In re Pioneer Finance Corp.

United States Bankruptcy Court for the District of Nevada · 1999 · Corporations

CorporationsChapter 11Prepackaged reorganizationPlan solicitation11 U.S.C. § 1126Fed. R. Bankr. P. 3017(e)Fed. R. Bankr. P. 3018prepetition solicitation

Facts

Before defaulting on its bonds, PFC circulated a combined exchange offer and consent solicitation to registered bondholders only, not to beneficial holders. If less than all bondholders accepted the exchange, the solicitation sought consents to forbear from remedies and to consent to and support a Chapter 11 plan that would be substantially similar to the offering. Holders of about 76.4% of the outstanding bonds agreed to the consent solicitation, and after bankruptcy the debtors argued those consents were votes for their second amended plan. The debtors acknowledged that no specific plan or disclosure statement had been presented to bondholders before the petition date and that only record holders were sent the offering materials.

Issue

Whether the prepetition consents obtained through the exchange offer and consent solicitation constituted acceptances of the debtors' later-filed second amended plan under 11 U.S.C. § 1126(b). Whether a prepetition solicitation is valid for Chapter 11 confirmation purposes when it is sent only to record bondholders and there is no showing that those record holders were authorized to vote on behalf of beneficial holders.

Rule

Under § 1126(b), a prepetition acceptance is valid only when the holder of a claim or interest has accepted or rejected the actual plan being proposed. A solicitation that merely secures an agreement to support or vote for a substantially similar plan in the future is not acceptance of 'the plan.' In addition, for Chapter 11 solicitation purposes, notice must reach the beneficial holders whose claims are affected, or the proponent must show that record holders were authorized agents of those beneficial holders.

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Crescent Harbor Lodging, based in Biloxi, circulated a prepetition restructuring packet to note investors. The packet asked each investor to sign a statement promising that, if the company later filed Chapter 11, the investor would vote for any reorganization plan giving noteholders treatment substantially similar to the packet.

After filing, Crescent Harbor proposes a plan matching the packet in all material respects and argues the signed statements count as acceptances under 11 U.S.C. § 1126(b). How should the court rule?

Explanation. Section 1126(b) deems valid only a prepetition acceptance or rejection of the plan itself. Under the majority opinion, language committing a holder to support and later vote for a future plan is merely an agreement to agree, not a present acceptance of the actual Chapter 11 plan. Substantial similarity alone does not convert that promise into a valid acceptance. (Derived from In re Pioneer Finance Corp. (n.d.).)