Voter's Remorse: Taking Back An Acceptance Or Rejection Of A Chapter 11 Plan

After a creditor or equity security holder casts its vote to accept or reject a chapter 11 plan, the vote can be changed or withdrawn "for cause shown" in accordance with Rule 3018(a) of the Federal Rules of Bankruptcy Procedure ("Rule 3018(a)"). However, "cause" is not defined in Rule 3018(a), and relatively few courts have addressed the meaning of the term in this context in reported decisions. A New York bankruptcy court recently examined this issue in connection with the hotly contested plan confirmation proceedings of specialty chemicals manufacturing company Momentive Performance Materials Inc. ("Momentive") and its debtor affiliates. In In re MPM Silicones, LLC, 2014 BL 258176 (Bankr. S.D.N.Y. Sept. 17, 2014), the court denied a motion filed by secured noteholders to change their votes against Momentive's chapter 11 plan. The court concluded that there was not sufficient "cause" to authorize the change in votes because it was "crystal clear that the requested vote change [was] not, in effect, a consensual settlement" and "[was] seeking to undo a choice that had originally been made" by sophisticated creditors after due deliberation.

Change or Withdrawal of Plan Acceptance or Rejection

Rule 3018(a) provides in relevant part that "[f]or cause shown, the court after notice and hearing may permit a creditor or equity security holder to change or withdraw an acceptance or rejection" of a chapter 9 plan of adjustment or a chapter 11 plan. Changing a vote is not a matter of right—court approval is required to avoid the possibility that an entity will switch its vote on the basis of consideration or promises outside a plan (which, if not disclosed, may be a criminal offense). See 9 Collier on Bankruptcy ¶ 3018.01[4] (16th ed. 2014) (hereinafter "Collier"). Prior to 1991, Rule 3018(a) provided that any motion to change or withdraw a vote must be made before the deadline for voting had expired. This requirement was removed in 1991, but the "for cause shown" standard was retained. No explanation was given for the amendment in the legislative history or the Advisory Committee Notes. However, in light of pre-amendment court rulings permitting a vote change even after expiration of the voting deadline upon a sufficient showing of cause (or, in some cases, "exceptional circumstances"), the change may have been motivated by a desire to adjust Rule 3018(a) to reflect actual practice. See MPM Silicones, 2014 BL 258176, *2 (citing cases). The term "cause" is not defined in Rule 3018(a). Certain provisions of the Bankruptcy Code contain nonexclusive examples of "cause" in other contexts (e.g., section 362(d) (cause for relief from the automatic stay), section 1104(a)(1) (cause for the appointment of a chapter 11 trustee), and section 1112(b)(4) (cause for dismissal or conversion of a chapter 11 case)), but the Bankruptcy Code provides no such guidance with respect to the meaning of the term in connection with a request to change or withdraw a vote on a chapter 9 or chapter 11 plan. Therefore, defining "cause" in this context has largely been left to the courts. However, only a handful of courts have addressed the issue in reported decisions (perhaps because creditors and equity security holders infrequently seek to change or withdraw a vote on a plan on a basis that is not fully consensual)...