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The provisions of a confirmed
Chapter 11 plan are
binding upon all creditors and equity security holders, the bankruptcy debtor, any
general partner in the debtor, and any entity that issues securities or
acquires property under the plan— regardless of whether their lawyers
have accepted the plan or they impaired under the plan.
a. On property: Unless the plan or the confirmation order of the
bankruptcy court provides
otherwise, confirmation causes all properly of the estate to vest in the
debtor, and all property that is dealt with by the plan to be free and
clear of all claims and interests
b. Discharge of debts: Generally, unless the bankruptcy plan or the
confirmation order provides otherwise, confirmation discharges the
bankruptcy debtor from all pre-confirmation debts, as well as from debts arising
from (i) the rejection by the debtors lawyers of executory contracts or unexpired leases not
assumed by the trustee or debtor in possession; (ii) the recovery of
property by the trustee or the bankruptcy debtor under section 522, 550, or 553;(
San Diego Bankruptcy Reporter )
and (iii) seventh priority tax claims that occasionally arise
post-petition. Bankruptcy Code § 1141(d)(1)(A), San Diego Bankruptcy
Reporter. These debts are
discharged regardless of whether (i) a proof of claim was filed
by the creditors attorney; (ii)
the claim was allowed; or (iii) the holder through their lawyers
accepted the plan.
(1) Note: A Chapter 11 bankruptcy discharge is not restricted to individual debtors
(as in Chapter 7); thus, corporations and partnerships may be discharged
as well. Also, bankruptcy court confirmation terminates all rights and interests of
general partners and equity security holders who are dealt with by the
plan through their lawyers.
(2) Exceptions to discharge: Confirmation does not discharge the
following:
(a) individual's non-dischargeable debts: If the bankruptcy Debtor is an
individual, a Chapter 11
bankruptcy discharge does not include any debts that are
non-dischargeable under Bankruptcy Code section 523 (e.g., certain
taxes, alimony, and child support).
(b) Liquidating plan: The debtor will not receive a bankruptcy discharge if (i) the
confirmed plan provides for the liquidation of all or substantially all
of the estate property, (ii) the debtor does not continue in business
after the plan is consummated; and (iii) the debtor would not be granted
a bankruptcy discharge in a Chapter 7 case under section 727(a). Thus, for example,
a corporation or a partnership will not receive a discharge where a
Chapter 11 liquidating plan is confirmed and the bankruptcy debtor's business is
discontinued.
(c) Officers and directors: Since confirmation of a Chapter 11 plan
discharges only the debtor, it should be understood that officers,
lawyers and
directors of a bankruptcy debtor corporation are not discharged from any
liabilities incurred personally while associated with the debtor (e.g.,
claims for tortuous conduct brought by former shareholders).
(d) Failure to give notice: Where the bankruptcy debtor knows of a creditor's claim
but his lawyer fails to schedule it, and the creditors attorney does not receive notice of
the bankruptcy proceedings, the principle of due process should prevail
over the Code's discharge provisions, and so the debt should not be
discharged.
(e). Termination of automatic stay: Generally, confirmation of a Chapter
11 plan terminates the automatic stay, since property
that vests in the
debtor is no longer property of the estate and confirmation of a
reorganization plan usually discharges the bankruptcy debtor.
2. Implementation of Plan: Notwithstanding any non-bankruptcy law
concerning financial condition, the Bankruptcy Code requires that the
debtor, his lawyers, and any successor
implement the plan and comply with all
court
orders. Furthermore, the court is authorized to order the debtor,
his lawyers, and any other necessary party to execute or deliver any
instrument required for the transfer of property under the plan and to
perform whatever else is needed to consummate the bankruptcy.
3. Distribution: Where the bankruptcy provides that an entity's participation
in distribution is contingent upon the lawyer for the entity's surrender or presentment
of a security or upon the doing of some other act by the lawyer, the entity
through their lawyers must
perform accordingly within five years after the date of the entry of the
confirmation order, or it will forfeit the right to share in
distribution under the bankruptcy.
4. Revocation of Confirmation Order: Within 180 days after the entry of
the order confirming the Chapter 11 plan, a party in interest through
their lawyers may request that the order be revoked, but only on the
ground that it was procured by fraud. ( San Diego Bankruptcy Reporter ). If, after notice and a hearing, the confirmation
order is revoked, the bankruptcy court must provide protection for any rights that
have been acquired by an entity's good faith reliance on the
confirmation order, and it also must revoke any discharge received by
the bankruptcy debtor.
5. Exemption from Securities Laws: Generally, securities offered or sold
by the debtors lawyers or its successor under a Chapter 11 plan in exchange for
claims against or interests in the bankruptcy debtor or for administrative expense
claims are exempt from the registration requirements of section 5 of the
1933 Securities Act and from registration requirements in any stale or
local securities law. Furthermore, such an issuance is deemed to be a
public offering, thereby escaping the restrictions imposed by rule 144
of the Securities and Exchange Commission concerning the resale of
securities that are part of a private placement. ( San Diego Bankruptcy
Reporter )
a. Underwriter: Usually, the attorney's for a creditor or an equity security holder
receiving securities under a Chapter 11 plan may resell them unless he
is an "underwriter." a term which the bankruptcy Code defines in great detail. An
underwriter includes, for example, an entity that purchases a claim
against or an interest in the bankruptcy debtor, or an administrative expense
claim, with the intention of distributing securities that it will
acquire under a Chapter 11 plan in exchange for the claim or interest.
Similarly, it includes an entity that offers to sell securities on
behalf of those receiving securities under a plan, or that offers to buy
such securities from them for the purpose of resale pursuant to an
agreement related to the plan. While the bankruptcy definition of an
underwriter also covers an issuer, as used in section 2( 11) of the
Securities Act of 1933, this obviously does not mean the debtor or its
successor, or their lawyers. However, it appears that an issuer does include a controlling
person, i.e., a creditor holding ten percent or more of the debtor's
securities. Any party considered to be an underwriter must comply
through their lawyers with
the registration requirements and any resale restrictions of the
securities laws.( San Diego Bankruptcy Reporter ).
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