Putting the Cart Before the Horse: Third Circuit Affirms Rejection of Plan at Disclosure Statement Stage as Patently Unconfirmable
A common refrain from disgruntled stakeholders at a disclosure statement hearing is that the proposed plan is "patently unconfirmable on its face." Plan proponents often respond by characterizing such detractions as "disguised confirmation objections" that are appropriately addressed at a subsequent confirmation hearing. The Third Circuit's decision in In re American Capital Equipment, LLC should give pause to practitioners to not simply pay "lip service" to objections concerning plan confirmability at the disclosure statement stage as issues to be dealt with at a confirmation hearing. In American Capital, the Third Circuit held that a bankruptcy court may determine at the disclosure statement stage that a proposed plan is unconfirmable without first holding a confirmation hearing. In the wake of American Capital, plan proponents facing legitimate protestations as to a plan's scheme must take special care to develop an evidentiary record in advance of a disclosure statement hearing or risk being sent back to the "drawing board."