Because he writes a leading treatise on bankruptcy, the world listens when Bankruptcy Judge Paul W. Bonapfel speaks.

In an opinion on August 6, Judge Bonapfel, of Atlanta, ruled that a plan with classes of creditors having no votes must be confirmed as a nonconsensual plan.

The debtor proposed a plan with three classes of creditors. Only one class voted in favor of the plan. No one in the other two classes voted. In a class by itself, the Small Business Administration did not vote, and no one among unsecured creditors voted. Quoting Bankruptcy Judge Kesha L. Tanabe, Judge Bonapfel said this “is an example of what one court has rightly characterized as the ‘apathetic creditor problem.’”

The debtor had two theories for confirming the plan as a consensual plan under Section 1191(a) despite the lack of votes in two classes.

First, the debtor wanted Judge Bonapfel to believe that a class accepts the plan when no one votes. Second, the debtor wanted Judge Bonapfel to follow two bankruptcy courts in Texas by deciding 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.

Citing the Collier treatise and In re M.V.J. Auto World Inc., 2024 WL 3153327 (Bankr. S.D. Fla. June 21, 2024), Judge Bonapfel “decline[d] to accept either of these theories and conclude[d], as most courts do, that acceptance for purposes of § 1129(a)(8) requires affirmative acceptance by the class.” To read ABI’s report on Auto World, click here.

The debtor nonetheless prevailed, because no one objected to confirmation, and Judge Bonapfel could confirm the plan under Section 1191(b) as a so-called cramdown plan.

Judge Bonapfel made another noteworthy point. Utilizing Section 1194(b), the corporate debtor proposed making plan payments itself rather than through the Subchapter V trustee.

Section 1183(c) does not specify when a trustee is terminated following confirmation of a cramdown plan under Section 1191(b). Thus, the question arose as to whether the trustee’s services could be terminated on substantial consummation.

In a consensual plan under Section 1191(a), the trustee’s services are terminated on substantial consummation. Judge Bonapfel saw “nothing in subchapter V [that] limits the court’s authority to similarly terminate the services of a trustee upon substantial consummation of a cramdown plan confirmed under § 1191(b) when a subchapter V trustee will not be making payments to creditors and will have no postconfirmation duties to perform.”

Judge Bonapfel therefore decided that the trustee’s services would terminate on substantial consummation, with the understanding the trustee would be reappointed were services required, for instance, if the debtor wanted to modify the plan or sell estate property.