Class Action Claims and Chapter 11 Plan Confirmation Issues

Class Action Claims and Chapter 11 Plan Confirmation Issues


Class claims give rise to certain unique issues regarding the voting on and acceptance of a chapter 11 plan. In particular, because a class claim is filed by one entity on behalf of many, the court may be called on to determine whether (or to what extent) the claim should be treated as a single aggregate claim for purposes of voting and acceptance as opposed to multiple individual claims.

Bankruptcy Standards for Acceptance of a Chapter 11 Plan

In general, a class of claims accepts a plan if creditors holding at least two-thirds in amount and more than one-half in number of the allowed claims in the class vote in favor of the plan. In the case of a plan that seeks to implement a so-called section 524(g) trust for the payment of asbestos claims, the plan must be accepted by at least 75 percent of voting asbestos claimants in the applicable class. Where a class is unimpaired, of course, its vote need not be solicited, and it is deemed to accept the plan.

Class Claims: Who May Vote?

The limited case law on the voting of class claims suggests that a class representative may vote on behalf of the class, except to the extent individual class members have submitted their own ballots. In what was evidently the first case to address the issue, the court in In re Mortgage & Realty Trust was faced with the question of who should be entitled to vote on behalf of a class where certain members of a certified class who had individually filed proofs of claim in addition to the class claim received solicitation materials from the debtor and voted individually on the proposed plan of reorganization. Addressing the issue as one of first impression, the court held that the class representative could vote on behalf of all class members who did not vote in their individual capacity, but could not vote on behalf of class members who had cast votes on their own behalf. In this regard, the court's decision can be analogized to standard voting procedures that allow law firms or indenture trustees to cast "master ballots" in certain circumstances, subject to the voting rights of the individual creditors they purport to represent.

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