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In bankruptcy, a debtor-in-possession’s chief goal is to get its plan of reorganization confirmed by the bankruptcy court. [1] Among other things, the Bankruptcy Code requires that at least one class of impaired creditors vote to accept the plan — i.e., that at least two-thirds in amount and one-half in number of the allowed claims in such class accept the plan.
Seeking relief under the Bankruptcy Code is a common method of restructuring a business pushed into insolvency by tort claims. Under current law, filing a petition under chapter 11 of the Bankruptcy Code allows a business to stay all litigation against it and propose a plan of reorganization that channels tort claims to a settlement trust for valuation and payment. Many plans provide for the funding of the settlement trust through the proceeds of a debtor’s insurance policies and contributions from the debtor and third parties.
Since going effective on Feb. 19, 2020, much has been written regarding the restructuring benefits of a chapter 11, subchapter V case. Prior to its implementation, many small businesses were, from a practical standpoint, unable to benefit from chapter 11 due to the expense of filing and prosecuting a traditional chapter 11 case. The introduction of subchapter V has shifted that, thus giving smaller businesses a streamlined process to recognize the benefits of a chapter 11 restructuring.
