Solicitation and disclosure statement in a Chapter 11 case

Post-petition solicitation for acceptances or rejections of a bankruptcy plan may be conducted only at or after the time that the bankruptcy plan (or a summary of it) and a written court-approved disclosure statement have been sent to the lawyers for the holders of the claims or interests whose acceptances or rejections arc sought. If a lawyer raises  an objection to a proposed disclosure Statement, the court conducts a hearing to determine whether it contains adequate information;

a. Adequate information: Since the purpose of the disclosure statement is to provide information to creditors and equity security holders that is adequate to evaluate the bankruptcy case, the Code requires that the disclosure statement contain sufficient information, under the circumstances, to enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class, or their lawyers, to make an informed decision to accept or reject the bankruptcy. The most important factors generally considered in approving or disapproving the adequacy of a disclosure statement are derived from several bankruptcy court opinions, and, while they may vary from case to case, these factors have been consolidated into one list by the courts:

(1) The events lending to the filing of the bankruptcy petition;
(2) A description of the available assets and their value:
(3) The anticipated future of the company,
(4) The source of the information stated in the disclosure statement;
(5) A disclaimer,
(6) The present condition of the debtor while in Chapter 11;
(7) The scheduled claims;
(8) The estimated return to creditors under a Chapter 7 liquidation;
(9) The accounting method used by the lawyers to produce financial information and the name of the accountants responsible for such information;
(10) The future management of the bankruptcy debtor;
(11) The Chapter 11 bankruptcy plan or a summary thereof;
(12) The estimated administrative expenses, including attorneys' and accountants' fees;
(13)The collectibility of accounts receivable;
(14) Financial information, data, valuations, or projections relevant to the decision by creditors lawyers to accept or reject the Chapter 11 bankruptcy;
(15) Information relevant to the risks posed to creditors under the plan;
(16) The actual or projected realizable value from recovery of preferential or otherwise voidable transfers;
(17) Litigation likely to arise by lawyers in a non-bankruptcy context;
(18) Tax attributes of the bankruptcy debtor; and
(19) The relationship of the bankruptcy debtor with affiliates.

b. Distribution of disclosure statement: Since the information needed by separate classes of claims or interests may vary in kind and detail, different disclosure statements may be sent to lawyers for the different classes. However, the lawyers for the holders of the claims or interests of any particular class must receive the identical disclosure statement.

c. Non-bankruptcy securities laws, rules, and regulations: The adequacy of the information contained in a post-petition disclosure statement is determined without regard to any non-bankruptcy securities law, rule, or regulation that otherwise would apply, although lawyers for the Securities and Exchange Commission may appear and be heard on the issue of the adequacy of the disclosure statement. Also, Chapter 11 includes a safe harbor provision, which insulates from liability for violation of any applicable securities law, rule, or regulation, a person who in good faith and in compliance with the provisions of the Bankruptcy Code solicits acceptances or rejections of a bankruptcy, or participates in the offer, issuance, purchase, or sale of a security under a bankruptcy plan.

d. Compare—pre-petition solicitation: Acceptances or rejections of a plan may be solicited by lawyers for the bankruptcy debtor, before the filing of a Chapter 11 bankruptcy petition only if the solicitation meets the disclosure requirements of any applicable securities or other non-bankruptcy law or regulation, or in the absence of any such law or regulation, is preceded by the disclosure of adequate information, as defined in Bankruptcy Code section 1125(a). Adherence to this rule could be of great significance when an attempted extra-judicial "workout" fails, and a Chapter 11 petition subsequently is filed