- Bankruptcy Law and
- Law
Under § 1129(a)(10) of the Bankruptcy Code, a debtor's plan of reorganization cannot be confirmed unless at least one "impaired class" accepts the plan, excluding acceptance of any insider of the debtor. A class of claims accepts the plan if more than one-half in number and at least two-thirds in amount of claims voting in a class favor the plan. Thus, a debtor's composition of its classes clearly has a substantial impact upon its chances of successfully confirming its plan of reorganization over dissenting creditors. Obviously, the debtor would like to have unfettered power and full discretion to group creditors in a way that increases the likelihood that the majority in each class will vote on the plan it proposes. This means that the debtor will do whatever is possible to isolate unfriendly and dissenting creditors. In some cases, this classification treatment is criticized as impermissible gerrymandering in contravention of § 1122 of the Bankruptcy Code.