In addition, restructuring support agreements regularly stipulate that the agreement is not an application for approval of the plan. This typical language is that the support agreement is not a request for approval of the plan and should not be considered as such. Another typical wording of the disclaimer in support contracts provides that the votes of the holders of claims against the debtor and the interests in the debtor will not be obtained until the owners who have the right to vote on the plan have received the plan, the disclosure statement, as approved by the bankruptcy court, because they have adequate information under Article 1125 of the Bankruptcy Code. and related ballot papers and other required incentive documents. Although the wording may be selfish, the use of restructuring support agreements has been accepted, common and generally little questioned. Under Rule 9019 on bankruptcy, the court can approve compromises and settlements. The process provided for in Chapter 11 shall, as far as possible, lead the parties to an amicable settlement of disputes. Settlements are approved if they are fair and equitable and in the best interests of the debtor`s estate. This leaves the Court considerable discretion when it comes to approving proposals for regulations.
The main factors considered by courts when deciding to approve a settlement in the form of a restructuring support agreement typically include: (1) the likelihood of success in the litigation; (2) the complexity, delay and cost of the dispute; and (3) the welfare of creditors and the bankruptcy estate. In addition, with respect to settlements, courts generally comply with the judgment of a debtor, unless the settlement falls below the lowest point in the area of adequacy in terms of benefits to the estate. In in re Innkeepers USA Trust, 442 B.R. 227, 236 (Bankr. S.D.N.Y. 2010), the court considered a PSA prior to the application, which was filed with “the support of a single creditor among the critical mass of creditors necessary to support a successful restructuring in these cases.” While the court concluded that the increased standard of auditing and overall fairness may apply due to insider participation, it concluded that “debtors have not discharged their burden of taking over the PPE, either through `thorough review` or under the less stringent `commercial judgment` test.” Id. at p. 231. The court concluded that the proposed agreement had not been “bought” and that most voters had been excluded from the process. Id.
at 231-32. It was found that the debtor had not acted in good faith because, among other things, it had not considered other solutions. Id. at 233-34. When approving a restructuring aid agreement in court, the debtor will claim without exception that he has demonstrated good commercial judgment in the negotiation and conclusion of the agreement. It is important that the agreement is the result of negotiations on a half-struggle. In addition, it is often claimed that the support agreement is necessary to ensure the support of the main groups of creditors during the Chapter 11 case and/or a condition for the necessary financing of the reorganization plan. In addition, the approval case typically includes the allegation that the support agreement will help establish the direction and structure of the reorganization and allow the debtor to move forward quickly on its Chapter 11 case, avoid delays, minimize costs, eliminate potential litigation, and successfully exit Chapter 11 on a viable and restructured basis.
In some cases, approval of the support agreement also helps the debtor avoid the significant risks associated with a Chapter 11 “free fall” (where there is no clear outcome). Before their use became customary, there was some uncertainty as to whether, once the application was filed, restructuring support agreements would violate the requirement in the Insolvency Act that the solicitation of votes after the application for a Plan under Chapter 11 could only be made after a court-approved disclosure statement containing reasonable information had been approved and released. Section 1125(b) of the Bankruptcy Act states: “Acceptance or rejection of a plan may not be sought by the holder of a claim or interest in respect of such claim or interest after commencement of proceedings under this Title, unless, at the time or before such application, the plan or a summary of the plan is not provided to the holder. and a written statement approved by the court as reasonably informative after notice and hearing. However, courts have generally stated that the term “claim” must be interpreted restrictively so that the debtor`s negotiations with creditors are not cooled down after the filing of the claim. Essentially, courts usually find that the way to effectively advance Chapter 11 cases is to encourage post-petition negotiations, even in the absence of a disclosure statement. In summary, public service announcements can be very useful for a debtor to organize its components in a way that supports a restructuring plan and reduces dissent in a bankruptcy case. It is clear from these cases that the courts will approve PPE if it is the product of bona fide reorganization efforts, if it is not intended to exclude alternatives, and if it is consistent with the bankruptcy code guidelines that maximize value. Elements such as a robust marketing process, a trustee and the support of the debtor`s major creditors are clearly important. Public service announcements are a useful tool to bring security and order to the process, but they are still subject to the substantive requirements of the Bankruptcy Code and the proper exercise of a debtor`s fiduciary duties.
Finally, the debtor`s obligations under a restructuring support contract should be subject to a `trustee` who allows him to terminate the contract in the appropriate exercise of his fiduciary duties. When concluding the support agreement, the debtor should consider that the restructuring provided for in the agreement is the best alternative available, taking into account the facts and circumstances that existed at the time ….