FRM Part II · FRM Exam Part II · Distress Symptoms and Remedies

A Chapter 11 plan of reorganization is proposed in which the senior unsecured class is impaired and votes to reject it. Junior creditors and equity holders would receive value under the plan. The debtor seeks confirmation over the dissent of the senior class. Which statement best describes the outcome under the Bankruptcy Code?

Confirmation over the dissent requires cramdown. At least one impaired class must accept, and the plan must be fair and equitable to the rejecting class, which generally means no junior class receives value unless the senior class is paid in full. Here juniors receive value, so confirmation is likely to fail.

1. AThe plan can be confirmed through cramdown only if at least one impaired class accepts it and it is fair and equitable to the dissenting class, which generally requires that no junior class receives value unless the senior class is paid in fullCorrect
2. BThe plan must be rejected, because any dissenting class automatically blocks confirmation
3. CThe plan can be confirmed because equity holders have approved it, regardless of treatment of the senior class
4. DThe case must be converted to Chapter 7 because a class voted against the plan