Bankruptcy Forms: Filing Bankruptcy Chapter 7 Bankruptcy Software Chapter 13

The Center For Debt Management
Center4DebtManagement.com ... Always open 24 / 7

Note: For affordable legal assistance The Center For Debt Management highly recommends Standard Legal's Do-It-Yourself Bankruptcy Forms Software Kits. For credit repair services,
the most trusted law firm in America with over 15 years of experience is Lexington Law Firm.

For more bankruptcy help and bankruptcy alternatives, go to Bankruptcy Resources



TITLE 11–BANKRUPTCY

CHAPTER 11– REORGANIZATION

Sub Chapter II – The Plan

Sec. 1125. Postpetition disclosure and solicitation

   (a) In this section--
        (1) ``adequate information'' means information of a kind, and in 
    sufficient detail, as far as is reasonably practicable in light of 
    the nature and history of the debtor and the condition of the 
    debtor's books and records, that would enable a hypothetical 
    reasonable investor typical of holders of claims or interests of the 
    relevant class to make an informed judgment about the plan, but 
    adequate information need not include such information about any 
    other possible or proposed plan; and
        (2) ``investor typical of holders of claims or interests of the 
    relevant class'' means investor having--
            (A) a claim or interest of the relevant class;
            (B) such a relationship with the debtor as the holders of 
        other claims or interests of such class generally have; and
            (C) such ability to obtain such information from sources 
        other than the disclosure required by this section as holders of 
        claims or interests in such class generally have.

    (b) An acceptance or rejection of a plan may not be solicited after 
the commencement of the case under this title from a holder of a claim 
or interest with respect to such claim or interest, unless, at the time 
of or before such solicitation, there is transmitted to such holder the 
plan or a summary of the plan, and a written disclosure statement 
approved, after notice and a hearing, by the court as containing 
adequate information. The court may approve a disclosure statement 
without a valuation of the debtor or an appraisal of the debtor's 
assets.
    (c) The same disclosure statement shall be transmitted to each 
holder of a claim or interest of a particular class, but there may be 
transmitted different disclosure statements, differing in amount, 
detail, or kind of information, as between classes.
    (d) Whether a disclosure statement required under subsection (b) of 
this section contains adequate information is not governed by any 
otherwise applicable nonbankruptcy law, rule, or regulation, but an 
agency or official whose duty is to administer or enforce such a law, 
rule, or regulation may be heard on the issue of whether a disclosure 
statement contains adequate information. Such an agency or official may 
not appeal from, or otherwise seek review of, an order approving a 
disclosure statement.
    (e) A person that solicits acceptance or rejection of a plan, in 
good faith and in compliance with the applicable provisions of this 
title, or that participates, in good faith and in compliance with the 
applicable provisions of this title, in the offer, issuance, sale, or 
purchase of a security, offered or sold under the plan, of the debtor, 
of an affiliate participating in a joint plan with the debtor, or of a 
newly organized successor to the debtor under the plan, is not liable, 
on account of such solicitation or participation, for violation of any 
applicable law, rule, or regulation governing solicitation of acceptance 
or rejection of a plan or the offer, issuance, sale, or purchase of 
securities.
    (f) Notwithstanding subsection (b), in a case in which the debtor 
has elected under section 1121(e) to be considered a small business--
        (1) the court may conditionally approve a disclosure statement 
    subject to final approval after notice and a hearing;
        (2) acceptances and rejections of a plan may be solicited based 
    on a conditionally approved disclosure statement as long as the 
    debtor provides adequate information to each holder of a claim or 
    interest that is solicited, but a conditionally approved disclosure 
    statement shall be mailed at least 10 days prior to the date of the 
    hearing on confirmation of the plan; and
        (3) a hearing on the disclosure statement may be combined with a 
    hearing on confirmation of a plan.

(Pub. L. 95-598, Nov. 6, 1978, 92 Stat. 2633; Pub. L. 98-353, title III, 
Sec. 509, July 10, 1984, 98 Stat. 385; Pub. L. 103-394, title II, 
Sec. 217(e), Oct. 22, 1994, 108 Stat. 4127.)


                      Historical and Revision Notes

                         legislative statements

    Section 1125 of the House amendment is derived from section 1125 of 
the House bill and Senate amendment except with respect to section 
1125(f) of the Senate amendment. It will not be necessary for the court 
to consider the report of the examiner prior to approval of a disclosure 
statement. The investigation of the examiner is to proceed on an 
independent basis from the procedure of the reorganization under chapter 
11. In order to ensure that the examiner's report will be expeditious 
and fair, the examiner is precluded from serving as a trustee in the 
case or from representing a trustee if a trustee is appointed, whether 
the case remains in chapter 11 or is converted to chapter 7 or 13.


                        senate report no. 95-989

    This section extends disclosure requirements in connection with 
solicitations to all cases under chapter 11. Heretofore this subject was 
dealt with by the Bankruptcy Act [former title 11] mainly in the special 
contexts of railroad reorganizations and chapter X [chapter 10 of former 
title 11] cases.
    Subsection (a) defines (1) the subject matter of disclosure as 
``adequate information'' and relates the standard of adequacy to an (2) 
``investor typical of holders or claims or interests of the relevant 
class.'' ``Investor'' is used broadly here, for it will almost always 
include a trade creditor or other creditors who originally had no 
investment intent or interest. It refers to the investment-type decision 
by those called upon to accept a plan to modify their claims or 
interests, which typically will involve acceptance of new securities or 
of a cash payment in lieu thereof.
    Both the kind and form of information are left essentially to the 
judicial discretion of the court, guided by the specification in 
subparagraph (a)(1) that it be of a kind and in sufficient detail that a 
reasonable and typical investor can make an informed judgment about the 
plan. The information required will necessarily be governed by the 
circumstances of the case.
    Reporting and audit standards devised for solvent and continuing 
businesses do not necessarily fit a debtor in reorganization. Subsection 
(a)(1) expressly incorporates consideration of the nature and history of 
the debtor and the condition of its books and records into the 
determination of what is reasonably practicable to supply. These factors 
are particularly pertinent to historical data and to discontinued 
operations of no future relevance.
    A plan is necessarily predicated on knowledge of the assets and 
liabilities being dealt with and on factually supported expectations as 
to the future course of the business sufficient to meet the feasibility 
standard in section 1130(a)(11) of this title. It may thus be necessary 
to provide estimates or judgments for that purpose. Yet it remains 
practicable to describe, in such detail as may be relevant and needed, 
the basis for the plan and the data on which supporters of the plan 
rely.
    Subsection (b) establishes the jurisdiction of the court over this 
subject by prohibiting solicitation of acceptance or rejection of a plan 
after the commencement of the case, unless the person solicited 
receives, before or at the time of the solicitation, a written 
disclosure statement approved by the court, after notice and hearing, as 
containing adequate information. As under present law, determinations of 
value, by appraisal or otherwise, are not required if not needed to 
accomplish the purpose specified in subsection (a)(1).
    Subsection (c) requires that the same disclosure statement be 
transmitted to each member of a class. It recognizes that the 
information needed for an informed judgment about the plan may differ 
among classes. A class whose rights under the plan center on a 
particular fund or asset would have no use for an extensive description 
of other matters that could not affect them.
    Subsection (d) relieves the court of the need to follow any 
otherwise applicable Federal or state law in determining the adequacy of 
the information contained in the disclosure statement submitted for its 
approval. It authorizes an agency or official, Federal or state, charged 
with administering cognate laws so preempted to advise the court on the 
adequacy of proposed disclosure statement. But they are not authorized 
to appeal the court's decision.
    Solicitations with respect to a plan do not involve just mere 
requests for opinions. Acceptance of the plan vitally affects creditors 
and shareholders, and most frequently the solicitation involves an 
offering of securities in exchange for claims or interests. The present 
bankruptcy statute [former title 11] has exempted such offerings under 
each of its chapters from the registration and disclosure requirements 
of the Securities Act of 1933 [15 U.S.C. 77a et seq.], an exemption also 
continued by section 1145(a)(2) of this title. The extension of the 
disclosure requirements to all chapter 11 cases justifies the coordinate 
extension of these exemptions. By the same token, no valid purpose is 
served not to exempt from the requirements of similar state laws in a 
matter under the exclusive jurisdiction of the Federal bankruptcy laws.
    Subsection (e) exonerates any person who, in good faith and in 
compliance with this title, solicits or participates in the offer, 
issuance, sale or purchase, under the plan, of a security from any 
liability, on account of such solicitation or participation, for 
violation of any law, rule, or regulation governing the offer, issuance, 
sale, or purchase of securities. This exoneration is coordinate with the 
exemption from Federal or State registration or licensing requirements 
provided by section 1145 of this title.
    In the nonpublic case, the court, when approving the disclosure 
statement, has before it the texts of the plan, a proposed disclosure 
document, and such other information the plan proponents and other 
interested parties may present at the hearing. In the final analysis the 
exoneration which subsection (e) grants must depend on the good faith of 
the plan proponents and of those who participate in the preparation of 
the disclosure statement and in the solicitation. Subsection (e) does 
not affect civil or criminal liability for defects and inadequacies that 
are beyond the limits of the exoneration that good faith provides.
    Section 1125 applies to public companies as well, subject to the 
qualifications of subsection (f). In case of a public company no 
solicitations of acceptance is permitted unless authorized by the court 
upon or after approval of the plan pursuant to section 1128(c). In 
addition to the documents specified in subsection (b), subsection (f) 
requires transmission of the opinion and order of the court approving 
the plan and, if filed, the advisory report of the Securities and 
Exchange Commission or a summary thereof prepared by the Commission.


                         house report no. 95-595

    This section is new. It is the heart of the consolidation of the 
various reorganization chapters found in current law. It requires 
disclosure before solicitation of acceptances of a plan or 
reorganization.
    Subsection (a) contains two definitions. First, ``adequate 
information'' is defined to mean information of a kind, and insufficient 
detail, as far as is reasonably practical in light of the nature and 
history of the debtor and the condition of the debtor's books and 
records, that would enable a hypothetical reasonable investor typical of 
holders of claims or interests of the relevant class to make an informed 
judgment about the plan. Second, ``investor typical of holders of claims 
or interests of the relevant class'' is defined to mean an investor 
having a claim or interest of the relevant class, having such a 
relationship with the debtor as the holders of other claims or interests 
of the relevant class have, and having such ability to obtain 
information from sources other than the disclosure statement as holders 
of claims or interests of the relevant class have, and having such 
ability to obtain information from sources other than the disclosure 
statement as holders of claims or interests of the relevant class have. 
That is, the hypothetical investor against which the disclosure is 
measured must not be an insider if other members of the class are not 
insiders, and so on. In other words, the adequacy of disclosure is 
measured against the typical investor, not an extraordinary one.
    The Supreme Court's rulemaking power will not extend to rulemaking 
that will prescribe what constitutes adequate information. That standard 
is a substantive standard. Precisely what constitutes adequate 
information in any particular instance will develop on a case-by-case 
basis. Courts will take a practical approach as to what is necessary 
under the circumstances of each case, such as the cost of preparation of 
the statements, the need for relative speed in solicitation and 
confirmation, and, of course, the need for investor protection. There 
will be a balancing of interests in each case. In reorganization cases, 
there is frequently great uncertainty. Therefore the need for 
flexibility is greatest.
    Subsection (b) is the operative subsection. It prohibits 
solicitation of acceptances or rejections of a plan after the 
commencement of the case unless, at the time of the solicitation or 
before, there is transmitted to the solicitee the plan or a summary of 
the plan, and a written disclosure statement approved by the court as 
containing adequate information. The subsection permits approval of the 
statement without the necessity of a valuation of the debtor or an 
appraisal of the debtor's assets. However, in some cases, a valuation or 
appraisal will be necessary to develop adequate information. The court 
will be able to determine what is necessary in light of the facts and 
circumstances of each particular case.
    Subsection (c) requires that the same disclosure statement go to all 
members of a particular class, but permits different disclosure to 
different classes.
    Subsection (d) excepts the disclosure statements from the 
requirements of the securities laws (such as section 14 of the 1934 Act 
[15 U.S.C. 78n] and section 5 of the 1933 Act [15 U.S.C. 77e]), and from 
similar State securities laws (blue sky laws, for example). The 
subsection permits an agency or official whose duty is to administer or 
enforce such laws (such as the Securities and Exchange Commission or 
State Corporation Commissioners) to appear and be heard on the issue of 
whether a disclosure statement contains adequate information, but the 
agencies and officials are not granted the right of appeal from an 
adverse determination in any capacity. They may join in an appeal by a 
true party in interest, however.
    Subsection (e) is a safe harbor provision, and is necessary to make 
the exemption provided by subsection (d) effective. Without it, a 
creditor that solicited an acceptance or rejection in reliance on the 
court's approval of a disclosure statement would be potentially liable 
under antifraud sections designed to enforce the very sections of the 
securities laws from which subsection (d) excuses compliance. The 
subsection protects only persons that solicit in good faith and in 
compliance with the applicable provisions of the reorganization chapter. 
It provides protection from legal liability as well as from equitable 
liability based on an injunctive action by the SEC or other agency or 
official.


                               Amendments

    1994--Subsec. (f). Pub. L. 103-394 added subsec. (f).
    1984--Subsec. (a)(1). Pub. L. 98-353, Sec. 509(a)(1), inserted ``, 
but adequate information need not include such information about any 
other possible or proposed plan''.
    Subsec. (a)(2)(B). Pub. L. 98-353, Sec. 509(a)(2), inserted ``the'' 
after ``with''.
    Subsec. (a)(2)(C). Pub. L. 98-353, Sec. 509(a)(3), inserted ``of'' 
after ``holders''.
    Subsec. (d). Pub. L. 98-353, Sec. 509(b), inserted ``required under 
subsection (b) of this section'' and ``, or otherwise seek review of,''.
    Subsec. (e). Pub. L. 98-353, Sec. 509(c), inserted ``acceptance or 
rejection of a plan'' after ``solicits'', and ``solicitation of 
acceptance or rejection of a plan or'' after ``governing''.


                    Effective Date of 1994 Amendment

    Amendment by Pub. L. 103-394 effective Oct. 22, 1994, and not 
applicable with respect to cases commenced under this title before Oct. 
22, 1994, see section 702 of Pub. L. 103-394, set out as a note under 
section 101 of this title.


                    Effective Date of 1984 Amendment

    Amendment by Pub. L. 98-353 effective with respect to cases filed 90 
days after July 10, 1984, see section 552(a) of Pub. L. 98-353, set out 
as a note under section 101 of this title.

                  Section Referred to in Other Sections

    This section is referred to in sections 901, 1126, 1127, 1145 of 
this title; title 28 section 586.


Back Index Next

Note: For affordable legal assistance The Center For Debt Management highly recommends Standard Legal's Do-It-Yourself Bankruptcy Forms Software Kits. For credit repair services,
the most trusted law firm in America with over 15 years of experience is Lexington Law Firm.

For more bankruptcy help and bankruptcy alternatives, go to Bankruptcy Resources

Go to Index of Related Articles and Resources!

Click Below To Check Out More Financial Resources

Return to Top

The Center For Debt Management™

Helping Consumers Save Money and Reduce Debt Is Our Only Business!™

We invite you to explore the sectors listed below. We promise that you'll find exceptional values, offers and resources in which to reduce your living expenses and to enjoy life!


Debt Management and Financial Services! The Internet's oldest and most comprehensive debt management agency! Resources for debt management, consumer credit counseling, debt consolidation, debt reduction settlements, legal aid, financial aid, loans and financing, credit repair, credit reports, insurance quotes, income sources, tax assistance, and more.

Established in 1989 and serving the online community since 1992!


This site was created and designed by Daniel A. Gelinas
Disclaimer and Privacy Policy      © Copyright  2007 "The Center For Debt Management"      Contact Us
Return to Top

Legal Resource Center: United States Code TITLE 11 Filing Bankruptcy Forms Software