Feasibility: Confirming a Chapter 11 Plan

By Jamie Harris

In order to obtain confirmation of a Chapter 11 plan of reorganization, a plan proponent must demonstrate by a preponderance of the evidence that confirmation of the debtor’s plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan. See   11 U.S.C. § 1129(a)(11).  This requirement is commonly referred to as the “feasibility” requirement. Feasibility is fundamentally a factual question since it necessarily depends upon a determination of the “reasonable probability of payment.” In re Howard, 212 B.R. 864, 878 (Bankr. E.D. Tenn. 1997) (citing In re Foertsch, 167 B.R. 555, 566 (Bankr. D. N.D. 1994)). In order to be feasible pursuant to § 1129(a)(11), “[t]he plan does not need to guarantee success, but it must present reasonable assurance of success.” In re Made in Detroit, Inc., 299 B.R. 170, 176 (Bankr. E.D. Mich. 2003) (citing Kane v. Johns–Manville Corp., 843 F.2d 636, 649 (2nd Cir. 1988)), aff’d, 414 F.3d 576 (6th Cir. 2005). Importantly, “[t]he Code does not require the debtor to prove that success is inevitable, and a relatively low threshold of proof will satisfy § 1129(a)(11) so long as adequate evidence supports a finding of feasibility.” 7 Collier on Bankruptcy ¶ 1129.03[11] (15th ed. rev.2006) (quoting Computer Task Group, Inc. v. Brotby (In re Brotby), 303 B.R. 177, 191 (9th Cir. BAP 2003)). See also In re Brice Road Developments, L.L.C. 392 B.R. 274, 283 (6th Cir.BAP (Ohio) 2008).

In determining if a plan is feasible, the “inquiry is peculiarly fact intensive and requires a case by case analysis, using as a backdrop the relatively low parameters articulated in the statute.” In re Eddington Thread Mfg. Co., 181 B.R.826, 833 (Bankr.E.D.Pa.1995). “A ‘relativelylow threshold of proof’ will satisfy the feasibility requirement.” Mercury Capital, 354 B.R. at 9 (quoting Computer Task Grp., Inc. v. Brotby (In reBrotby), 303 B.R. 177, 191 (9th Cir. BAP 2003)).  In order to establish feasibility, a plan proponent should include financial projections that are sound and reasonable and disclose any assumptions for the financial projections. A discussion of the debtor’s historic and current financial performance in bankruptcy will also support a finding of feasibility. If there are financing contingencies, attach evidence of financing approval; however, some courts have approved confirmation of plans where the terms of required financing were not yet finalized. See, e.g., In re Global Ocean Carriers Ltd., 251 B.R. 31, 46 (Bankr. D. Del. 2000) (rejecting position that plan was not feasible because there was no final documentation of the exit financing). While feasibility is generally considered to be proven by a relatively low threshold of proof, it is one of the most common creditor objections to Chapter 11 plan confirmation.  As a result, a debtor should be prepared to present witness testimony or other evidence at a contested confirmation hearing in order to establish that its financial projections are sound and reasonable and that its plan presents a reasonable assurance of success.

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