Delaware Bankruptcy Court Applies Section 1129(a)(10) On A Per Debtor Basis In The Tribune Chapter 11 Cases

On October 31, 2011, the Honorable Kevin J. Carey, Bankruptcy Judge of the United States Bankruptcy Court for the District of Delaware, issued an opinion denying confirmation of two competing proposed plans of reorganization in the chapter 11 cases of In re Tribune Company, et al. (the "Tribune Cases").1 In his decision, Judge Carey determined that both proposed plans of reorganization were not confirmable because, among other reasons, they did not satisfy the requirement of section 1129(a)(10) of the Bankruptcy Code, which provides that a plan of reorganization must be accepted by at least one impaired class (without counting the votes of insiders) if any classes are impaired under the plan. Judge Carey held that the section 1129(a)(10) requirement applies for each debtor included in a joint plan instead of applying only on a per plan basis. This decision has the potential to alter the dynamics of jointly-filed plans in chapter 11 cases.

Background

After the Tribune debtors‟ exclusivity period expired, two competing plans were filed, approved for distribution to creditors for voting, and submitted to the Bankruptcy Court for confirmation by the respective plan proponents. One plan was proposed by the debtors, the official committee of unsecured creditors and lenders (referred to as the "DCL Plan") and the other plan was proposed by certain noteholders (referred to as the "Noteholder Plan").

Both the DCL Plan and the Noteholder Plan included all of the debtors within their respective plans. However, neither the DCL Plan nor the Noteholder Plan received the affirmative vote of an impaired class for each debtor included in the respective joint plans. The DCL Plan proponents argued that the Noteholder Plan was not confirmable because it did not satisfy section 1129(a)(10), since only two debtors out of 111 had a class of impaired creditors that voted to accept the Noteholder Plan. The proponents of the Noteholder Plan pointed out that the DCL Plan suffered the same infirmity as it lacked an impaired accepting class of creditors for 39 of 111 debtors. The DCL Plan proponents attempted to distinguish their situation by noting that the DCL Plan was accepted by an impaired class at every debtor for which votes were cast.

Per Plan versus Per Debtor

Section 1129(a)(10) provides that one of the requirements for confirming a chapter 11 plan is that "[i]f a class of claims is impaired under the plan, at least one class of claims that is impaired under...