pub. L. 98-353, title

III, Sec. 503, July 10, 1984, 98 Stat. 384.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

The House amendment adopts section 1107(b) of the Senate

amendment which clarifies a point not covered by the House bill.

SENATE REPORT NO. 95-989

This section places a debtor in possession in the shoes of a

trustee in every way. The debtor is given the rights and powers of

a chapter 11 trustee. He is required to perform the functions and

duties of a chapter 11 trustee (except the investigative duties).

He is also subject to any limitations on a chapter 11 trustee, and

to such other limitations and conditions as the court prescribes

cf. Wolf v. Weinstein, 372 U.S. 633, 649-650 (1963).

AMENDMENTS

1984 - Subsec. (a). Pub. L. 98-353 substituted ''on a trustee

serving in a case'' for ''on a trustee''.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 106, 328, 1161 of this

title.

-CITE-

11 USC Sec. 1108 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1108. Authorization to operate business

-STATUTE-

Unless the court, on request of a party in interest and after

notice and a hearing, orders otherwise, the trustee may operate the

debtor's business.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2629; Pub. L. 98-353, title

III, Sec. 504, July 10, 1984, 98 Stat. 384.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

The House amendment adopts section 1108 of the House bill in

preference to the style of an identical substantive provision

contained in the Senate amendment. Throughout title 11 references

to a ''trustee'' is read to include other parties under various

sections of the bill. For example, section 1107 applies to give

the debtor in possession all the rights and powers of a trustee in

a case under chapter 11; this includes the power of the trustee to

operate the debtor's business under section 1108.

SENATE REPORT NO. 95-989

This section permits the debtor's business to continue to be

operated, unless the court orders otherwise. Thus, in a

reorganization case, operation of the business will be the rule,

and it will not be necessary to go to the court to obtain an order

authorizing operation.

HOUSE REPORT NO. 95-595

This section does not presume that a trustee will be appointed to

operate the business of the debtor. Rather, the power granted to

trustee under this section is one of the powers that a debtor in

possession acquires by virtue of proposed 11 U.S.C. 1107.

AMENDMENTS

1984 - Pub. L. 98-353 inserted '', on request of a party in

interest and after notice and a hearing,''.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 327, 363, 364 of this

title.

-CITE-

11 USC Sec. 1109 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1109. Right to be heard

-STATUTE-

(a) The Securities and Exchange Commission may raise and may

appear and be heard on any issue in a case under this chapter, but

the Securities and Exchange Commission may not appeal from any

judgment, order, or decree entered in the case.

(b) A party in interest, including the debtor, the trustee, a

creditors' committee, an equity security holders' committee, a

creditor, an equity security holder, or any indenture trustee, may

raise and may appear and be heard on any issue in a case under this

chapter.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2629.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 1109 of the House amendment represents a compromise

between comparable provisions in the House bill and Senate

amendment. As previously discussed the section gives the

Securities and Exchange Commission the right to appear and be heard

and to raise any issue in a case under chapter 11; however, the

Securities and Exchange Commission is not a party in interest and

the Commission may not appeal from any judgment, order, or decree

entered in the case. Under section 1109(b) a party in interest,

including the debtor, the trustee, creditors committee, equity

securities holders committee, a creditor, an equity security

holder, or an indentured trustee, may raise and may appear and be

heard on any issue in a case under chapter 11. Section 1109(c) of

the Senate amendment has been moved to subchapter IV pertaining to

Railroad Reorganizations.

SENATE REPORT NO. 95-989

Subsection (a) provides, in unqualified terms, that any creditor,

equity security holder, or an indenture trustee shall have the

right to be heard as a party in interest under this chapter in

person, by an attorney, or by a committee. It is derived from

section 206 of chapter X ((former) 11 U.S.C. 606).

Subsection (b) provides that the Securities and Exchange

Commission may appear by filing an appearance in a case of a public

company and may appear in other cases if authorized or requested by

the court. As a party in interest in either case, the Commission

may raise and be heard on any issue. The Commission may not appeal

from a judgment, order, or decree in a case, but may participate in

any appeal by any other party in interest. This is the present law

under section 208 of chapter X ((former) 11 U.S.C. 608).

HOUSE REPORT NO. 95-595

Section 1109 authorizes the Securities and Exchange Commission

and any indenture trustee to intervene in the case at any time on

any issue. They may raise an issue or may appear and be heard on

an issue that is raised by someone else. The section, following

current law, denies the right of appeal to the Securities and

Exchange Commission. It does not, however, prevent the Commission

from joining or participating in an appeal taken by a true party in

interest. The Commission is merely prevented from initiating the

appeal in any capacity.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 901 of this title.

-CITE-

11 USC Sec. 1110 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1110. Aircraft equipment and vessels

-STATUTE-

(a)(1) Except as provided in paragraph (2) and subject to

subsection (b), the right of a secured party with a security

interest in equipment described in paragraph (3), or of a lessor or

conditional vendor of such equipment, to take possession of such

equipment in compliance with a security agreement, lease, or

conditional sale contract, and to enforce any of its other rights

or remedies, under such security agreement, lease, or conditional

sale contract, to sell, lease, or otherwise retain or dispose of

such equipment, is not limited or otherwise affected by any other

provision of this title or by any power of the court.

(2) The right to take possession and to enforce the other rights

and remedies described in paragraph (1) shall be subject to section

362 if -

(A) before the date that is 60 days after the date of the order

for relief under this chapter, the trustee, subject to the

approval of the court, agrees to perform all obligations of the

debtor under such security agreement, lease, or conditional sale

contract; and

(B) any default, other than a default of a kind specified in

section 365(b)(2), under such security agreement, lease, or

conditional sale contract -

(i) that occurs before the date of the order is cured before

the expiration of such 60-day period;

(ii) that occurs after the date of the order and before the

expiration of such 60-day period is cured before the later of -

(I) the date that is 30 days after the date of the default;

or

(II) the expiration of such 60-day period; and

(iii) that occurs on or after the expiration of such 60-day

period is cured in compliance with the terms of such security

agreement, lease, or conditional sale contract, if a cure is

permitted under that agreement, lease, or contract.

(3) The equipment described in this paragraph -

(A) is -

(i) an aircraft, aircraft engine, propeller, appliance, or

spare part (as defined in section 40102 of title 49) that is

subject to a security interest granted by, leased to, or

conditionally sold to a debtor that, at the time such

transaction is entered into, holds an air carrier operating

certificate issued pursuant to chapter 447 of title 49 for

aircraft capable of carrying 10 or more individuals or 6,000

pounds or more of cargo; or

(ii) a documented vessel (as defined in section 30101(1) of

title 46) that is subject to a security interest granted by,

leased to, or conditionally sold to a debtor that is a water

carrier that, at the time such transaction is entered into,

holds a certificate of public convenience and necessity or

permit issued by the Department of Transportation; and

(B) includes all records and documents relating to such

equipment that are required, under the terms of the security

agreement, lease, or conditional sale contract, to be surrendered

or returned by the debtor in connection with the surrender or

return of such equipment.

(4) Paragraph (1) applies to a secured party, lessor, or

conditional vendor acting in its own behalf or acting as trustee or

otherwise in behalf of another party.

(b) The trustee and the secured party, lessor, or conditional

vendor whose right to take possession is protected under subsection

(a) may agree, subject to the approval of the court, to extend the

60-day period specified in subsection (a)(1).

(c)(1) In any case under this chapter, the trustee shall

immediately surrender and return to a secured party, lessor, or

conditional vendor, described in subsection (a)(1), equipment

described in subsection (a)(3), if at any time after the date of

the order for relief under this chapter such secured party, lessor,

or conditional vendor is entitled pursuant to subsection (a)(1) to

take possession of such equipment and makes a written demand for

such possession to the trustee.

(2) At such time as the trustee is required under paragraph (1)

to surrender and return equipment described in subsection (a)(3),

any lease of such equipment, and any security agreement or

conditional sale contract relating to such equipment, if such

security agreement or conditional sale contract is an executory

contract, shall be deemed rejected.

(d) With respect to equipment first placed in service on or

before October 22, 1994, for purposes of this section -

(1) the term ''lease'' includes any written agreement with

respect to which the lessor and the debtor, as lessee, have

expressed in the agreement or in a substantially contemporaneous

writing that the agreement is to be treated as a lease for

Federal income tax purposes; and

(2) the term ''security interest'' means a purchase-money

equipment security interest.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2629; Pub. L. 103-272, Sec.

5(c), July 5, 1994, 108 Stat. 1373; Pub. L. 103-394, title II, Sec.

201(a), Oct. 22, 1994, 108 Stat. 4119; Pub. L. 106-181, title VII,

Sec. 744(b), Apr. 5, 2000, 114 Stat. 177.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 1110 of the House amendment adopts an identical provision

contained in the House bill without modifications contained in the

Senate amendment. This section protects a limited class of

financiers of aircraft and vessels and is intended to be narrowly

construed to prevent secured parties or lessors from gaining the

protection of the section unless the interest of such lessor or

secured party is explicitly enumerated therein. It should be

emphasized that under section 1110(a) a debtor in possession or

trustee is given 60 days after the order for relief in a case under

chapter 11, to have an opportunity to comply with the provisions of

section 1110(a).

During this time the automatic stay will apply and may not be

lifted prior to the expiration of the 60-day period. Under section

1110(b), the debtor and secured party or lessor are given an

opportunity to extend the 60-day period, but no right to reduce the

period is intended. It should additionally be noted that under

section 1110(a) the trustee or debtor in possession is not required

to assume the executory contract or unexpired lease under section

1110; rather, if the trustee or debtor in possession complies with

the requirements of section 1110(a), the trustee or debtor in

possession is entitled to retain the aircraft or vessels subject to

the normal requirements of section 365. The discussion regarding

aircraft and vessels likewise applies with respect to railroad

rolling stock in a railroad reorganization under section 1168.

SENATE REPORT NO. 95-989

This section, to a large degree, preserves the protection given

lessors and conditional vendors of aircraft to a certificated air

carrier or of vessels to a certificated water carrier under section

116(5) and 116(6) of present Chapter X (section 516(5) and (6) of

former title 11). It is modified to conform with the consolidation

of Chapters X and XI (chapters 10 and 11 of former title 11) and

with the new chapter 11 generally. It is also modified to give the

trustee in a reorganization case an opportunity to continue in

possession of the equipment in question by curing defaults and by

making the required lease or purchase payments. This removes the

absolute veto power over a reorganization that lessors and

conditional vendors have under present law, while entitling them to

protection of their investment.

The section overrides the automatic stay or any power of the

court to enjoin taking of possession of certain leased,

conditionally sold, or liened equipment, unless, the trustee agrees

to perform the debtor's obligations and cures all prior defaults

(other than defaults under ipso facto or bankruptcy clauses) within

60 days after the order for relief. The trustee and the equipment

financer are permitted to extend the 60-day period by agreement.

During the first 60 days, the automatic stay will apply to prevent

foreclosure unless the creditor gets relief from the stay.

The effect of this section will be the same if the debtor has

granted the security interest to the financer or if the debtor is

leasing equipment from a financer that has leveraged the lease and

leased the equipment subject to a security interest of a third

party.

AMENDMENTS

2000 - Pub. L. 106-181 amended section catchline and text

generally, substituting present provisions consisting of subsecs.

(a) to (d) for former subsecs. (a) to (c) which contained somewhat

similar provisions.

1994 - Pub. L. 103-394 amended section generally. Prior to

amendment, section read as follows:

''(a) The right of a secured party with a purchase-money

equipment security interest in, or of a lessor or conditional

vendor of, whether as trustee or otherwise, aircraft, aircraft

engines, propellers, appliances, or spare parts, as defined in

section 40102(a) of title 49, or vessels of the United States, as

defined in section 30101 of title 46, that are subject to a

purchase-money equipment security interest granted by, leased to,

or conditionally sold to, a debtor that is an air carrier operating

under a certificate of convenience and necessity issued by the

Secretary of Transportation, or a water carrier that holds a

certificate of public convenience and necessity or permit issued by

the Interstate Commerce Commission, as the case may be, to take

possession of such equipment in compliance with the provisions of a

purchase-money equipment security agreement, lease, or conditional

sale contract, as the case may be, is not affected by section 362

or 363 of this title or by any power of the court to enjoin such

taking of possession, unless -

''(1) before 60 days after the date of the order for relief

under this chapter, the trustee, subject to the court's approval,

agrees to perform all obligations of the debtor that become due

on or after such date under such security agreement, lease, or

conditional sale contract, as the case may be; and

''(2) any default, other than a default of a kind specified in

section 365(b)(2) of this title, under such security agreement,

lease, or conditional sale contract, as the case may be -

''(A) that occurred before such date is cured before the

expiration of such 60-day period; and

''(B) that occurs after such date is cured before the later

of -

''(i) 30 days after the date of such default; and

''(ii) the expiration of such 60-day period.

''(b) The trustee and the secured party, lessor, or conditional

vendor, as the case may be, whose right to take possession is

protected under subsection (a) of this section may agree, subject

to the court's approval, to extend the 60-day period specified in

subsection (a)(1) of this section.''

Subsec. (a). Pub. L. 103-272 substituted ''section 40102(a) of

title 49'' for ''section 101 of the Federal Aviation Act of 1958

(49 U.S.C. 1301)'', ''section 30101 of title 46'' for ''subsection

B(4) of the Ship Mortgage Act, 1920 (46 U.S.C. 911(4))'', and

''Secretary of Transportation'' for ''Civil Aeronautics Board''.

EFFECTIVE DATE OF 2000 AMENDMENT

Amendment by Pub. L. 106-181 applicable only to fiscal years

beginning after Sept. 30, 1999, see section 3 of Pub. L. 106-181,

set out as a note under section 106 of Title 49, Transportation.

EFFECTIVE DATE OF 1994 AMENDMENT

Amendment by Pub. L. 103-394 effective Oct. 22, 1994, with this

section, as amended by section 201 of Pub. L. 103-394, applicable

with respect to any lease, as defined by subsec. (c) of this

section, entered into in connection with a settlement of any

proceeding in any case pending under this title on Oct. 22, 1994,

see section 702 of Pub. L. 103-394, set out as a note under section

101 of this title.

-TRANS-

ABOLITION OF INTERSTATE COMMERCE COMMISSION AND TRANSFER OF

FUNCTIONS

Interstate Commerce Commission abolished and functions of

Commission transferred, except as otherwise provided in Pub. L.

104-88, to Surface Transportation Board effective Jan. 1, 1996, by

section 702 of Title 49, Transportation, and section 101 of Pub. L.

104-88, set out as a note under section 701 of Title 49. References

to Interstate Commerce Commission deemed to refer to Surface

Transportation Board, a member or employee of the Board, or

Secretary of Transportation, as appropriate, see section 205 of

Pub. L. 104-88, set out as a note under section 701 of Title 49.

-MISC5-

AIRCRAFT EQUIPMENT SETTLEMENT LEASES

Pub. L. 103-7, Mar. 17, 1993, 107 Stat. 36, provided that:

''SECTION 1. SHORT TITLE.

''This Act may be cited as the 'Aircraft Equipment Settlement

Leases Act of 1993'.

''SEC. 2. TREATMENT OF AIRCRAFT EQUIPMENT SETTLEMENT LEASES WITH

THE PENSION BENEFIT GUARANTY CORPORATION.

''In the case of any settlement of liability under title IV of

the Employee Retirement Income Security Act of 1974 (29 U.S.C. 1301

et seq.) entered into by the Pension Benefit Guaranty Corporation

and one or more other parties, if -

''(1) such settlement was entered into before, on, or after the

date of the enactment of this Act (Mar. 17, 1993),

''(2) at least one party to such settlement was a debtor under

title 11 of the United States Code, and

''(3) an agreement that is entered into as part of such

settlement provides that such agreement is to be treated as a

lease,

then such agreement shall be treated as a lease for purposes of

section 1110 of such title 11.''

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 348 of this title.

-CITE-

11 USC Sec. 1111 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1111. Claims and interests

-STATUTE-

(a) A proof of claim or interest is deemed filed under section

501 of this title for any claim or interest that appears in the

schedules filed under section 521(1) or 1106(a)(2) of this title,

except a claim or interest that is scheduled as disputed,

contingent, or unliquidated.

(b)(1)(A) A claim secured by a lien on property of the estate

shall be allowed or disallowed under section 502 of this title the

same as if the holder of such claim had recourse against the debtor

on account of such claim, whether or not such holder has such

recourse, unless -

(i) the class of which such claim is a part elects, by at least

two-thirds in amount and more than half in number of allowed

claims of such class, application of paragraph (2) of this

subsection; or

(ii) such holder does not have such recourse and such property

is sold under section 363 of this title or is to be sold under

the plan.

(B) A class of claims may not elect application of paragraph (2)

of this subsection if -

(i) the interest on account of such claims of the holders of

such claims in such property is of inconsequential value; or

(ii) the holder of a claim of such class has recourse against

the debtor on account of such claim and such property is sold

under section 363 of this title or is to be sold under the plan.

(2) If such an election is made, then notwithstanding section

506(a) of this title, such claim is a secured claim to the extent

that such claim is allowed.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2630.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

A discussion of section 1111(b) of the House amendment is best

considered in the context of confirmation and will therefore, be

discussed in connection with section 1129.

SENATE REPORT NO. 95-989

This section dispenses with the need for every creditor and

equity security holder to file a proof of claim or interest in a

reorganization case. Usually the debtor's schedules are accurate

enough that they will suffice to determine the claims or interests

allowable in the case. Thus, the section specifies that any claim

or interest included on the debtor's schedules is deemed filed

under section 501. This does not apply to claims or interests that

are scheduled as disputed, contingent, or unliquidated.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 901, 927, 1129 of this

title.

-CITE-

11 USC Sec. 1112 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1112. Conversion or dismissal

-STATUTE-

(a) The debtor may convert a case under this chapter to a case

under chapter 7 of this title unless -

(1) the debtor is not a debtor in possession;

(2) the case originally was commenced as an involuntary case

under this chapter; or

(3) the case was converted to a case under this chapter other

than on the debtor's request.

(b) Except as provided in subsection (c) of this section, on

request of a party in interest or the United States trustee or

bankruptcy administrator, and after notice and a hearing, the court

may convert a case under this chapter to a case under chapter 7 of

this title or may dismiss a case under this chapter, whichever is

in the best interest of creditors and the estate, for cause,

including -

(1) continuing loss to or diminution of the estate and absence

of a reasonable likelihood of rehabilitation;

(2) inability to effectuate a plan;

(3) unreasonable delay by the debtor that is prejudicial to

creditors;

(4) failure to propose a plan under section 1121 of this title

within any time fixed by the court;

(5) denial of confirmation of every proposed plan and denial of

a request made for additional time for filing another plan or a

modification of a plan;

(6) revocation of an order of confirmation under section 1144

of this title, and denial of confirmation of another plan or a

modified plan under section 1129 of this title;

(7) inability to effectuate substantial consummation of a

confirmed plan;

(8) material default by the debtor with respect to a confirmed

plan;

(9) termination of a plan by reason of the occurrence of a

condition specified in the plan; or

(10) nonpayment of any fees or charges required under chapter

123 of title 28.

(c) The court may not convert a case under this chapter to a case

under chapter 7 of this title if the debtor is a farmer or a

corporation that is not a moneyed, business, or commercial

corporation, unless the debtor requests such conversion.

(d) The court may convert a case under this chapter to a case

under chapter 12 or 13 of this title only if -

(1) the debtor requests such conversion;

(2) the debtor has not been discharged under section 1141(d) of

this title; and

(3) if the debtor requests conversion to chapter 12 of this

title, such conversion is equitable.

(e) Except as provided in subsections (c) and (f), the court, on

request of the United States trustee, may convert a case under this

chapter to a case under chapter 7 of this title or may dismiss a

case under this chapter, whichever is in the best interest of

creditors and the estate if the debtor in a voluntary case fails to

file, within fifteen days after the filing of the petition

commencing such case or such additional time as the court may

allow, the information required by paragraph (1) of section 521,

including a list containing the names and addresses of the holders

of the twenty largest unsecured claims (or of all unsecured claims

if there are fewer than twenty unsecured claims), and the

approximate dollar amounts of each of such claims.

(f) Notwithstanding any other provision of this section, a case

may not be converted to a case under another chapter of this title

unless the debtor may be a debtor under such chapter.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2630; Pub. L. 98-353, title

III, Sec. 505, July 10, 1984, 98 Stat. 384; Pub. L. 99-554, title

II, Sec. 224, 256, Oct. 27, 1986, 100 Stat. 3102, 3114; Pub. L.

103-394, title II, Sec. 217(c), Oct. 22, 1994, 108 Stat. 4127.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 1112 of the House amendment represents a compromise

between the House bill and Senate amendment with respect to the

factors constituting cause for conversion of a case to chapter 7 or

dismissal. The House amendment combines two separate factors

contained in section 1112(b)(1) and section 1112(b)(2) of the

Senate amendment. Section 1112(b)(1) of the House amendment

permits the court to convert a case to a case under chapter 7 or to

dismiss the case if there is both a continuing loss to or

diminution of the estate and the absence of a reasonable likelihood

of rehabilitation; requiring both factors to be present

simultaneously represents a compromise from the House bill which

eliminated both factors from the list of causes enumerated.

Sections 1112(c) and 1112(d) of the House amendment is derived

from the House bill which differs from the Senate amendment only as

a matter of style.

SENATE REPORT NO. 95-989

This section brings together all of the conversion and dismissal

rules for chapter 11 cases. Subsection (a) gives the debtor an

absolute right to convert a voluntarily commenced chapter 11 case

in which the debtor remains in possession to a liquidation case.

Subsection (b) gives wide discretion to the court to make an

appropriate disposition of the case sua sponte or upon motion of a

party in interest, or the court is permitted to convert a

reorganization case to a liquidation case or to dismiss the case,

whichever is in the best interest of creditors and the estate, but

only for cause. Cause may include the continuing loss to or

dimunition (sic) of the estate of an insolvent debtor, the absence

of a reasonable likelihood of rehabilitation, the inability to

effectuate a plan, unreasonable delay by the debtor that is

prejudicial to creditors, failure to file a plan within the

appropriate time limits, denial of confirmation and any opportunity

to modify or propose a new plan, revocation of confirmation and

denial of confirmation of a modified plan, inability to effectuate

substantial consummation of a confirmed plan, material default by

the debtor under the plan, and termination of the plan by reason of

the occurrence of a condition specified in the plan. This list is

not exhaustive. The court will be able to consider other factors

as they arise, and to use its equitable powers to reach an

appropriate result in individual cases. The power of the court to

act sua sponte should be used sparingly and only in emergency

situations.

Subsection (c) prohibits the court from converting a case

concerning a farmer or an eleemosynary institution to a liquidation

case unless the debtor consents.

Subsection (d) prohibits conversion of a reorganization case to a

chapter 13 case unless the debtor requests conversion and his

discharge has not been granted or has been revoked.

Subsection (e) reinforces section 109 by prohibiting conversion

of a chapter 11 case to a case under another chapter proceedings

under which the debtor is not permitted to proceed.

AMENDMENTS

1994 - Subsec. (b). Pub. L. 103-394 inserted ''or bankruptcy

administrator'' after ''United States trustee''.

1986 - Subsec. (b). Pub. L. 99-554, Sec. 224(1)(A), inserted ''or

the United States trustee'' after ''party in interest''.

Subsec. (b)(10). Pub. L. 99-554, Sec. 224(1)(B)-(D), added par.

(10).

Subsec. (d). Pub. L. 99-554, Sec. 256, inserted reference to

chapter 12 and added par. (3).

Subsecs. (e), (f). Pub. L. 99-554, Sec. 224(2), (3), added

subsec. (e) and redesignated former subsec. (e) as (f).

1984 - Subsec. (a)(2). Pub. L. 98-353, Sec. 505(a)(1),

substituted ''originally was commenced as an involuntary case'' for

''is an involuntary case originally commenced''.

Subsec. (a)(3). Pub. L. 98-353, Sec. 505(a)(2), substituted

''other than on'' for ''on other than''.

Subsec. (b)(5). Pub. L. 98-353, Sec. 505(b)(1), inserted ''a

request made for'' before ''additional''.

Subsec. (b)(8). Pub. L. 98-353, Sec. 505(b)(2), substituted

''or'' for ''and''.

EFFECTIVE DATE OF 1994 AMENDMENT

Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not

applicable with respect to cases commenced under this title before

Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a

note under section 101 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Effective date and applicability of amendment by section 224 of

Pub. L. 99-554 dependent upon the judicial district involved, see

section 302(d), (e) of Pub. L. 99-554, set out as a note under

section 581 of Title 28, Judiciary and Judicial Procedure.

Amendment by section 256 of Pub. L. 99-554 effective 30 days

after Oct. 27, 1986, but not applicable to cases commenced under

this title before that date, see section 302(a), (c)(1) of Pub. L.

99-554.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 348, 365, 706, 726, 728,

1208, 1307 of this title.

-CITE-

11 USC Sec. 1113 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1113. Rejection of collective bargaining agreements

-STATUTE-

(a) The debtor in possession, or the trustee if one has been

appointed under the provisions of this chapter, other than a

trustee in a case covered by subchapter IV of this chapter and by

title I of the Railway Labor Act, may assume or reject a collective

bargaining agreement only in accordance with the provisions of this

section.

(b)(1) Subsequent to filing a petition and prior to filing an

application seeking rejection of a collective bargaining agreement,

the debtor in possession or trustee (hereinafter in this section

''trustee'' shall include a debtor in possession), shall -

(A) make a proposal to the authorized representative of the

employees covered by such agreement, based on the most complete

and reliable information available at the time of such proposal,

which provides for those necessary modifications in the employees

benefits and protections that are necessary to permit the

reorganization of the debtor and assures that all creditors, the

debtor and all of the affected parties are treated fairly and

equitably; and

(B) provide, subject to subsection (d)(3), the representative

of the employees with such relevant information as is necessary

to evaluate the proposal.

(2) During the period beginning on the date of the making of a

proposal provided for in paragraph (1) and ending on the date of

the hearing provided for in subsection (d)(1), the trustee shall

meet, at reasonable times, with the authorized representative to

confer in good faith in attempting to reach mutually satisfactory

modifications of such agreement.

(c) The court shall approve an application for rejection of a

collective bargaining agreement only if the court finds that -

(1) the trustee has, prior to the hearing, made a proposal that

fulfills the requirements of subsection (b)(1);

(2) the authorized representative of the employees has refused

to accept such proposal without good cause; and

(3) the balance of the equities clearly favors rejection of

such agreement.

(d)(1) Upon the filing of an application for rejection the court

shall schedule a hearing to be held not later than fourteen days

after the date of the filing of such application. All interested

parties may appear and be heard at such hearing. Adequate notice

shall be provided to such parties at least ten days before the date

of such hearing. The court may extend the time for the

commencement of such hearing for a period not exceeding seven days

where the circumstances of the case, and the interests of justice

require such extension, or for additional periods of time to which

the trustee and representative agree.

(2) The court shall rule on such application for rejection within

thirty days after the date of the commencement of the hearing. In

the interests of justice, the court may extend such time for ruling

for such additional period as the trustee and the employees'

representative may agree to. If the court does not rule on such

application within thirty days after the date of the commencement

of the hearing, or within such additional time as the trustee and

the employees' representative may agree to, the trustee may

terminate or alter any provisions of the collective bargaining

agreement pending the ruling of the court on such application.

(3) The court may enter such protective orders, consistent with

the need of the authorized representative of the employee to

evaluate the trustee's proposal and the application for rejection,

as may be necessary to prevent disclosure of information provided

to such representative where such disclosure could compromise the

position of the debtor with respect to its competitors in the

industry in which it is engaged.

(e) If during a period when the collective bargaining agreement

continues in effect, and if essential to the continuation of the

debtor's business, or in order to avoid irreparable damage to the

estate, the court, after notice and a hearing, may authorize the

trustee to implement interim changes in the terms, conditions,

wages, benefits, or work rules provided by a collective bargaining

agreement. Any hearing under this paragraph shall be scheduled in

accordance with the needs of the trustee. The implementation of

such interim changes shall not render the application for rejection

moot.

(f) No provision of this title shall be construed to permit a

trustee to unilaterally terminate or alter any provisions of a

collective bargaining agreement prior to compliance with the

provisions of this section.

-SOURCE-

(Added Pub. L. 98-353, title III, Sec. 541(a), July 10, 1984, 98

Stat. 390.)

-REFTEXT-

REFERENCES IN TEXT

The Railway Labor Act, referred to in subsec. (a), is act May 20,

1926, ch. 347, 44 Stat. 577, as amended. Title I of the Railway

Labor Act is classified principally to subchapter I (Sec. 151 et

seq.) of chapter 8 of Title 45, Railroads. For complete

classification of this Act to the Code, see section 151 of Title 45

and Tables.

-MISC2-

EFFECTIVE DATE

Section 541(c) of Pub. L. 98-353 provided that: ''The amendments

made by this section (enacting this section) shall become effective

upon the date of enactment of this Act (July 10, 1984); provided

that this section shall not apply to cases filed under title 11 of

the United States Code which were commenced prior to the date of

enactment of this section.''

-CITE-

11 USC Sec. 1114 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER I - OFFICERS AND ADMINISTRATION

-HEAD-

Sec. 1114. Payment of insurance benefits to retired employees

-STATUTE-

(a) For purposes of this section, the term ''retiree benefits''

means payments to any entity or person for the purpose of providing

or reimbursing payments for retired employees and their spouses and

dependents, for medical, surgical, or hospital care benefits, or

benefits in the event of sickness, accident, disability, or death

under any plan, fund, or program (through the purchase of insurance

or otherwise) maintained or established in whole or in part by the

debtor prior to filing a petition commencing a case under this

title.

(b)(1) For purposes of this section, the term ''authorized

representative'' means the authorized representative designated

pursuant to subsection (c) for persons receiving any retiree

benefits covered by a collective bargaining agreement or subsection

(d) in the case of persons receiving retiree benefits not covered

by such an agreement.

(2) Committees of retired employees appointed by the court

pursuant to this section shall have the same rights, powers, and

duties as committees appointed under sections 1102 and 1103 of this

title for the purpose of carrying out the purposes of sections 1114

and 1129(a)(13) and, as permitted by the court, shall have the

power to enforce the rights of persons under this title as they

relate to retiree benefits.

(c)(1) A labor organization shall be, for purposes of this

section, the authorized representative of those persons receiving

any retiree benefits covered by any collective bargaining agreement

to which that labor organization is signatory, unless (A) such

labor organization elects not to serve as the authorized

representative of such persons, or (B) the court, upon a motion by

any party in interest, after notice and hearing, determines that

different representation of such persons is appropriate.

(2) In cases where the labor organization referred to in

paragraph (1) elects not to serve as the authorized representative

of those persons receiving any retiree benefits covered by any

collective bargaining agreement to which that labor organization is

signatory, or in cases where the court, pursuant to paragraph (1)

finds different representation of such persons appropriate, the

court, upon a motion by any party in interest, and after notice and

a hearing, shall appoint a committee of retired employees if the

debtor seeks to modify or not pay the retiree benefits or if the

court otherwise determines that it is appropriate, from among such

persons, to serve as the authorized representative of such persons

under this section.

(d) The court, upon a motion by any party in interest, and after

notice and a hearing, shall appoint a committee of retired

employees if the debtor seeks to modify or not pay the retiree

benefits or if the court otherwise determines that it is

appropriate, to serve as the authorized representative, under this

section, of those persons receiving any retiree benefits not

covered by a collective bargaining agreement.

(e)(1) Notwithstanding any other provision of this title, the

debtor in possession, or the trustee if one has been appointed

under the provisions of this chapter (hereinafter in this section

''trustee'' shall include a debtor in possession), shall timely pay

and shall not modify any retiree benefits, except that -

(A) the court, on motion of the trustee or authorized

representative, and after notice and a hearing, may order

modification of such payments, pursuant to the provisions of

subsections (g) and (h) of this section, or

(B) the trustee and the authorized representative of the

recipients of those benefits may agree to modification of such

payments,

after which such benefits as modified shall continue to be paid by

the trustee.

(2) Any payment for retiree benefits required to be made before a

plan confirmed under section 1129 of this title is effective has

the status of an allowed administrative expense as provided in

section 503 of this title.

(f)(1) Subsequent to filing a petition and prior to filing an

application seeking modification of the retiree benefits, the

trustee shall -

(A) make a proposal to the authorized representative of the

retirees, based on the most complete and reliable information

available at the time of such proposal, which provides for those

necessary modifications in the retiree benefits that are

necessary to permit the reorganization of the debtor and assures

that all creditors, the debtor and all of the affected parties

are treated fairly and equitably; and

(B) provide, subject to subsection (k)(3), the representative

of the retirees with such relevant information as is necessary to

evaluate the proposal.

(2) During the period beginning on the date of the making of a

proposal provided for in paragraph (1), and ending on the date of

the hearing provided for in subsection (k)(1), the trustee shall

meet, at reasonable times, with the authorized representative to

confer in good faith in attempting to reach mutually satisfactory

modifications of such retiree benefits.

(g) The court shall enter an order providing for modification in

the payment of retiree benefits if the court finds that -

(1) the trustee has, prior to the hearing, made a proposal that

fulfills the requirements of subsection (f);

(2) the authorized representative of the retirees has refused

to accept such proposal without good cause; and

(3) such modification is necessary to permit the reorganization

of the debtor and assures that all creditors, the debtor, and all

of the affected parties are treated fairly and equitably, and is

clearly favored by the balance of the equities;

except that in no case shall the court enter an order providing for

such modification which provides for a modification to a level

lower than that proposed by the trustee in the proposal found by

the court to have complied with the requirements of this subsection

and subsection (f): Provided, however, That at any time after an

order is entered providing for modification in the payment of

retiree benefits, or at any time after an agreement modifying such

benefits is made between the trustee and the authorized

representative of the recipients of such benefits, the authorized

representative may apply to the court for an order increasing those

benefits which order shall be granted if the increase in retiree

benefits sought is consistent with the standard set forth in

paragraph (3): Provided further, That neither the trustee nor the

authorized representative is precluded from making more than one

motion for a modification order governed by this subsection.

(h)(1) Prior to a court issuing a final order under subsection

(g) of this section, if essential to the continuation of the

debtor's business, or in order to avoid irreparable damage to the

estate, the court, after notice and a hearing, may authorize the

trustee to implement interim modifications in retiree benefits.

(2) Any hearing under this subsection shall be scheduled in

accordance with the needs of the trustee.

(3) The implementation of such interim changes does not render

the motion for modification moot.

(i) No retiree benefits paid between the filing of the petition

and the time a plan confirmed under section 1129 of this title

becomes effective shall be deducted or offset from the amounts

allowed as claims for any benefits which remain unpaid, or from the

amounts to be paid under the plan with respect to such claims for

unpaid benefits, whether such claims for unpaid benefits are based

upon or arise from a right to future unpaid benefits or from any

benefits not paid as a result of modifications allowed pursuant to

this section.

(j) No claim for retiree benefits shall be limited by section

502(b)(7) of this title.

(k)(1) Upon the filing of an application for modifying retiree

benefits, the court shall schedule a hearing to be held not later

than fourteen days after the date of the filing of such

application. All interested parties may appear and be heard at

such hearing. Adequate notice shall be provided to such parties at

least ten days before the date of such hearing. The court may

extend the time for the commencement of such hearing for a period

not exceeding seven days where the circumstances of the case, and

the interests of justice require such extension, or for additional

periods of time to which the trustee and the authorized

representative agree.

(2) The court shall rule on such application for modification

within ninety days after the date of the commencement of the

hearing. In the interests of justice, the court may extend such

time for ruling for such additional period as the trustee and the

authorized representative may agree to. If the court does not rule

on such application within ninety days after the date of the

commencement of the hearing, or within such additional time as the

trustee and the authorized representative may agree to, the trustee

may implement the proposed modifications pending the ruling of the

court on such application.

(3) The court may enter such protective orders, consistent with

the need of the authorized representative of the retirees to

evaluate the trustee's proposal and the application for

modification, as may be necessary to prevent disclosure of

information provided to such representative where such disclosure

could compromise the position of the debtor with respect to its

competitors in the industry in which it is engaged.

(l) This section shall not apply to any retiree, or the spouse or

dependents of such retiree, if such retiree's gross income for the

twelve months preceding the filing of the bankruptcy petition

equals or exceeds $250,000, unless such retiree can demonstrate to

the satisfaction of the court that he is unable to obtain health,

medical, life, and disability coverage for himself, his spouse, and

his dependents who would otherwise be covered by the employer's

insurance plan, comparable to the coverage provided by the employer

on the day before the filing of a petition under this title.

-SOURCE-

(Added Pub. L. 100-334, Sec. 2(a), June 16, 1988, 102 Stat. 610.)

-MISC1-

EFFECTIVE DATE

Section 4 of Pub. L. 100-334 provided that:

''(a) General Effective Date. - Except as provided in subsection

(b), this Act and the amendments made by this Act (enacting this

section, amending section 1129 of this title, enacting provisions

set out as a note under section 101 of this title, and amending and

repealing provisions set out as notes under section 1106 of this

title) shall take effect on the date of the enactment of this Act

(June 16, 1988).

''(b) Application of Amendments. - The amendments made by section

2 (enacting this section and amending section 1129 of this title)

shall not apply with respect to cases commenced under title 11 of

the United States Code before the date of the enactment of this Act

(June 16, 1988).''

PAYMENT OF CERTAIN BENEFITS TO RETIRED FORMER EMPLOYEES

For payment of benefits by bankruptcy trustee to retired

employees in enumerated circumstances with respect to cases

commenced under this chapter in which a plan for reorganization had

not been confirmed by the court and in which any such benefit was

still being paid on October 2, 1986, and in cases that became

subject to this chapter after October 2, 1986, and before June 16,

1988, see section 101(b) (title VI, Sec. 608) of Pub. L. 99-500,

and Pub. L. 99-591, as amended, set out as a note under section

1106 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 1129 of this title.

-CITE-

11 USC SUBCHAPTER II - THE PLAN 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER II - THE PLAN

.

-HEAD-

SUBCHAPTER II - THE PLAN

-SECREF-

SUBCHAPTER REFERRED TO IN OTHER SECTIONS

This subchapter is referred to in section 103 of this title.

-CITE-

11 USC Sec. 1121 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER II - THE PLAN

-HEAD-

Sec. 1121. Who may file a plan

-STATUTE-

(a) The debtor may file a plan with a petition commencing a

voluntary case, or at any time in a voluntary case or an

involuntary case.

(b) Except as otherwise provided in this section, only the debtor

may file a plan until after 120 days after the date of the order

for relief under this chapter.

(c) Any party in interest, including the debtor, the trustee, a

creditors' committee, an equity security holders' committee, a

creditor, an equity security holder, or any indenture trustee, may

file a plan if and only if -

(1) a trustee has been appointed under this chapter;

(2) the debtor has not filed a plan before 120 days after the

date of the order for relief under this chapter; or

(3) the debtor has not filed a plan that has been accepted,

before 180 days after the date of the order for relief under this

chapter, by each class of claims or interests that is impaired

under the plan.

(d) On request of a party in interest made within the respective

periods specified in subsections (b) and (c) of this section and

after notice and a hearing, the court may for cause reduce or

increase the 120-day period or the 180-day period referred to in

this section.

(e) In a case in which the debtor is a small business and elects

to be considered a small business -

(1) only the debtor may file a plan until after 100 days after

the date of the order for relief under this chapter;

(2) all plans shall be filed within 160 days after the date of

the order for relief; and

(3) on request of a party in interest made within the

respective periods specified in paragraphs (1) and (2) and after

notice and a hearing, the court may -

(A) reduce the 100-day period or the 160-day period specified

in paragraph (1) or (2) for cause; and

(B) increase the 100-day period specified in paragraph (1) if

the debtor shows that the need for an increase is caused by

circumstances for which the debtor should not be held

accountable.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2631; Pub. L. 98-353, title

III, Sec. 506, July 10, 1984, 98 Stat. 385; Pub. L. 99-554, title

II, Sec. 283(u), Oct. 27, 1986, 100 Stat. 3118; Pub. L. 103-394,

title II, Sec. 217(d), Oct. 22, 1994, 108 Stat. 4127.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 1121 of the House amendment is derived from section 1121

of the House bill; section 1121(c)(1) will be satisfied

automatically in a case under subchapter IV of title 11.

SENATE REPORT NO. 95-989

Subsection (a) permits the debtor to file a reorganization plan

with a petition commencing a voluntary case or at any time during a

voluntary or involuntary case.

Subsection (b) gives the debtor the exclusive right to file a

plan during the first 120 days of the case. There are exceptions,

however, enumerated in subsection (c). If a trustee has been

appointed, if the debtor does not meet the 120-day deadline, or if

the debtor fails to obtain the required consent within 180 days

after the filing of the petition, any party in interest may propose

a plan. This includes the debtor, the trustee, a creditors'

committee, an equity security holders' committee, a creditor, an

equity security holder, and an indenture trustee. The list is not

exhaustive. In the case of a public company, a trustee is

appointed within 10 days of the petition. In such a case, for all

practical purposes, any party in interest may file a plan.

Subsection (d) permits the court, for cause, to increase or

reduce the 120-day and 180-day periods specified. Since, the

debtor has an exclusive privilege for 6 months during which others

may not file a plan, the granted extension should be based on a

showing of some promise of probable success. An extension should

not be employed as a tactical device to put pressure on parties in

interest to yield to a plan they consider unsatisfactory.

AMENDMENTS

1994 - Subsec. (e). Pub. L. 103-394 added subsec. (e).

1986 - Subsec. (d). Pub. L. 99-554 inserted reference to

subsection (b) of this section.

1984 - Subsec. (c)(3). Pub. L. 98-353, Sec. 506(a), substituted

''of claims or interests that is'' for ''the claims or interests of

which are''.

Subsec. (d). Pub. L. 98-353, Sec. 506(b), inserted ''made within

the respective periods specified in subsection (c) of this

section''.

EFFECTIVE DATE OF 1994 AMENDMENT

Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not

applicable with respect to cases commenced under this title before

Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a

note under section 101 of this title.

EFFECTIVE DATE OF 1986 AMENDMENT

Amendment by Pub. L. 99-554 effective 30 days after Oct. 27,

1986, see section 302(a) of Pub. L. 99-554, set out as a note under

section 581 of Title 28, Judiciary and Judicial Procedure.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 307, 348, 1106, 1112,

1125 of this title; title 28 section 158.

-CITE-

11 USC Sec. 1122 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER II - THE PLAN

-HEAD-

Sec. 1122. Classification of claims or interests

-STATUTE-

(a) Except as provided in subsection (b) of this section, a plan

may place a claim or an interest in a particular class only if such

claim or interest is substantially similar to the other claims or

interests of such class.

(b) A plan may designate a separate class of claims consisting

only of every unsecured claim that is less than or reduced to an

amount that the court approves as reasonable and necessary for

administrative convenience.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2631.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

This section codifies current case law surrounding the

classification of claims and equity securities. It requires

classification based on the nature of the claims or interests

classified, and permits inclusion of claims or interests in a

particular class only if the claim or interest being included is

substantially similar to the other claims or interests of the

class.

Subsection (b), also a codification of existing practice,

contains an exception. The plan may designate a separate class of

claims consisting only of every unsecured claim that is less than

or reduced to an amount that the court approves as reasonable and

necessary for administrative convenience.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 901, 1123, 1127, 1222,

1322 of this title.

-CITE-

11 USC Sec. 1123 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER II - THE PLAN

-HEAD-

Sec. 1123. Contents of plan

-STATUTE-

(a) Notwithstanding any otherwise applicable nonbankruptcy law, a

plan shall -

(1) designate, subject to section 1122 of this title, classes

of claims, other than claims of a kind specified in section

507(a)(1), 507(a)(2), or 507(a)(8) of this title, and classes of

interests;

(2) specify any class of claims or interests that is not

impaired under the plan;

(3) specify the treatment of any class of claims or interests

that is impaired under the plan;

(4) provide the same treatment for each claim or interest of a

particular class, unless the holder of a particular claim or

interest agrees to a less favorable treatment of such particular

claim or interest;

(5) provide adequate means for the plan's implementation, such

as -

(A) retention by the debtor of all or any part of the

property of the estate;

(B) transfer of all or any part of the property of the estate

to one or more entities, whether organized before or after the

confirmation of such plan;

(C) merger or consolidation of the debtor with one or more

persons;

(D) sale of all or any part of the property of the estate,

either subject to or free of any lien, or the distribution of

all or any part of the property of the estate among those

having an interest in such property of the estate;

(E) satisfaction or modification of any lien;

(F) cancellation or modification of any indenture or similar

instrument;

(G) curing or waiving of any default;

(H) extension of a maturity date or a change in an interest

rate or other term of outstanding securities;

(I) amendment of the debtor's charter; or

(J) issuance of securities of the debtor, or of any entity

referred to in subparagraph (B) or (C) of this paragraph, for

cash, for property, for existing securities, or in exchange for

claims or interests, or for any other appropriate purpose;

(6) provide for the inclusion in the charter of the debtor, if

the debtor is a corporation, or of any corporation referred to in

paragraph (5)(B) or (5)(C) of this subsection, of a provision

prohibiting the issuance of nonvoting equity securities, and

providing, as to the several classes of securities possessing

voting power, an appropriate distribution of such power among

such classes, including, in the case of any class of equity

securities having a preference over another class of equity

securities with respect to dividends, adequate provisions for the

election of directors representing such preferred class in the

event of default in the payment of such dividends; and

(7) contain only provisions that are consistent with the

interests of creditors and equity security holders and with

public policy with respect to the manner of selection of any

officer, director, or trustee under the plan and any successor to

such officer, director, or trustee.

(b) Subject to subsection (a) of this section, a plan may -

(1) impair or leave unimpaired any class of claims, secured or

unsecured, or of interests;

(2) subject to section 365 of this title, provide for the

assumption, rejection, or assignment of any executory contract or

unexpired lease of the debtor not previously rejected under such

section;

(3) provide for -

(A) the settlement or adjustment of any claim or interest

belonging to the debtor or to the estate; or

(B) the retention and enforcement by the debtor, by the

trustee, or by a representative of the estate appointed for

such purpose, of any such claim or interest;

(4) provide for the sale of all or substantially all of the

property of the estate, and the distribution of the proceeds of

such sale among holders of claims or interests;

(5) modify the rights of holders of secured claims, other than

a claim secured only by a security interest in real property that

is the debtor's principal residence, or of holders of unsecured

claims, or leave unaffected the rights of holders of any class of

claims; and

(6) include any other appropriate provision not inconsistent

with the applicable provisions of this title.

(c) In a case concerning an individual, a plan proposed by an

entity other than the debtor may not provide for the use, sale, or

lease of property exempted under section 522 of this title, unless

the debtor consents to such use, sale, or lease.

(d) Notwithstanding subsection (a) of this section and sections

506(b), 1129(a)(7), and 1129(b) of this title, if it is proposed in

a plan to cure a default the amount necessary to cure the default

shall be determined in accordance with the underlying agreement and

applicable nonbankruptcy law.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2631; Pub. L. 98-353, title

III, Sec. 507, July 10, 1984, 98 Stat. 385; Pub. L. 103-394, title

II, Sec. 206, title III, Sec. 304(h)(6), 305(a), title V, Sec.

501(d)(31), Oct. 22, 1994, 108 Stat. 4123, 4134, 4146.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 1123 of the House amendment represents a compromise

between similar provisions in the House bill and Senate amendment.

The section has been clarified to clearly indicate that both

secured and unsecured claims, or either of them, may be impaired in

a case under title 11. In addition assumption or rejection of an

executory contract under a plan must comply with section 365 of

title 11. Moreover, section 1123(a)(1) has been substantively

modified to permit classification of certain kinds of priority

claims. This is important for purposes of confirmation under

section 1129(a)(9).

Section 1123(a)(5) of the House amendment is derived from a

similar provision in the House bill and Senate amendment but

deletes the language pertaining to ''fair upset price'' as an

unnecessary restriction. Section 1123 is also intended to indicate

that a plan may provide for any action specified in section 1123 in

the case of a corporation without a resolution of the board of

directors. If the plan is confirmed, then any action proposed in

the plan may be taken notwithstanding any otherwise applicable

nonbankruptcy law in accordance with section 1142(a) of title 11.

SENATE REPORT NO. 95-989

Subsection (a) specifies what a plan of reorganization must

contain. The plan must designate classes of claims and interests,

and specify, by class, the claims or interests that are unimpaired

under the plan. Priority claims are not required to be classified

because they may not have arisen when the plan is filed. The plan

must provide the same treatment for each claim or interest of a

particular class, unless the holder of a particular claim or

interest agrees to a different, but not better, treatment of his

claim or interest.

Paragraph (3) applies to claims, not creditors. Thus, if a

creditor is undersecured, and thus has a secured claim and an

unsecured claim, this paragraph will be applied independently to

each of his claims.

Paragraph (4) of subsection (a) is derived from section 216 of

chapter X (section 616 of former title 11) with some

modifications. It requires the plan to provide adequate means for

the plans execution. These means may include retention by the

debtor of all or any part of the property of the estate, transfer

of all or any part of the property of the estate to one or more

entities, whether organized pre- or postconfirmation, merger or

consolidation of the debtor with one or more persons, sale and

distribution of all or any part of the property of the estate,

satisfaction or modification of any lien, cancellation or

modification of any indenture or similar instrument, curing or

waiving of any default, extension of maturity dates or change in

interest rates of securities, amendment of the debtor's charter,

and issuance of securities.

Subparagraph (C), as it applies in railroad cases, has the effect

of overruling St. Joe Paper Co. v. Atlantic Coast Line R. R., 347

U.S. 298 (1954). It will allow the trustee or creditors to propose

a plan of merger with another railroad without the consent of the

debtor, and the debtor will be bound under proposed 11 U.S.C.

1141(a). See Hearings, pt. 3, at 1616. ''Similar instrument''

referred to in subparagraph (F) might include a deposit with an

agent for distribution, other than an indenture trustee, such as an

agent under an agreement in a railroad conditional sale or lease

financing agreement.

Paragraphs (5) and (6) and subsection (b) are derived

substantially from Section 216 of Chapter X ((former) 11 U.S.C.

616). Paragraph (5) requires the plan to prohibit the issuance of

nonvoting equity securities, and to provide for an appropriate

distribution of voting power among the various classes of equity

securities. Paragraph (6) requires that the plan contain only

provisions that are consistent with the interests of creditors and

equity security holders, and with public policy with respect to the

selection of officers, directors, and trustees, and their

successors.

Subsection (b) specifies the matters that the plan may propose.

The plan may impair or leave unimpaired any claim or interest. The

plan may provide for the assumption or rejection of executory

contracts or unexpired leases not previously rejected under section

365. The plan may also provide for the treatment of claims by the

debtor against other entities that are not settled before the

confirmation of the plan. The plan may propose settlement or

adjustment of any claim or equity security belonging to the estate,

or may propose retention and enforcement of such claim or interest

by the debtor or by an agent appointed for that purpose.

The plan may also propose the sale of all or substantially all of

the property of the estate, and the distribution of the proceeds of

the sale among creditors and equity security holders. This would

be a liquidating plan. The subsection permits the plan to include

any other appropriate provision not inconsistent with the

applicable provisions of the bankruptcy code.

Subsection (c) protects an individual debtor's exempt property by

prohibiting its use, sale, or lease under a plan proposed by

someone other than the debtor, unless the debtor consents.

AMENDMENTS

1994 - Subsec. (a)(1). Pub. L. 103-394, Sec. 304(h)(6),

501(d)(31), substituted ''507(a)(8) of this title,'' for

''507(a)(7) of this title''.

Subsec. (b)(5), (6). Pub. L. 103-394, Sec. 206, added par. (5)

and redesignated former par. (5) as (6).

Subsec. (d). Pub. L. 103-394, Sec. 305(a), added subsec. (d).

1984 - Subsec. (a). Pub. L. 98-353, Sec. 507(a)(1), in provisions

preceding par. (1) substituted ''Notwithstanding any otherwise

applicable nonbankruptcy law, a'' for ''A''.

Subsec. (a)(1). Pub. L. 98-353, Sec. 507(a)(2), inserted a comma

after ''classes of claims'' and substituted ''507(a)(7) of this

title,'' for ''507(a)(6) of this title''.

Subsec. (a)(3). Pub. L. 98-353, Sec. 507(a)(3), struck out

''shall'' before ''specify the treatment''.

Subsec. (a)(5). Pub. L. 98-353, Sec. 507(a)(4), substituted

''implementation'' for ''execution''.

Subsec. (a)(5)(G). Pub. L. 98-353, Sec. 507(a)(5), inserted

''of'' after ''waiving''.

Subsec. (b)(2). Pub. L. 98-353, Sec. 507(b), substituted

''rejection, or assignment'' for ''or rejection'', and ''under such

section'' for ''under section 365 of this title''.

EFFECTIVE DATE OF 1994 AMENDMENT

Amendment by sections 206, 304(h)(6), and 501(d)(31) of Pub. L.

103-394 effective Oct. 22, 1994, and not applicable with respect to

cases commenced under this title before Oct. 22, 1994, and

amendment by section 305(a) of Pub. L. 103-394 effective Oct. 22,

1994, and applicable only to agreements entered into after Oct. 22,

1994, see section 702 of Pub. L. 103-394, set out as a note under

section 101 of this title.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 901, 1124, 1127, 1172 of

this title.

-CITE-

11 USC Sec. 1124 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER II - THE PLAN

-HEAD-

Sec. 1124. Impairment of claims or interests

-STATUTE-

Except as provided in section 1123(a)(4) of this title, a class

of claims or interests is impaired under a plan unless, with

respect to each claim or interest of such class, the plan -

(1) leaves unaltered the legal, equitable, and contractual

rights to which such claim or interest entitles the holder of

such claim or interest; or

(2) notwithstanding any contractual provision or applicable law

that entitles the holder of such claim or interest to demand or

receive accelerated payment of such claim or interest after the

occurrence of a default -

(A) cures any such default that occurred before or after the

commencement of the case under this title, other than a default

of a kind specified in section 365(b)(2) of this title;

(B) reinstates the maturity of such claim or interest as such

maturity existed before such default;

(C) compensates the holder of such claim or interest for any

damages incurred as a result of any reasonable reliance by such

holder on such contractual provision or such applicable law;

and

(D) does not otherwise alter the legal, equitable, or

contractual rights to which such claim or interest entitles the

holder of such claim or interest.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2633; Pub. L. 98-353, title

III, Sec. 508, July 10, 1984, 98 Stat. 385; Pub. L. 103-394, title

II, Sec. 213(d), Oct. 22, 1994, 108 Stat. 4126.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 1124 of the House amendment is derived from a similar

provision in the House bill and Senate amendment. The section

defines the new concept of ''impairment'' of claims or interests;

the concept differs significantly from the concept of ''materially

and adversely affected'' under the Bankruptcy Act (former title

11). Section 1124(3) of the House amendment provides that a holder

of a claim or interest is not impaired, if the plan provides that

the holder will receive the allowed amount of the holder's claim,

or in the case of an interest with a fixed liquidation preference

or redemption price, the greater of such price. This adopts the

position contained in the House bill and rejects the contrary

standard contained in the Senate amendment.

Section 1124(3) of the House amendment rejects a provision

contained in section 1124(3)(B)(iii) of the House bill which would

have considered a class of interest not to be impaired by virtue of

the fact that the plan provided cash or property for the value of

the holder's interest in the debtor.

The effect of the House amendment is to permit an interest not to

be impaired only if the interest has a fixed liquidation preference

or redemption price. Therefore, a class of interests such as

common stock, must either accept a plan under section 1129(a)(8),

or the plan must satisfy the requirements of section 1129(b)(2)(C)

in order for a plan to be confirmed.

A compromise reflected in section 1124(2)(C) of the House

amendment indicates that a class of claims is not impaired under

the circumstances of section 1124(2) if damages are paid to rectify

reasonable reliance engaged in by the holder of a claim or interest

arising from the prepetition breach of a contractual provision,

such as an ipso facto or bankruptcy clause, or law. Where the

rights of third parties are concerned, such as in the case of lease

premises which have been rerented to a third party, it is not

intended that there will be adequate damages to compensate the

third party.

SENATE REPORT NO. 95-989

The basic concept underlying this section is not new. It rests

essentially on Section 107 of Chapter X ((former) 11 U.S.C. 507),

which states that creditors or stockholders or any class thereof

''shall be deemed to be 'affected' by a plan only if their or its

interest shall be materially and adversely affected thereby.''

This section is designated to indicate when contractual rights of

creditors or interest holders are not materially affected. It

specifies three ways in which the plan may leave a claim or

interest unimpaired.

First, the plan may propose not to alter the legal, equitable, or

contractual rights to which the claim or interest entitled its

holder.

Second, a claim or interest is unimpaired by curing the effect of

a default and reinstating the original terms of an obligation when

maturity was brought on or accelerated by the default. The

intervention of bankruptcy and the defaults represent a temporary

crisis which the plan of reorganization is intended to clear away.

The holder of a claim or interest who under the plan is restored to

his original position, when others receive less or get nothing at

all, is fortunate indeed and has no cause to complain. Curing of

the default and the assumption of the debt in accordance with its

terms is an important reorganization technique for dealing with a

particular class of claims, especially secured claims.

Third, a claim or interest is unimpaired if the plan provides for

their payment in cash. In the case of a debt liability, the cash

payment is for the allowed amount of the claim, which does not

include a redemption premium. If it is an equity security with a

fixed liquidation preference, such as a preferred stock, the

allowed amount is such liquidation preference, with no redemption

premium. With respect to any other equity security, such as a

common stock, cash payment must be equal to the ''value of such

holder's interest in the debtor.''

Section 1124 does not include payment ''in property'' other than

cash. Except for a rare case, claims or interests are not by their

terms payable in property, but a plan may so provide and those

affected thereby may accept or reject the proposed plan. They may

not be forced to accept a plan declaring the holders' claims or

interests to be ''unimpaired.''

HOUSE REPORT NO. 95-595

This section is new. It is designed to indicate when contractual

rights of creditors or interest holders are not materially

affected. The section specifies three ways in which the plan may

leave a claim or interest unimpaired.

First, the plan may propose not to alter the legal, equitable, or

contractual rights to which the claim or interest entitled its

holder.

Second, the plan is permitted to reinstate a claim or interest

and thus leave it unimpaired. Reinstatement consists of curing any

default (other than a default under an ipso facto or bankruptcy

clause) and reinstatement of the maturity of the claim or

interest. Further, the plan may not otherwise alter any legal,

equitable, or contractual right to which the claim or interest

entitles its holder.

Third, the plan may leave a claim or interest unimpaired by

paying its amount in full other than in securities of the debtor,

an affiliate of the debtor participating in a joint plan, or a

successor to the debtor. These securities are excluded because

determination of their value would require a valuation of the

business being reorganized. Use of them to pay a creditor or

equity security holder without his consent may be done only under

section 1129(b) and only after a valuation of the debtor. Under

this paragraph, the plan must pay the allowed amount of the claim

in full, in cash or other property, or, in the case of an equity

security, must pay the greatest of any fixed liquidation preference

to which the terms of the equity security entitle its holder, any

fixed price at which the debtor, under the terms of the equity

security may redeem such equity security, and the value, as of the

effective date of the plan, of the holder's interest in the

debtor. The value of the holder's interest need not be determined

precisely by valuing the debtor's business if such value is clearly

below redemption or liquidation preference values. If such value

would require a full-scale valuation of the business, then such

interest should be treated as impaired. But, if the debtor

corporation is clearly insolvent, then the value of the common

stock holder's interest in the debtor is zero, and offering them

nothing under the plan of reorganization will not impair their

rights.

''Value, as of the effective date of the plan,'' as used in

paragraph (3) and in proposed 11 U.S.C. 1179(a)(7)(B), 1129(a)(9),

1129(b), 1172(2), 1325(a)(4), 1325(a)(5)(B), and 1328(b), indicates

that the promised payment under the plan must be discounted to

present value as of the effective date of the plan. The

discounting should be based only on the unpaid balance of the

amount due under the plan, until that amount, including interest,

is paid in full.

AMENDMENTS

1994 - Par. (3). Pub. L. 103-394 struck out par. (3) which read

as follows: ''provides that, on the effective date of the plan, the

holder of such claim or interest receives, on account of such claim

or interest, cash equal to -

''(A) with respect to a claim, the allowed amount of such

claim; or

''(B) with respect to an interest, if applicable, the greater

of -

''(i) any fixed liquidation preference to which the terms of

any security representing such interest entitle the holder of

such interest; or

''(ii) any fixed price at which the debtor, under the terms

of such security, may redeem such security from such holder.''

1984 - Par. (2)(A). Pub. L. 98-353, Sec. 508(1), amended subpar.

(A) generally. Prior to amendment, subpar. (A) read as follows:

''cures any such default, other than a default of a kind specified

in section 365(b)(2) of this title, that occurred before or after

the commencement of the case under this title;''.

Par. (3)(B)(i). Pub. L. 98-353, Sec. 508(2), substituted ''or''

for ''and''.

EFFECTIVE DATE OF 1994 AMENDMENT

Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not

applicable with respect to cases commenced under this title before

Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a

note under section 101 of this title.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 901 of this title.

-CITE-

11 USC Sec. 1125 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER II - THE PLAN

-HEAD-

Sec. 1125. Postpetition disclosure and solicitation

-STATUTE-

(a) In this section -

(1) ''adequate information'' means information of a kind, and

in sufficient detail, as far as is reasonably practicable in

light of the nature and history of the debtor and the condition

of the debtor's books and records, that would enable a

hypothetical reasonable investor typical of holders of claims or

interests of the relevant class to make an informed judgment

about the plan, but adequate information need not include such

information about any other possible or proposed plan; and

(2) ''investor typical of holders of claims or interests of the

relevant class'' means investor having -

(A) a claim or interest of the relevant class;

(B) such a relationship with the debtor as the holders of

other claims or interests of such class generally have; and

(C) such ability to obtain such information from sources

other than the disclosure required by this section as holders

of claims or interests in such class generally have.

(b) An acceptance or rejection of a plan may not be solicited

after the commencement of the case under this title from a holder

of a claim or interest with respect to such claim or interest,

unless, at the time of or before such solicitation, there is

transmitted to such holder the plan or a summary of the plan, and a

written disclosure statement approved, after notice and a hearing,

by the court as containing adequate information. The court may

approve a disclosure statement without a valuation of the debtor or

an appraisal of the debtor's assets.

(c) The same disclosure statement shall be transmitted to each

holder of a claim or interest of a particular class, but there may

be transmitted different disclosure statements, differing in

amount, detail, or kind of information, as between classes.

(d) Whether a disclosure statement required under subsection (b)

of this section contains adequate information is not governed by

any otherwise applicable nonbankruptcy law, rule, or regulation,

but an agency or official whose duty is to administer or enforce

such a law, rule, or regulation may be heard on the issue of

whether a disclosure statement contains adequate information. Such

an agency or official may not appeal from, or otherwise seek review

of, an order approving a disclosure statement.

(e) A person that solicits acceptance or rejection of a plan, in

good faith and in compliance with the applicable provisions of this

title, or that participates, in good faith and in compliance with

the applicable provisions of this title, in the offer, issuance,

sale, or purchase of a security, offered or sold under the plan, of

the debtor, of an affiliate participating in a joint plan with the

debtor, or of a newly organized successor to the debtor under the

plan, is not liable, on account of such solicitation or

participation, for violation of any applicable law, rule, or

regulation governing solicitation of acceptance or rejection of a

plan or the offer, issuance, sale, or purchase of securities.

(f) Notwithstanding subsection (b), in a case in which the debtor

has elected under section 1121(e) to be considered a small business

-

(1) the court may conditionally approve a disclosure statement

subject to final approval after notice and a hearing;

(2) acceptances and rejections of a plan may be solicited based

on a conditionally approved disclosure statement as long as the

debtor provides adequate information to each holder of a claim or

interest that is solicited, but a conditionally approved

disclosure statement shall be mailed at least 10 days prior to

the date of the hearing on confirmation of the plan; and

(3) a hearing on the disclosure statement may be combined with

a hearing on confirmation of a plan.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2633; Pub. L. 98-353, title

III, Sec. 509, July 10, 1984, 98 Stat. 385; Pub. L. 103-394, title

II, Sec. 217(e), Oct. 22, 1994, 108 Stat. 4127.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 1125 of the House amendment is derived from section 1125

of the House bill and Senate amendment except with respect to

section 1125(f) of the Senate amendment. It will not be necessary

for the court to consider the report of the examiner prior to

approval of a disclosure statement. The investigation of the

examiner is to proceed on an independent basis from the procedure

of the reorganization under chapter 11. In order to ensure that the

examiner's report will be expeditious and fair, the examiner is

precluded from serving as a trustee in the case or from

representing a trustee if a trustee is appointed, whether the case

remains in chapter 11 or is converted to chapter 7 or 13.

SENATE REPORT NO. 95-989

This section extends disclosure requirements in connection with

solicitations to all cases under chapter 11. Heretofore this

subject was dealt with by the Bankruptcy Act (former title 11)

mainly in the special contexts of railroad reorganizations and

chapter X (chapter 10 of former title 11) cases.

Subsection (a) defines (1) the subject matter of disclosure as

''adequate information'' and relates the standard of adequacy to an

(2) ''investor typical of holders or claims or interests of the

relevant class.'' ''Investor'' is used broadly here, for it will

almost always include a trade creditor or other creditors who

originally had no investment intent or interest. It refers to the

investment-type decision by those called upon to accept a plan to

modify their claims or interests, which typically will involve

acceptance of new securities or of a cash payment in lieu thereof.

Both the kind and form of information are left essentially to the

judicial discretion of the court, guided by the specification in

subparagraph (a)(1) that it be of a kind and in sufficient detail

that a reasonable and typical investor can make an informed

judgment about the plan. The information required will necessarily

be governed by the circumstances of the case.

Reporting and audit standards devised for solvent and continuing

businesses do not necessarily fit a debtor in reorganization.

Subsection (a)(1) expressly incorporates consideration of the

nature and history of the debtor and the condition of its books and

records into the determination of what is reasonably practicable to

supply. These factors are particularly pertinent to historical

data and to discontinued operations of no future relevance.

A plan is necessarily predicated on knowledge of the assets and

liabilities being dealt with and on factually supported

expectations as to the future course of the business sufficient to

meet the feasibility standard in section 1130(a)(11) of this

title. It may thus be necessary to provide estimates or judgments

for that purpose. Yet it remains practicable to describe, in such

detail as may be relevant and needed, the basis for the plan and

the data on which supporters of the plan rely.

Subsection (b) establishes the jurisdiction of the court over

this subject by prohibiting solicitation of acceptance or rejection

of a plan after the commencement of the case, unless the person

solicited receives, before or at the time of the solicitation, a

written disclosure statement approved by the court, after notice

and hearing, as containing adequate information. As under present

law, determinations of value, by appraisal or otherwise, are not

required if not needed to accomplish the purpose specified in

subsection (a)(1).

Subsection (c) requires that the same disclosure statement be

transmitted to each member of a class. It recognizes that the

information needed for an informed judgment about the plan may

differ among classes. A class whose rights under the plan center

on a particular fund or asset would have no use for an extensive

description of other matters that could not affect them.

Subsection (d) relieves the court of the need to follow any

otherwise applicable Federal or state law in determining the

adequacy of the information contained in the disclosure statement

submitted for its approval. It authorizes an agency or official,

Federal or state, charged with administering cognate laws so

preempted to advise the court on the adequacy of proposed

disclosure statement. But they are not authorized to appeal the

court's decision.

Solicitations with respect to a plan do not involve just mere

requests for opinions. Acceptance of the plan vitally affects

creditors and shareholders, and most frequently the solicitation

involves an offering of securities in exchange for claims or

interests. The present bankruptcy statute (former title 11) has

exempted such offerings under each of its chapters from the

registration and disclosure requirements of the Securities Act of

1933 (15 U.S.C. 77a et seq.), an exemption also continued by

section 1145(a)(2) of this title. The extension of the disclosure

requirements to all chapter 11 cases justifies the coordinate

extension of these exemptions. By the same token, no valid purpose

is served not to exempt from the requirements of similar state laws

in a matter under the exclusive jurisdiction of the Federal

bankruptcy laws.

Subsection (e) exonerates any person who, in good faith and in

compliance with this title, solicits or participates in the offer,

issuance, sale or purchase, under the plan, of a security from any

liability, on account of such solicitation or participation, for

violation of any law, rule, or regulation governing the offer,

issuance, sale, or purchase of securities. This exoneration is

coordinate with the exemption from Federal or State registration or

licensing requirements provided by section 1145 of this title.

In the nonpublic case, the court, when approving the disclosure

statement, has before it the texts of the plan, a proposed

disclosure document, and such other information the plan proponents

and other interested parties may present at the hearing. In the

final analysis the exoneration which subsection (e) grants must

depend on the good faith of the plan proponents and of those who

participate in the preparation of the disclosure statement and in

the solicitation. Subsection (e) does not affect civil or criminal

liability for defects and inadequacies that are beyond the limits

of the exoneration that good faith provides.

Section 1125 applies to public companies as well, subject to the

qualifications of subsection (f). In case of a public company no

solicitations of acceptance is permitted unless authorized by the

court upon or after approval of the plan pursuant to section

1128(c). In addition to the documents specified in subsection (b),

subsection (f) requires transmission of the opinion and order of

the court approving the plan and, if filed, the advisory report of

the Securities and Exchange Commission or a summary thereof

prepared by the Commission.

HOUSE REPORT NO. 95-595

This section is new. It is the heart of the consolidation of the

various reorganization chapters found in current law. It requires

disclosure before solicitation of acceptances of a plan or

reorganization.

Subsection (a) contains two definitions. First, ''adequate

information'' is defined to mean information of a kind, and

insufficient detail, as far as is reasonably practical in light of

the nature and history of the debtor and the condition of the

debtor's books and records, that would enable a hypothetical

reasonable investor typical of holders of claims or interests of

the relevant class to make an informed judgment about the plan.

Second, ''investor typical of holders of claims or interests of the

relevant class'' is defined to mean an investor having a claim or

interest of the relevant class, having such a relationship with the

debtor as the holders of other claims or interests of the relevant

class have, and having such ability to obtain information from

sources other than the disclosure statement as holders of claims or

interests of the relevant class have, and having such ability to

obtain information from sources other than the disclosure statement

as holders of claims or interests of the relevant class have. That

is, the hypothetical investor against which the disclosure is

measured must not be an insider if other members of the class are

not insiders, and so on. In other words, the adequacy of

disclosure is measured against the typical investor, not an

extraordinary one.

The Supreme Court's rulemaking power will not extend to

rulemaking that will prescribe what constitutes adequate

information. That standard is a substantive standard. Precisely

what constitutes adequate information in any particular instance

will develop on a case-by-case basis. Courts will take a practical

approach as to what is necessary under the circumstances of each

case, such as the cost of preparation of the statements, the need

for relative speed in solicitation and confirmation, and, of

course, the need for investor protection. There will be a

balancing of interests in each case. In reorganization cases,

there is frequently great uncertainty. Therefore the need for

flexibility is greatest.

Subsection (b) is the operative subsection. It prohibits

solicitation of acceptances or rejections of a plan after the

commencement of the case unless, at the time of the solicitation or

before, there is transmitted to the solicitee the plan or a summary

of the plan, and a written disclosure statement approved by the

court as containing adequate information. The subsection permits

approval of the statement without the necessity of a valuation of

the debtor or an appraisal of the debtor's assets. However, in

some cases, a valuation or appraisal will be necessary to develop

adequate information. The court will be able to determine what is

necessary in light of the facts and circumstances of each

particular case.

Subsection (c) requires that the same disclosure statement go to

all members of a particular class, but permits different disclosure

to different classes.

Subsection (d) excepts the disclosure statements from the

requirements of the securities laws (such as section 14 of the 1934

Act (15 U.S.C. 78n) and section 5 of the 1933 Act (15 U.S.C. 77e)),

and from similar State securities laws (blue sky laws, for

example). The subsection permits an agency or official whose duty

is to administer or enforce such laws (such as the Securities and

Exchange Commission or State Corporation Commissioners) to appear

and be heard on the issue of whether a disclosure statement

contains adequate information, but the agencies and officials are

not granted the right of appeal from an adverse determination in

any capacity. They may join in an appeal by a true party in

interest, however.

Subsection (e) is a safe harbor provision, and is necessary to

make the exemption provided by subsection (d) effective. Without

it, a creditor that solicited an acceptance or rejection in

reliance on the court's approval of a disclosure statement would be

potentially liable under antifraud sections designed to enforce the

very sections of the securities laws from which subsection (d)

excuses compliance. The subsection protects only persons that

solicit in good faith and in compliance with the applicable

provisions of the reorganization chapter. It provides protection

from legal liability as well as from equitable liability based on

an injunctive action by the SEC or other agency or official.

AMENDMENTS

1994 - Subsec. (f). Pub. L. 103-394 added subsec. (f).

1984 - Subsec. (a)(1). Pub. L. 98-353, Sec. 509(a)(1), inserted

'', but adequate information need not include such information

about any other possible or proposed plan''.

Subsec. (a)(2)(B). Pub. L. 98-353, Sec. 509(a)(2), inserted

''the'' after ''with''.

Subsec. (a)(2)(C). Pub. L. 98-353, Sec. 509(a)(3), inserted

''of'' after ''holders''.

Subsec. (d). Pub. L. 98-353, Sec. 509(b), inserted ''required

under subsection (b) of this section'' and '', or otherwise seek

review of,''.

Subsec. (e). Pub. L. 98-353, Sec. 509(c), inserted ''acceptance

or rejection of a plan'' after ''solicits'', and ''solicitation of

acceptance or rejection of a plan or'' after ''governing''.

EFFECTIVE DATE OF 1994 AMENDMENT

Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not

applicable with respect to cases commenced under this title before

Oct. 22, 1994, see section 702 of Pub. L. 103-394, set out as a

note under section 101 of this title.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 901, 1126, 1127, 1145 of

this title; title 28 section 586.

-CITE-

11 USC Sec. 1126 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER II - THE PLAN

-HEAD-

Sec. 1126. Acceptance of plan

-STATUTE-

(a) The holder of a claim or interest allowed under section 502

of this title may accept or reject a plan. If the United States is

a creditor or equity security holder, the Secretary of the Treasury

may accept or reject the plan on behalf of the United States.

(b) For the purposes of subsections (c) and (d) of this section,

a holder of a claim or interest that has accepted or rejected the

plan before the commencement of the case under this title is deemed

to have accepted or rejected such plan, as the case may be, if -

(1) the solicitation of such acceptance or rejection was in

compliance with any applicable nonbankruptcy law, rule, or

regulation governing the adequacy of disclosure in connection

with such solicitation; or

(2) if there is not any such law, rule, or regulation, such

acceptance or rejection was solicited after disclosure to such

holder of adequate information, as defined in section 1125(a) of

this title.

(c) A class of claims has accepted a plan if such plan has been

accepted by creditors, other than any entity designated under

subsection (e) of this section, that hold at least two-thirds in

amount and more than one-half in number of the allowed claims of

such class held by creditors, other than any entity designated

under subsection (e) of this section, that have accepted or

rejected such plan.

(d) A class of interests has accepted a plan if such plan has

been accepted by holders of such interests, other than any entity

designated under subsection (e) of this section, that hold at least

two-thirds in amount of the allowed interests of such class held by

holders of such interests, other than any entity designated under

subsection (e) of this section, that have accepted or rejected such

plan.

(e) On request of a party in interest, and after notice and a

hearing, the court may designate any entity whose acceptance or

rejection of such plan was not in good faith, or was not solicited

or procured in good faith or in accordance with the provisions of

this title.

(f) Notwithstanding any other provision of this section, a class

that is not impaired under a plan, and each holder of a claim or

interest of such class, are conclusively presumed to have accepted

the plan, and solicitation of acceptances with respect to such

class from the holders of claims or interests of such class is not

required.

(g) Notwithstanding any other provision of this section, a class

is deemed not to have accepted a plan if such plan provides that

the claims or interests of such class do not entitle the holders of

such claims or interests to receive or retain any property under

the plan on account of such claims or interests.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2634; Pub. L. 98-353, title

III, Sec. 510, July 10, 1984, 98 Stat. 386.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 1126 of the House amendment deletes section 1126(e) as

contained in the House bill. Section 105 of the bill constitutes

sufficient power in the court to designate exclusion of a

creditor's claim on the basis of a conflict of interest. Section

1126(f) of the House amendment adopts a provision contained in

section 1127(f) of the Senate bill indicating that a class that is

not impaired under a plan is deemed to have accepted a plan and

solicitation of acceptances from such class is not required.

SENATE REPORT NO. 95-989

Subsection (a) of this section permits the holder of a claim or

interest allowed under section 502 to accept or reject a proposed

plan of reorganization. The subsection also incorporates a

provision now found in section 199 of chapter X (section 599 of

former title 11) that authorizes the Secretary of the Treasury to

accept or reject a plan on behalf of the United States when the

United States is a creditor or equity security holder.

Subsection (b) governs acceptances and rejections of plans

obtained before commencement of a reorganization for a nonpublic

company. Paragraph (3) expressly states that subsection (b) does

not apply to a public company.

Prepetition solicitation is a common practice under chapter XI

(chapter 11 of former title 11) today, and chapter IX (chapter 9 of

former title 11) current makes explicit provision for it. Section

1126(b) counts a prepetition acceptance or rejection toward the

required amounts and number of acceptances only if the solicitation

of the acceptance or rejection was in compliance with any

applicable nonbankruptcy law, rule, or regulation governing the

adequacy of disclosure in connection with such solicitation. If

there is not any such applicable law, rule, or regulation, then the

acceptance or rejection is counted only if it was solicited after

disclosure of adequate information, to the holder, as defined in

section 1125(a)(1). This permits the court to ensure that the

requirements of section 1125 are not avoided by prepetition

solicitation.

Subsection (c) specifies the required amount and number of

acceptances for a class of creditors. A class of creditors has

accepted a plan if at least two-thirds in amount and more than

one-half in number of the allowed claims of the class that are

voted are cast in favor of the plan. The amount and number are

computed on the basis of claims actually voted for or against the

plan, not as under chapter X (chapter 10 of former title 11) on the

basis of the allowed claims in the class. Subsection (f) excludes

from all these calculations claims not voted in good faith, and

claims procured or solicited not in good faith or not in accordance

with the provisions of this title.

Subsection (c) requires that the same disclosure statement be

transmitted to each member of a class. It recognizes that the

information needed for an informed judgment about the plan may

differ among classes. A class whose rights under the plan center

on a particular fund or asset would have no use for an extensive

description of other matters that could not affect them.

Subsection (d) relieves the court of the need to follow any

otherwise applicable Federal or state law in determining the

adequacy of the information contained in the disclosure statement

submitted for its approval. It authorizes an agency or official,

Federal or state, charged with administering cognate laws so

pre-empted to advise the court on the adequacy of proposed

disclosure statement. But they are not authorized to appeal the

court's decision.

Solicitations with respect to a plan do not involve just mere

requests for opinions. Acceptance of the plan vitally affects

creditors and shareholders, and most frequently the solicitation

involves an offering of securities in exchange for claims or

interests. The present Bankruptcy Act (former title 11) has

exempted such offerings under each of its chapters from the

registration and disclosure requirements of the Securities Act of

1933 (15 U.S.C. 77a et seq.), an exemption also continued by

section 1145 of this title. The extension of the disclosure

requirements to all chapter 11 cases is justified by the

integration of the separate chapters into the single chapter 11. By

the same token, no valid purpose is served by failing to provide

exemption from the requirements of similar state laws in a matter

under the exclusive jurisdiction of the Federal bankruptcy laws.

Under subsection (d), with respect to a class of equity

securities, it is sufficient for acceptance of the plan if the

amount of securities voting for the plan is at least two-thirds of

the total actually voted.

Subsection (e) provides that no acceptances are required from any

class whose claims or interests are unimpaired under the plan or in

the order confirming the plan.

Subsection (g) provides that any class denied participation under

the plan is conclusively deemed to have rejected the plan. There

is obviously no need to submit a plan for a vote by a class that is

to receive nothing. But under subsection (g) the excluded class is

like a class that has not accepted, and is a dissenting class for

purposes of confirmation under section 1130.

AMENDMENTS

1984 - Subsec. (b)(2). Pub. L. 98-353, Sec. 510(a), substituted

''1125(a)'' for ''1125(a)(1)''.

Subsec. (d). Pub. L. 98-353, Sec. 510(b), inserted a comma after

''such interests''.

Subsec. (f). Pub. L. 98-353, Sec. 510(c), substituted '', and

each holder of a claim or interest of such class, are conclusively

presumed'' for ''is deemed'', ''solicitation'' for

''solicititation'', and ''interests'' for ''interest''.

Subsec. (g). Pub. L. 98-353, Sec. 510(d), substituted ''receive

or retain any property'' for ''any payment or compensation''.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 901, 946 of this title.

-CITE-

11 USC Sec. 1127 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER II - THE PLAN

-HEAD-

Sec. 1127. Modification of plan

-STATUTE-

(a) The proponent of a plan may modify such plan at any time

before confirmation, but may not modify such plan so that such plan

as modified fails to meet the requirements of sections 1122 and

1123 of this title. After the proponent of a plan files a

modification of such plan with the court, the plan as modified

becomes the plan.

(b) The proponent of a plan or the reorganized debtor may modify

such plan at any time after confirmation of such plan and before

substantial consummation of such plan, but may not modify such plan

so that such plan as modified fails to meet the requirements of

sections 1122 and 1123 of this title. Such plan as modified under

this subsection becomes the plan only if circumstances warrant such

modification and the court, after notice and a hearing, confirms

such plan as modified, under section 1129 of this title.

(c) The proponent of a modification shall comply with section

1125 of this title with respect to the plan as modified.

(d) Any holder of a claim or interest that has accepted or

rejected a plan is deemed to have accepted or rejected, as the case

may be, such plan as modified, unless, within the time fixed by the

court, such holder changes such holder's previous acceptance or

rejection.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2635; Pub. L. 98-353, title

III, Sec. 511, July 10, 1984, 98 Stat. 386.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 1127(a) of the House amendment adopts a provision

contained in the House bill permitting only the proponent of a plan

to modify the plan and rejecting the alternative of open

modification contained in the Senate amendment.

SENATE REPORT NO. 95-989

Under subsection (a) the proponent may file a proposal to modify

a plan prior to confirmation. In the case of a public company the

modifying proposal may be filed prior to approval.

Subsection (b) provides that a party in interest eligible to file

a plan may file instead of a plan a proposal to modify a plan filed

by another. Under subsection (c) a party in interest objecting to

some feature of a plan may submit a proposal to modify the plan to

meet the objection.

After a plan has been confirmed, but before its substantial

consummation, a plan may be modified by leave of court, which

subsection (d) provides shall be granted for good cause.

Subsection (e) provides that a proposal to modify a plan is subject

to the disclosure requirements of section 1125 and as provided in

subsection (f). It provides that a creditor or stockholder who

voted for or against a plan is deemed to have accepted or rejected

the modifying proposal. But if the modification materially and

adversely affects any of their interests, they must be afforded an

opportunity to change their vote in accordance with the disclosure

and solicitation requirements of section 1125.

Under subsection (g) a plan, if modified prior to confirmation,

shall be confirmed if it meets the requirements of section 1130.

HOUSE REPORT NO. 95-595

Subsection (a) permits the proponent of a plan to modify it at

any time before confirmation, subject, of course, to the

requirements of sections 1122 and 1123, governing classification

and contents of a plan. After the proponent of a plan files a

modification with the court, the plan as modified becomes the plan,

and is to be treated the same as an original plan.

Subsection (b) permits modification of a plan after confirmation

under certain circumstances. The modification must be proposed

before substantial consummation of the plan. The requirements of

sections 1122 and 1123 continue to apply. The plan as modified

under this subsection becomes the plan only if the court confirms

the plan as modified under section 1129 and the circumstances

warrant the modification.

Subsection (c) requires the proponent of a modification to comply

with the disclosure provisions of section 1125. Of course, if the

modification were sufficiently minor, the court might determine

that additional disclosure was not required under the

circumstances.

Subsection (d) simplifies modification procedure by deeming any

creditor or equity security holder that has already accepted or

rejected the plan to have accepted or rejected the modification,

unless, within the time fixed by the court, the creditor or equity

security holder changes this previous acceptance or rejection.

AMENDMENTS

1984 - Subsec. (a). Pub. L. 98-353, Sec. 511(a), inserted ''of a

plan'' after ''After the proponent'', and ''of such plan'' after

''modification''.

Subsec. (b). Pub. L. 98-353, Sec. 511(b), substituted

''circumstances warrant such modification and the court, after

notice and a hearing, confirms such plan as modified, under section

1129 of this title'' for ''the court, after notice and a hearing,

confirms such plan, as modified, under section 1129 of this title,

and circumstances warrant such modification''.

EFFECTIVE DATE OF 1984 AMENDMENT

Amendment by Pub. L. 98-353 effective with respect to cases filed

90 days after July 10, 1984, see section 552(a) of Pub. L. 98-353,

set out as a note under section 101 of this title.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in sections 901, 1129 of this title.

-CITE-

11 USC Sec. 1128 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER II - THE PLAN

-HEAD-

Sec. 1128. Confirmation hearing

-STATUTE-

(a) After notice, the court shall hold a hearing on confirmation

of a plan.

(b) A party in interest may object to confirmation of a plan.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2635.)

-MISC1-

HISTORICAL AND REVISION NOTES

SENATE REPORT NO. 95-989

(Section 1129 (enacted as section 1128)) Subsection (a) requires

that there be a hearing in every case on the confirmation of the

plan. Notice is required.

Subsection (b) permits any party in interest to object to the

confirmation of the plan. The Securities and Exchange Commission

and indenture trustees, as parties in interest under section 1109,

may object to confirmation of the plan.

-SECREF-

SECTION REFERRED TO IN OTHER SECTIONS

This section is referred to in section 901 of this title; title

28 section 586.

-CITE-

11 USC Sec. 1129 01/06/03

-EXPCITE-

TITLE 11 - BANKRUPTCY

CHAPTER 11 - REORGANIZATION

SUBCHAPTER II - THE PLAN

-HEAD-

Sec. 1129. Confirmation of plan

-STATUTE-

(a) The court shall confirm a plan only if all of the following

requirements are met:

(1) The plan complies with the applicable provisions of this

title.

(2) The proponent of the plan complies with the applicable

provisions of this title.

(3) The plan has been proposed in good faith and not by any

means forbidden by law.

(4) Any payment made or to be made by the proponent, by the

debtor, or by a person issuing securities or acquiring property

under the plan, for services or for costs and expenses in or in

connection with the case, or in connection with the plan and

incident to the case, has been approved by, or is subject to the

approval of, the court as reasonable.

(5)(A)(i) The proponent of the plan has disclosed the identity

and affiliations of any individual proposed to serve, after

confirmation of the plan, as a director, officer, or voting

trustee of the debtor, an affiliate of the debtor participating

in a joint plan with the debtor, or a successor to the debtor

under the plan; and

(ii) the appointment to, or continuance in, such office of such

individual, is consistent with the interests of creditors and

equity security holders and with public policy; and

(B) the proponent of the plan has disclosed the identity of any

insider that will be employed or retained by the reorganized

debtor, and the nature of any compensation for such insider.

(6) Any governmental regulatory commission with jurisdiction,

after confirmation of the plan, over the rates of the debtor has

approved any rate change provided for in the plan, or such rate

change is expressly conditioned on such approval.

(7) With respect to each impaired class of claims or interests

-

(A) each holder of a claim or interest of such class -

(i) has accepted the plan; or

(ii) will receive or retain under the plan on account of

such claim or interest property of a value, as of the

effective date of the plan, that is not less than the amount

that such holder would so receive or retain if the debtor

were liquidated under chapter 7 of this title on such date;

or

(B) if section 1111(b)(2) of this title applies to the claims

of such class, each holder of a claim of such class will

receive or retain under the plan on account of such claim

property of a value, as of the effective date of the plan, that

is not less than the value of such holder's interest in the

estate's interest in the property that secures such claims.

(8) With respect to each class of claims or interests -

(A) such class has accepted the plan; or

(B) such class is not impaired under the plan.

(9) Except to the extent that the holder of a particular claim

has agreed to a different treatment of such claim, the plan

provides that -

(A) with respect to a claim of a kind specified in section

507(a)(1) or 507(a)(2) of this title, on the effective date of

the plan, the holder of such claim will receive on account of

such claim cash equal to the allowed amount of such claim;

(B) with respect to a class of claims of a kind specified in

section 507(a)(3), 507(a)(4), 507(a)(5), 507(a)(6), or

507(a)(7) of this title, each holder of a claim of such class

will receive -

(i) if such class has accepted the plan, deferred cash

payments of a value, as of the effective date of the plan,

equal to the allowed amount of such claim; or

(ii) if such class has not accepted the plan, cash on the

effective date of the plan equal to the allowed amount of

such claim; and

(C) with respect to a claim of a kind specified in section

507(a)(8) of this title, the holder of such claim will receive

on account of such claim deferred cash payments, over a period

not exceeding six years after the date of assessment of such

claim, of a value, as of the effective date of the plan, equal

to the allowed amount of such claim.

(10) If a class of claims is impaired under the plan, at least

one class of claims that is impaired under the plan has accepted

the plan, determined without including any acceptance of the plan

by any insider.

(11) Confirmation of the plan is not likely to be followed by

the liquidation, or the need for further financial

reorganization, of the debtor or any successor to the debtor

under the plan, unless such liquidation or reorganization is

proposed in the plan.

(12) All fees payable under section 1930 of title 28, as

determined by the court at the hearing on confirmation of the

plan, have been paid or the plan provides for the payment of all

such fees on the effective date of the plan.

(13) The plan provides for the continuation after its effective

date of payment of all retiree benefits, as that term is defined

in section 1114 of this title, at the level established pursuant

to subsection (e)(1)(B) or (g) of section 1114 of this title, at

any time prior to confirmation of the plan, for the duration of

the period the debtor has obligated itself to provide such

benefits.

(b)(1) Notwithstanding section 510(a) of this title, if all of

the applicable requirements of subsection (a) of this section other

than paragraph (8) are met with respect to a plan, the court, on

request of the proponent of the plan, shall confirm the plan

notwithstanding the requirements of such paragraph if the plan does

not discriminate unfairly, and is fair and equitable, with respect

to each class of claims or interests that is impaired under, and

has not accepted, the plan.

(2) For the purpose of this subsection, the condition that a plan

be fair and equitable with respect to a class includes the

following requirements:

(A) With respect to a class of secured claims, the plan

provides -

(i)(I) that the holders of such claims retain the liens

securing such claims, whether the property subject to such

liens is retained by the debtor or transferred to another

entity, to the extent of the allowed amount of such claims; and

(II) that each holder of a claim of such class receive on

account of such claim deferred cash payments totaling at least

the allowed amount of such claim, of a value, as of the

effective date of the plan, of at least the value of such

holder's interest in the estate's interest in such property;

(ii) for the sale, subject to section 363(k) of this title,

of any property that is subject to the liens securing such

claims, free and clear of such liens, with such liens to attach

to the proceeds of such sale, and the treatment of such liens

on proceeds under clause (i) or (iii) of this subparagraph; or

(iii) for the realization by such holders of the indubitable

equivalent of such claims.

(B) With respect to a class of unsecured claims -

(i) the plan provides that each holder of a claim of such

class receive or retain on account of such claim property of a

value, as of the effective date of the plan, equal to the

allowed amount of such claim; or

(ii) the holder of any claim or interest that is junior to

the claims of such class will not receive or retain under the

plan on account of such junior claim or interest any property.

(C) With respect to a class of interests -

(i) the plan provides that each holder of an interest of such

class receive or retain on account of such interest property of

a value, as of the effective date of the plan, equal to the

greatest of the allowed amount of any fixed liquidation

preference to which such holder is entitled, any fixed

redemption price to which such holder is entitled, or the value

of such interest; or

(ii) the holder of any interest that is junior to the

interests of such class will not receive or retain under the

plan on account of such junior interest any property.

(c) Notwithstanding subsections (a) and (b) of this section and

except as provided in section 1127(b) of this title, the court may

confirm only one plan, unless the order of confirmation in the case

has been revoked under section 1144 of this title. If the

requirements of subsections (a) and (b) of this section are met

with respect to more than one plan, the court shall consider the

preferences of creditors and equity security holders in determining

which plan to confirm.

(d) Notwithstanding any other provision of this section, on

request of a party in interest that is a governmental unit, the

court may not confirm a plan if the principal purpose of the plan

is the avoidance of taxes or the avoidance of the application of

section 5 of the Securities Act of 1933. In any hearing under this

subsection, the governmental unit has the burden of proof on the

issue of avoidance.

-SOURCE-

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2635; Pub. L. 98-353, title

III, Sec. 512, July 10, 1984, 98 Stat. 386; Pub. L. 99-554, title

II, Sec. 225, 283(v), Oct. 27, 1986, 100 Stat. 3102, 3118; Pub. L.

100-334, Sec. 2(b), June 16, 1988, 102 Stat. 613; Pub. L. 103-394,

title III, Sec. 304(h)(7), title V, Sec. 501(d)(32), Oct. 22, 1994,

108 Stat. 4134, 4146.)

-MISC1-

HISTORICAL AND REVISION NOTES

LEGISLATIVE STATEMENTS

Section 1129 of the House amendment relates to confirmation of a

plan in a case under chapter 11. Section 1129(a)(3) of the House

amendment adopts the position taken in the Senate amendment and

section 1129(a)(5) takes the position adopted in the House bill.

Section 1129(a)(7) adopts the position taken in the House bill in

order to insure that the dissenting members of an accepting class

will receive at least what they would otherwise receive under the

best interest of creditors test; it also requires that even the

members of a class that has rejected the plan be protected by the

best interest of creditors test for those rare cramdown cases where

a class of creditors would receive more on liquidation than under

reorganization of the debtor. Section 1129(a)(7)(C) is discussed

in connection with section 1129(b) and section 1111(b). Section

1129(a)(8) of the House amendment adopts the provision taken in the

House bill which permits confirmation of a plan as to a particular

class without resort to the fair and equitable test if the class

has accepted a plan or is unimpaired under the plan.

Section 1129(a)(9) represents a compromise between a similar

provision contained in the House bill and the Senate amendment.

Under subparagraph (A) claims entitled to priority under section

507(a)(1) or (2) are entitled to receive cash on the effective date

of the plan equal to the amount of the claim. Under subparagraph

(B) claims entitled to priority under section 507(a)(3), (4), or

(5), are entitled to receive deferred cash payments of a present

value as of the effective date of the plan equal to the amount of

the claims if the class has accepted the plan or cash payments on

the effective date of the plan otherwise. Tax claims entitled to

priority under section 507(a)(6) of different governmental units

may not be contained in one class although all claims of one such

unit may be combined and such unit may be required to take deferred

cash payments over a period not to exceed 6 years after the date of

assessment of the tax with the present value equal to the amount of

the claim.

Section 1129(a)(10) is derived from section 1130(a)(12) of the

Senate amendment.

Section 1129(b) is new. Together with section 1111(b) and

section 1129(a)(7)(C), this section provides when a plan may be

confirmed, notwithstanding the failure of an impaired class to

accept the plan under section 1129(a)(8). Before discussing section

1129(b) an understanding of section 1111(b) is necessary. Section

1111(b)(1), the general rule that a secured claim is to be treated

as a recourse claim in chapter 11 whether or not the claim is

nonrecourse by agreement or applicable law. This preferred status

for a nonrecourse loan terminates if the property securing the loan

is sold under section 363 or is to be sold under the plan.

The preferred status also terminates if the class of which the

secured claim is a part elects application of section 1111(b)(2).

Section 1111(b)(2) provides that an allowed claim is a secured

claim to the full extent the claim is allowed rather than to the

extent of the collateral as under section 506(a). A class may elect

application of paragraph (2) only if the security is not of

inconsequential value and, if the creditor is a recourse creditor,

the collateral is not sold under section 363 or to be sold under

the plan. Sale of property under section 363 or under the plan is

excluded from treatment under section 1111(b) because of the

secured party's right to bid in the full amount of his allowed

claim at any sale of collateral under section 363(k) of the House

amendment.

As previously noted, section 1129(b) sets forth a standard by

which a plan may be confirmed notwithstanding the failure of an

impaired class to accept the plan.

Paragraph (1) makes clear that this alternative confirmation

standard, referred to as ''cram down,'' will be called into play

only on the request of the proponent of the plan. Under this

cramdown test, the court must confirm the plan if the plan does not

discriminate unfairly, and is ''fair and equitable,'' with respect

to each class of claims or interests that is impaired under, and

has not accepted, the plan. The requirement of the House bill that

a plan not ''discriminate unfairly'' with respect to a class is

included for clarity; the language in the House report interpreting

that requirement, in the context of subordinated debentures,

applies equally under the requirements of section 1129(b)(1) of the

House amendment.

Although many of the factors interpreting ''fair and equitable''

are specified in paragraph (2), others, which were explicated in

the description of section 1129(b) in the House report, were

omitted from the House amendment to avoid statutory complexity and

because they would undoubtedly be found by a court to be

fundamental to ''fair and equitable'' treatment of a dissenting

class. For example, a dissenting class should be assured that no

senior class receives more than 100 percent of the amount of its

claims. While that requirement was explicitly included in the

House bill, the deletion is intended to be one of style and not one

of substance.

Paragraph (2) provides guidelines for a court to determine

whether a plan is fair and equitable with respect to a dissenting

class. It must be emphasized that the fair and equitable

requirement applies only with respect to dissenting classes.

Therefore, unlike the fair and equitable rule contained in chapter

X (chapter 10 of former title 11) and section 77 of the Bankruptcy

Act (section 205 of former title 11) under section 1129(b)(2),

senior accepting classes are permitted to give up value to junior

classes as long as no dissenting intervening class receives less

than the amount of its claims in full. If there is no dissenting

intervening class and the only dissent is from a class junior to

the class to which value have been given up, then the plan may

still be fair and equitable with respect to the dissenting class,

as long as no class senior to the dissenting class has received

more than 100 percent of the amount of its claims.

Paragraph (2) contains three subparagraphs, each of which applies

to a particular kind of class of claims or interests that is

impaired and has not accepted the plan. Subparagraph (A) applies

when a class of secured claims is impaired and has not accepted the

plan. The provision applies whether or not section 1111(b)

applies. The plan may be crammed down notwithstanding the dissent

of a secured class only if the plan complies with clause (i), (ii),

or (iii).

Clause (i) permits cramdown if the dissenting class of secured

claims will retain its lien on the property whether the property is

retained by the debtor or transferred. It should be noted that the

lien secures the allowed secured claim held by such holder. The

meaning of ''allowed secured claim'' will vary depending on whether

section 1111(b)(2) applies to such class.

If section 1111(b)(2) applies then the ''electing'' class is

entitled to have the entire allowed amount of the debt related to

such property secured by a lien even if the value of the collateral

is less than the amount of the debt. In addition, the plan must

provide for the holder to receive, on account of the allowed

secured claims, payments, either present or deferred, of a

principal face amount equal to the amount of the debt and of a

present value equal to the value of the collateral.

For example, if a creditor loaned $15,000,000 to a debtor secured

by real property worth $18,000,000 and the value of the real

property had dropped to $12,000,000 by the date when the debtor

commenced a proceeding under chapter 11, the plan could be

confirmed notwithstanding the dissent of the creditor as long as

the lien remains on the collateral to secure a $15,000,000 debt,

the face amount of present or extended payments to be made to the

creditor under the plan is at least $15,000,000, and the present

value of the present or deferred payments is not less than

$12,000,000. The House report accompanying the House bill described

what is meant by ''present value''.

Clause (ii) is self explanatory. Clause (iii) requires the court

to confirm the plan notwithstanding the dissent of the electing

secured class if the plan provides for the realization by the

secured class of the indubitable equivalents of the secured

claims. The standard of ''indubitable equivalents'' is taken from

In re Murel Holding Corp., 75 F.2d 941 (2d Cir. 1935) (Learned

Hand, Jr.).

Abandonment of the collateral to the creditor would clearly

satisfy indubitable equivalence, as would a lien on similar

collateral. However, present cash payments less than the secured

claim would not satisfy the standard because the creditor is

deprived of an opportunity to gain from a future increase in value

of the collateral. Unsecured notes as to the secured claim or

equity securities of the debtor would not be the indubitable

equivalent. With respect to an oversecured creditor, the secured

claim will never exceed the allowed claim.

Although the same language applies, a different result pertains

with respect to a class of secured claims to which section

1111(b)(2) does not apply. This will apply to all claims secured

by a right of setoff. The court must confirm the plan

notwithstanding the dissent of such a class of secured claims if

any of three alternative requirements is met. Under clause (i) the

plan may be confirmed if the class retains a right of setoff or a

lien securing the allowed secured claims of the class and the

holders will receive payments of a present value equal to the

allowed amount of their secured claims. Contrary to electing

classes of secured creditors who retain a lien under subparagraph

(A)(i)(I) to the extent of the entire claims secured by such lien,

nonelecting creditors retain a lien on collateral only to the

extent of their allowed secured claims and not to the extent of any

deficiency, and such secured creditors must receive present or

deferred payments with a present value equal to the allowed secured

claim, which in turn is only the equivalent of the value of the

collateral under section 506(a).

Any deficiency claim of a nonelecting class of secured claims is

treated as an unsecured claim and is not provided for under

subparagraph (A). The plan may be confirmed under clause (ii) if

the plan proposes to sell the property free and clear of the

secured party's lien as long as the lien will attach to the

proceeds and will receive treatment under clause (i) or (iii).

Clause (iii) permits confirmation if the plan provides for the

realization by the dissenting nonelecting class of secured claims

of the indubitable equivalent of the secured claims of such class.

Contrary to an ''electing'' class to which section 1111(b)(2)

applies, the nonelecting class need not be protected with respect

to any future appreciation in value of the collateral since the

secured claim of such a class is never undersecured by reason of

section 506(a). Thus the lien secures only the value of interest of

such creditor in the collateral. To the extent deferred payments

exceed that amount, they represent interest. In the event of a

subsequent default, the portion of the face amount of deferred

payments representing unaccrued interest will not be secured by the

lien.

Subparagraph (B) applies to a dissenting class of unsecured

claims. The court must confirm the plan notwithstanding the

dissent of a class of impaired unsecured claims if the plan

provides for such claims to receive property with a present value

equal to the allowed amount of the claims. Unsecured claims may

receive any kind of ''property,'' which is used in its broadest

sense, as long as the present value of the property given to the

holders of unsecured claims is equal to the allowed amount of the

claims. Some kinds of property, such as securities, may require

difficult valuations by the court; in such circumstances the court

need only determine that there is a reasonable likelihood that the

property given the dissenting class of impaired unsecured claims

equals the present value of such allowed claims.

Alternatively, under clause (ii), the court must confirm the plan

if the plan provides that holders of any claims or interests junior

to the interests of the dissenting class of impaired unsecured

claims will not receive any property under the plan on account of

such junior claims or interests. As long as senior creditors have

not been paid more than in full, and classes of equal claims are

being treated so that the dissenting class of impaired unsecured

claims is not being discriminated against unfairly, the plan may be

confirmed if the impaired class of unsecured claims receives less

than 100 cents on the dollar (or nothing at all) as long as no

class junior to the dissenting class receives anything at all.

Such an impaired dissenting class may not prevent confirmation of a

plan by objection merely because a senior class has elected to give

up value to a junior class that is higher in priority than the

impaired dissenting class of unsecured claims as long as the above

safeguards are met.

Subparagraph (C) applies to a dissenting class of impaired

interests. Such interests may include the interests of general or

limited partners in a partnership, the interests of a sole

proprietor in a proprietorship, or the interest of common or

preferred stockholders in a corporation. If the holders of such

interests are entitled to a fixed liquidation preference or fixed

redemption price on account of such interests then the plan may be

confirmed notwithstanding the dissent of such class of interests as

long as it provides the holders property of a present value equal

to the greatest of the fixed redemption price, or the value of such

interests. In the event there is no fixed liquidation preference

or redemption price, then the plan may be confirmed as long as it

provides the holders of such interests property of a present value

equal to the value of such interests. If the interests are ''under

water'' then they will be valueless and the plan may be confirmed

notwithstanding the dissent of that class of interests even if the

plan provides that the holders of such interests will not receive

any property on account of such interests.

Alternatively, under clause (ii), the court must confirm the plan

notwithstanding the dissent of a class of interests if the plan

provides that holders of any interests junior to the dissenting

class of interests will not receive or retain any property on

account of such junior interests. Clearly, if there are no junior

interests junior to the class of dissenting interests, then the

condition of clause (ii) is satisfied. The safeguards that no

claim or interest receive more than 100 percent of the allowed

amount of such claim or interest and that no class be discriminated

against unfairly will insure that the plan is fair and equitable

with respect to the dissenting class of interests.

Except to the extent of the treatment of secured claims under

subparagraph (A) of this statement, the House report remains an

accurate description of confirmation of section 1129(b). Contrary

to the example contained in the Senate report, a senior class will

not be able to give up value to a junior class over the dissent of

an intervening class unless the intervening class receives the full

amount, as opposed to value, of its claims or interests.

One last point deserves explanation with respect to the

admittedly complex subject of confirmation. Section 1129(a)(7)(C)

in effect exempts secured creditors making an election under

section 1111(b)(2) from application of the best interest of

creditors test. In the absence of an election the amount such

creditors receive in a plan of liquidation would be the value of

their collateral plus any amount recovered on the deficiency in the

case of a recourse loan. However, under section 1111(b)(2), the

creditors are given an allowed secured claim to the full extent the

claim is allowed and have no unsecured deficiency. Since section

1129(b)(2)(A) makes clear that an electing class need receive

payments of a present value only equal to the value of the

collateral, it is conceivable that under such a ''cram down'' the

electing creditors would receive nothing with respect to their

deficiency. The advantage to the electing creditors is that they

have a lien securing the full amount of the allowed claim so that

if the value of the collateral increases after the case is closed,

the deferred payments will be secured claims. Thus it is both

reasonable and necessary to exempt such electing class from

application of section 1129(a)(7) as a logical consequence of

permitting election under section 1111(b)(2).

Section 1131 of the Senate amendment is deleted as unnecessary in

light of the protection given a secured creditor under section

1129(b) of the House amendment.

Payment of taxes in reorganizations: Under the provisions of

section 1141 as revised by the House amendment, an individual in

reorganization under chapter 11 will not be discharged from any

debt, including prepetition tax liabilities, which are

nondischargeable under section 523. Thus, an individual debtor

whose plan of reorganization is confirmed under chapter 11 will

remain liable for prepetition priority taxes, as defined in section

507, and for tax liabilities which receive no priority but are

nondischargeable under section 523, including no return, late

return, and fraud liabilities.

In the case of a partnership or a corporation in reorganization

under chapter 11 of title 11, section 1141(d)(1) of the House

amendment adopts a provision limiting the taxes that must be

provided for in a plan before a plan can be confirmed to taxes

which receive priority under section 507. In addition, the House

amendment makes dischargeable, in effect, tax liabilities

attributable to no return, late return, or fraud situations. The

amendment thus does not adopt a shareholder continuity test such as

was contained in section 1141(d)(2)(A)(iii) of the Senate

amendment. However, the House amendment amends section 1106,

relating to duties of the trustee, to require the trustee to

furnish, on request of a tax authority and without personal

liability, information available to the trustee concerning

potential prepetition tax liabilities for unfiled returns of the

debtor. Depending on the condition of the debtor's books and

records, this information may include schedules and files available

to the business. The House amendment also does not prohibit a tax

authority from disallowing any tax benefit claimed after the

reorganization if the item originated in a deduction, credit, or

other item improperly reported before the reorganization occurred.

It may also be appropriate for the Congress to consider in the

future imposing civil or criminal liability on corporate officers

for preparing a false or fraudulent tax return. The House

amendment also contemplates that the Internal Revenue Service will

monitor the relief from liabilities under this provision and advise

the Congress if, and to the extent, any significant tax abuse may

be resulting from the provision.

Medium of payment of taxes: Federal, State, and local taxes

incurred during the administration period of the estate, and during

the ''gap'' period in an involuntary case, are to be paid solely in

cash. Taxes relating to third priority wages are to be paid, under

the general rules, in cash on the effective date of the plan, if

the class has not accepted the plan, in an amount equal to the

allowed amount of the claim. If the class has accepted the plan,

the taxes must be paid in cash but the payments must be made at the

time the wages are paid which may be paid in deferred periodic

installments having a value, on the effective date of the plan,

equal to the allowed amount of the tax claims. Prepetition taxes

entitled to sixth priority under section 507(a)(6) also must be

paid in cash, but the plan may also permit the debtor whether a

corporation, partnership, or an individual, to pay the allowed

taxes in installments over a period not to exceed 6 years following

the date on which the tax authority assesses the tax liability,

provided the value of the deferred payments representing principal

and interest, as of the effective date of the plan, equals the

allowed amount of the tax claim.

The House amendment also modifies the provisions of both bills

dealing with the time when tax liabilities of a debtor in

reorganization may be assessed by the tax authority. The House

amendment follows the Senate amendment in deleting the limitation

in present law under which a priority tax assessed after a

reorganization plan is confirmed must be assessed within 1 year

after the date of the filing of the petition. The House amendment

specifies broadly that after the bankruptcy court determines the

liability of the estate for a prepetition tax or for an

administration period tax, the governmental unit may thereafter

assess the tax against the estate, debtor, or successor to the

debtor. The party to be assessed will, of course, depend on

whether the case is under chapter 7, 11, or 13, whether the debtor

is an individual, partnership, or a corporation, and whether the

court is determining an individual debtor's personal liability for

a nondischargeable tax. Assessment of the tax may only be made,

however, within the limits of otherwise applicable law, such as the

statute of limitations under the tax law.

Tax avoidance purpose: The House bill provided that no

reorganization plan may be approved if the principal purpose of the

plan is the avoidance of taxes. The Senate amendment modified the

rule so that the bankruptcy court need make a determination of tax

avoidance purpose only if it is asked to do so by the appropriate

tax authority. Under the Senate amendment, if the tax authority

does not request the bankruptcy court to rule on the purpose of the

plan, the tax authority would not be barred from later asserting a

tax avoidance motive with respect to allowance of a deduction or

other tax benefit claimed after the reorganization. The House

amendment adopts the substance of the Senate amendment, but does

not provide a basis by which a tax authority may collaterally

attack confirmation of a plan of reorganization other than under

section 1144.

SENATE REPORT NO. 95-989

(Section 1130 (enacted as section 1129)) Subsection (a)

enumerates the requirement governing confirmation of a plan. The

court is required to confirm a plan if and only if all of the

requirements are met.

Paragraph (1) requires that the plan comply with the applicable

provisions of chapter 11, such as sections 1122 and 1123, governing

classification and contents of plan.

Paragraph (2) requires that the proponent of the plan comply with

the applicable provisions of chapter 11, such as section 1125

regarding disclosure.

Paragraph (3) requires that the plan have been proposed in good

faith, and not by any means forbidden by law.

Paragraph (4) is derived from section 221 of chapter X (section

621 of former title 11). It requires that any payment made or

promised by the proponent, the debtor, or person issuing securities

or acquiring property under the plan, for services or for costs and

expenses in, or in connection with the case, or in connection with

the plan and incident to the case, be disclosed to the court. In

addition, any payment made before confirmation must have been

reasonable, and any payment to be fixed after confirmation must be

subject to the approval of the court as reasonable.

Paragraph (5) is also derived from section 221 of chapter X

(section 621 of former title 11). It requires the plan to disclose

the identity and affiliations of any individual proposed to serve,

after confirmation, as a director, officer, or voting trustee of

the reorganized debtor. The appointment to or continuance in one

of these offices by the individual must be consistent with the

interests of creditors and equity security holders and with public

policy. The plan must also disclose the identity of any insider

that will be employed or retained by the reorganized debtor, and

the nature of any compensation to be paid to the insider.

Paragraph (6) permits confirmation only if any regulatory

commission that will have jurisdiction over the debtor after

confirmation of the plan has approved any rate change provided for

in the plan. As an alternative, the rate change may be conditioned

on such approval.

Paragraph (7) provides that in the case of a public company the

court shall confirm the plan if it finds the plan to be fair and

equitable and the plan either (1) has been accepted by classes of

claims or interests as provided in section 1126, or (2), if not so

accepted, satisfies the requirements of subsection (b) of this

section.

Paragraphs (8) and (9) apply only in nonpublic cases. Paragraph

(8) does not apply the fair and equitable standards in two

situations. The first occurs if there is unanimous consent of all

affected holders of claims and interests. It is also sufficient

for purposes of confirmation if each holder of a claim or interest

receives or retains consideration of a value, as of the effective

date of the plan, that is not less than each would have or receive

if the debtor were liquidated under chapter 7 of this title. This

standard adapts the test of ''best interest of creditors'' as

interpreted by the courts under chapter XI (chapter 11 of former

title 11). It is given broader application in chapter 11 of this

title since a plan under chapter 11 may affect not only unsecured

claims but secured claims and stock as well.

Under paragraph (9)(A), if a class of claims or interests has not

accepted the plan, the court will confirm the plan if, for the

dissenting class and any class of equal rank, the negotiated plan

provides in value no less than under a plan that is fair and

equitable. Such review and determination are not required for any

other classes that accepted the plan.

Paragraph (9)(A) would permit a senior creditor to adjust his

participation for the benefit of stockholders. In such a case,

junior creditors, who have not been satisfied in full, may not

object if, absent the ''give-up'', they are receiving all that a

fair and equitable plan would give them. To illustrate, suppose

the estate is valued at $1.5 million and claims and stock are:

---------------------------------------------------------------------

Claims and stock Equity (millions)

(millions)

---------------------------------------------------------------------

(1) Senior debt $1.2 $1.2

(2) Junior debt .5 .3

(3) Stock ( (FOOTNOTE 1) ) -

------------------------------------------------

Total 1.7 1.5

-------------------------------

(FOOTNOTE 1) No value.

Under the plan, the senior creditor gives up $100,000 in value

for the benefit of stockholders as follows:

---------------------------------------------------------------------

Millions

---------------------------------------------------------------------

(1) Senior debt $1.1

(2) Junior debt .3

(3) Stock .1

------------------------------------------------

Total 1.5

-------------------------------

If the junior creditors dissent, the court may nevertheless

confirm the plan since under the fair and equitable standard they

had an equity of only $300,000 and the allocation to equity

security holders did not affect them.

Paragraph (9)(A) provides a special alternative with respect to

secured claims. A plan may be confirmed against a dissenting class

of secured claims if the plan or order of confirmation provides for

the realization of their security (1) by the retention of the

property subject to such security; (2) by a sale of the property

and transfer of the claim to the proceeds of sale if the secured

creditors were permitted to bid at the sale and set off against the

purchase price up to the allowed amount of their claims; or (3) by

such other method that will assure them the realization of the

indubitable equivalent of the allowed amount of their secured

claims. The indubitable equivalent language is intended to follow

the strict approach taken by Judge Learned Hand in In Re Murel

Holding Corp. 75, F.2d 941 (2nd Cir. 1935).

Paragraph (9)(B) provides that, if a class of claims or interests

is excluded from participation under the plan, the court may

nevertheless confirm the plan if it determines that no class on a

parity with or junior to such participates under the plan. In the

previous illustration, no confirmation would be permitted if the

negotiated plan would grant a participation to stockholders but

nothing for junior creditors. As noted elsewhere, by reason of

section 1126(g), an excluded class is a dissenting class under

section 1130.

Paragraph (10) states that, to be confirmed, the plan must

provide that each holder of a claim under section 507 will receive

property, as therein noted, of a value equal to the allowed amount

of the claim. There are two exceptions: (A) The holder thereof may

agree to a different settlement in part or in whole; (B) where a

debtor's business is reorganized under chapter 11, this provision

requires that taxes entitled to priority (including administrative

claims or taxes) must be paid in cash not later than 120 days after

the plan is confirmed, unless the Secretary of the Treasury agrees

to other terms or kinds of payment. The bill, as introduced,

required full payment in cash within 60 days after the plan is

confirmed.

Paragraph (11) requires a determination regarding feasibility of

the plan. It is a slight elaboration of the law that has developed

in the application of the word ''feasible'' in Chapter X of the

present Act (chapter 10 of former title 11).

Paragraph (12) requires that at least one class must accept the

plan, but any claims or interests held by insiders are not to be

included for purposes of determining the number and amount of

acceptances.

Subsection (b) provides that if, in the case of a public company,

the plan meets the requirements of subsection (a) (except

paragraphs (8) and (9) which do not apply to such a company), the

court is to confirm the plan if the plan or the order of

confirmation provides adequate protection for the realization of

the value of the claims or interests of each class not accepting

the plan. The intent is to incorporate inclusively, as a guide to

the meaning of subsection (a) the provisions of section 216(7)

((former) 11 U.S.C. 616(7)) with respect to claims and section

216(8) ((former) 11 U.S.C. 616(8)) with respect to equity security

interests.

Under subsection (c) the court may confirm only one plan, unless

the order of confirmation has been revoked under section 1144. If

the requirements for confirmation are met with respect to more than

one plan, the court shall consider the preferences of creditors and

stockholders in deciding which plan to confirm.

Subsection (d) provides that the bankruptcy court may not confirm

a plan of reorganization if its principal purpose is the avoidance

of taxes or the avoidance of section 5 of the Securities Act of

1933 (15 U.S.C. 77e). This rules modifies a similar provision of

present law (section 269 of the Bankruptcy Act (section 669 of

former title 11)).

HOUSE REPORT NO. 95-595

Paragraph (7) (of subsec. (a)) incorporates the former ''best

interest of creditors'' test found in chapter 11, but spells out

precisely what is intended. With respect to each class, the

holders of the claims or interests of that class must receive or

retain under the plan on account of those claims or interest

property of a value, as of the effective date of the plan, that is

not less than the amount that they would so receive or retain if

the debtor were liquidated under chapter 7 on the effective date of

the plan.

In order to determine the hypothetical distribution in a

liquidation, the court will have to consider the various

subordination provisions of proposed 11 U.S.C. 510, 726(a)(3),

726(a)(4), and the postponement provisions of proposed 11 U.S.C.

724. Also applicable in appropriate cases will be the rules

governing partnership distributions under proposed 11 U.S.C. 723,

and distributions of community property under proposed 11 U.S.C.

726(c). Under subparagraph (A), a particular holder is permitted to

accept less than liquidation value, but his acceptance does not

bind the class.

Property under subparagraph (B) may include securities of the

debtor. Thus, the provision will apply in cases in which the plan

is confirmed under proposed 11 U.S.C. 1129(b).

Paragraph (8) is central to the confirmation standards. It

requires that each class either have accepted the plan or be

unimpaired.

Paragraph (9) augments the requirements of paragraph (8) by

requiring payment of each priority claim in full. It permits

payments over time and payment other than in cash, but payment in

securities is not intended to be permitted without consent of the

priority claimant even if the class has consented. It also permits

a particular claimant to accept less than full payment.

Subsection (b) permits the court to confirm a plan

notwithstanding failure of compliance with paragraph (8) of

subsection (a). The plan must comply with all other paragraphs of

subsection (a), including paragraph (9). This subsection contains

the so-called cramdown. It requires simply that the plan meet

certain standards of fairness to dissenting creditors or equity

security holders. The general principle of the subsection permits

confirmation notwithstanding nonacceptance by an impaired class if

that class and all below it in priority are treated according to

the absolute priority rule. The dissenting class must be paid in

full before any junior class may share under the plan. If it is

paid in full, then junior classes may share. Treatment of classes

of secured creditors is slightly different because they do not fall

in the priority ladder, but the principle is the same.

Specifically, the court may confirm a plan over the objection of

a class of secured claims if the members of that class are

unimpaired or if they are to receive under the plan property of a

value equal to the allowed amount of their secured claims, as

determined under proposed 11 U.S.C. 506(a). The property is to be

valued as of the effective date of the plan, thus recognizing the

time-value of money. As used throughout this subsection,

''property'' includes both tangible and intangible property, such

as a security of the debtor or a successor to the debtor under a

reorganization plan.

The court may confirm over the dissent of a class of unsecured

claims, including priority claims, only if the members of the class

are unimpaired, if they will receive under the plan property of a

value equal to the allowed amount of their unsecured claims, or if

no class junior will share under the plan. That is, if the class

is impaired, then they must be paid in full or, if paid less than

in full, then no class junior may receive anything under the plan.

This codifies the absolute priority rule from the dissenting class

on down.

With respect to classes of equity, the court may confirm over a

dissent if the members of the class are unimpaired, if they receive

their liquidation preference or redemption rights, if any, or if no

class junior shares under the plan. This, too, is a codification

of the absolute priority rule with respect to equity. If a

partnership agreement subordinates limited partners to general

partners to any degree, then the general principles of paragraph

(3) of this subsection would apply to prevent the general partners

from being squeezed out.

One requirement applies generally to all classes before the court

may confirm under this subsection. No class may be paid more than

in full.

The partial codification of the absolute priority rule here is

not intended to deprive senior creditor of compensation for being

required to take securities in the reorganized debtor that are of

an equal priority with the securities offered to a junior class.

Under current law, seniors are entitled to compensation for their

loss of priority, and the increased risk put upon them by being

required to give up their priority will be reflected in a lower

value of the securities given to them than the value of comparable

securities given to juniors that have not lost a priority position.

Finally, the proponent must request use of this subsection. The

court may not confirm notwithstanding nonacceptance unless the

proponent requests and the court may then confirm only if

subsection (b) is complied with. The court may not rewrite the

plan.

A more detailed explanation follows:

The test to be applied by the court is set forth in the various

paragraphs of section 1129(b). The elements of the test are new(,)

departing from both the absolute priority rule and the best

interests of creditors tests found under the Bankruptcy Act (former

title 11). The court is not permitted to alter the terms of the

plan. It must merely decide whether the plan complies with the

requirements of section 1129(b). If so, the plan is confirmed, if

not the plan is denied confirmation.

The procedure followed is simple. The court examines each class

of claims or interests designated under section 1123(a)(1) to see

if the requirements of section 1129(b) are met. If the class is a

class of secured claims, then paragraph (1) contains two tests that

must be complied with in order for confirmation to occur. First,

under subparagraph (A), the court must be able to find that the

consideration given under the plan on account of the secured claim

does not exceed the allowed amount of the claim. This condition is

not prescribed as a matter of law under section 1129(a), because if

the secured claim is compensated in securities of the debtor, a

valuation of the business would be necessary to determine the value

of the consideration. While section 1129(a) does not contemplate a

valuation of the debtor's business, such a valuation will almost

always be required under section 1129(b) in order to determine the

value of the consideration to be distributed under the plan. Once

the valuation is performed, it becomes a simple matter to impose

the criterion that no claim will be paid more than in full.

Application of the test under subparagraph (A) also requires a

valuation of the consideration ''as of the effective date of the

plan''. This contemplates a present value analysis that will

discount value to be received in the future; of course, if the

interest rate paid is equivalent to the discount rate used, the

present value and face future value will be identical. On the

other hand, if no interest is proposed to be paid, the present

value will be less than the face future value. For example,

consider an allowed secured claim of $1,000 in a class by itself.

One plan could propose to pay $1,000 on account of this claim as of

the