When no one in a class of creditors has voted for or against a Subchapter V plan, former Bankruptcy Judge David R. Jones of Houston holds that the class “will not be considered for purposes of 11 U.S.C. § 1129(a)(8),” which requires that every class of creditors under a plan must be unimpaired or must have accepted the plan, otherwise the so-called cramdown requirements are invoked.
The Subchapter V debtor’s plan had six classes. Three classes voted to accept the plan, but there were no votes for or against the plan by creditors in the other three classes.
The classes with no votes covered a secured creditor, a creditor with a priority claim, and unsecured creditors.
As Judge Jones explained in his October 4 opinion, the U.S. Trustee argued that the “plan could not be confirmed under 11 U.S.C. § 1191(a) due to the failure of all classes to affirmatively accept the plan under 11 U.S.C. § 1129(a)(8) as required by 11 U.S.C. § 1191(a).”
As authority for the objection, the U.S. Trustee cited In re Bressler, No. 20-31024, 2021 WL 126184 (Bankr. S.D. Tex. Jan. 13, 2021), a decision by Bankruptcy Judge Eduardo V. Rodriguez, also of the Southern District of Texas.
Judge Jones marched through the requisites for confirmation of a Subchapter V plan contained in Section 1191(a), which requires the satisfaction of the requirements in Section 1129(a) other than subsection (15). Evidently, all of the confirmation requirements were met aside from subsection (8), which requires that every class must accept the plan or be unimpaired.
Because no one voted in the three classes, Judge Jones said that the mathematical “calculation required by § 1126(c) cannot be performed.” He found that
attempting to do what the laws of mathematics prohibit is an absurd proposition and could not have been intended when Congress enacted the current version of § 1126. By implementing a denominator that includes only votes actually cast in § 1126, it logically follows that Congress presumed that at least one vote was cast.
To buttress the idea that a vote must be cast, Judge Jones quoted the legislative history accompanying Section 1126, which said that the “amount and number are computed on the basis of claims actually voted for or against the plan, not as under Chapter X [of the former Bankruptcy Act] on the basis of the allowed claims in the class.”
In an “unusual case” not contemplated by the statute, Judge Jones cited a Fifth Circuit decision from 1980 saying that the court should interpret the statute in line with “congressional intent” and “the statute’s design.” Truvillion v. King’s Daughters Hosp., 614 F.2d 520, 527 (5th Cir. 1980).
Judge Jones cited the Tenth Circuit for being the only circuit to address the question. In re Ruti-Sweetwater, Inc., 836 F.2d 1263 (10th Cir. 1988). He paraphrased the Denver-based appeals court for holding “that by failing to cast a ballot, the non-voting creditors had consented to the debtor’s plan and that their inaction amounted to a deemed acceptance. Id. at 1267–68.”
Judge Jones cited one bankruptcy court in Texas for having followed Ruti-Sweetwater in 2009 and another Texas court for having rejected Ruti-Sweetwater, also in 2009.
For his part, Judge Jones found the “policy underlying Ruti-Sweetwater” to be “compelling.” He referred to Subchapter V as being designed “to encourage consensual plans.” From a “practical perspective,” he said that “a creditor that agrees to a debtor’s plan may express its consent by affirmatively voting for a plan or by simply choosing not to file an objection.”
Judge Jones overruled the U.S. Trustee’s objection and confirmed the plan. He held that a class with no votes “should not be counted for purposes of § 1129(a)(8).” In his view, “Congress presumed the existence of at least one vote in each class [in] making the change to § 1126 when enacting the Bankruptcy Code.”
When no one in a class of creditors has voted for or against a Subchapter V plan, former Bankruptcy Judge David R. Jones of Houston holds that the class “will not be considered for purposes of 11 U.S.C. § 1129(a)(8),” which requires that every class of creditors under a plan must be unimpaired or must have accepted the plan, otherwise the so-called cramdown requirements are invoked.
The Subchapter V debtor’s plan had six classes. Three classes voted to accept the plan, but there were no votes for or against the plan by creditors in the other three classes.
The classes with no votes covered a secured creditor, a creditor with a priority claim, and unsecured creditors.
As Judge Jones explained in his October 4 opinion, the U.S. Trustee argued that the “plan could not be confirmed under 11 U.S.C. § 1191(a) due to the failure of all classes to affirmatively accept the plan under 11 U.S.C. § 1129(a)(8) as required by 11 U.S.C. § 1191(a).”