A creditor who votes on a plan after the voting deadline will not be counted as voting in favor of the plan, according to an opinion by Bankruptcy Judge Rachel M. Blise of Milwaukee, Wis.

In her September 25 opinion, Judge Blise joined what she called “a clear majority of courts” by holding that “an impaired class cannot accept a chapter 11 plan by silence.” In other words, a nonvoting class will not be disregarded, and not voting is not the equivalent of acceptance.

The Late Vote by a Bank

In Subchapter V of chapter 11, the individual debtor proposed a plan with impaired creditors who were both secured and unsecured. All classes of creditors accepted the plan by the requisite majorities except one class containing one impaired, secured bank creditor.

At the hearing on confirmation, the debtor urged the court to view the bank as having accepted the plan by its silence. A creditor objected.

After the hearing, the debtor’s counsel contacted the bank and prevailed on the bank to vote in favor of the plan. The vote came in five days after the first confirmation hearing and 95 days after the voting deadline. The debtor filed a motion asking the court to accept the late vote. The creditor once again objected.

The bank told the court that its “business practice” was to object to confirmation if the plan did not adequately protect the bank’s interests. Otherwise, the bank said it does not “ordinarily” submit a vote “as a matter of course.”

Even if there were a dissenting class, the court could confirm the plan under the so-called cramdown provisions of Section 1191(b). However, cramdown would require the plan to be “fair and equitable” and oblige the debtor to apply all of his “protected disposable income” to the payment of creditors’ claims for three to five years under Section 1191(c)(2).

No Extension of the Voting Deadline

After briefing, Judge Blise took under advisement the question of whether she could accept the late vote under Rule 9006(b)(1) and confirm the plan as consensual. When a deadline has passed, the rule allows the court to extend the deadline “where the failure to act was the result of excusable neglect.”

Judge Blise cited cases to show that courts “are nearly unanimous in holding that the ‘excusable neglect’ standard in Rule 9006(b)(1) should be applied when a request to extend the deadline to submit a ballot is made after expiration of the original deadline.” In the Seventh Circuit, she said that the “relevant circumstances” are (1) prejudice to the opposing party; (2) the length of the delay and potential impact on the case; (3) whether delay was in the “reasonable control” of the movant; and (4) whether the movant acted in good faith.

Judge Blise noted how the debtor had not submitted evidence of whether the debtor was already submitting all projected disposable income to plan payments. She said it would be “unfair” for the debtor “to obtain a strategical advantage by taking action to change the facts after a full evidentiary hearing, particularly without explaining how their late submission did not prejudice the other parties.” She “decline[d] to incentivize such behavior by allowing the debtors to do the work of obtaining the necessary ballots only after the Court and the other parties in interest expended the time and effort of an evidentiary hearing.”

Judge Blise held that she “would not grant a motion . . . to have [the bank’s] late ballot counted because the missed deadline did not result from carelessness or the like” and that an “extension of the deadline for [the bank] to submit a ballot is not warranted.”

Not Voting Is Not Acceptance

Judge Blise cited decisions from two courts in Houston holding that classes with no votes may be disregarded. See In re Franco’s Paving LLC, 654 B.R. 107 (Bankr. S.D. Tex. 2023), and In re Hot’z Power Wash, Inc., 655 B.R. 107 (Bankr. S.D. Tex. 2023). To read ABI’s reports on the two Texas cases, click here and here. However, she cited cases like In re M.V.J. Auto World, Inc., 661 B.R. 186 (Bankr. S.D. Fla. June 21, 2024), in saying that “a clear majority of courts have held that an impaired class cannot accept a chapter 11 plan by silence.” To read ABI’s report on M.V.J. Auto World, click here.

Judge Blise found that “the majority view is more persuasive, particularly considering the express provisions of § 1126.” She pointed out how Section 1126(c) provides that an impaired class has accepted a plan if it “has been accepted” by the requisite majorities. Similarly, Sections 1126(f) and 1126(g) presume that an unimpaired class has accepted a plan and that a class with no distributions has rejected the plan.

Whether it be in Subchapter V or “regular” chapter 11, Judge Blise said that acceptance of a plan “must be in writing and conform to the requirements of Rule 3018.” Because the bank had not accepted the plan before the voting deadline, she decided that the plan could not be confirmed as a consensual plan under Section 1191(a).