Changes to Confirmed “Toggle” Chapter 11 Plan Required No Additional Disclosure and Voting Where Creditors’ Rights Not Materially and Adversely Affected

By Mark A. Cody (Jones Day)

This article was originally published in Practical Guidance. The views and opinions set forth herein are the personal views or opinions of the author; they do not necessarily reflect views or opinions of the law firm with which he is associated.

Even after a bankruptcy court has confirmed a chapter 11 plan, changed circumstances prior to the plan’s implementation and “substantial consummation” might make alterations to the plan necessary. If a proposed change is significant enough, it may be deemed a plan “modification,” in which case the Bankruptcy Code may require that stakeholders be provided with additional disclosure regarding the alteration and an opportunity to vote on the plan as modified. The U.S. Bankruptcy Court for the Southern District of New York addressed the procedures governing post-confirmation modification of a chapter 11 plan in In re Celsius Network LLC, 656 B.R. 327 (Bankr. S.D.N.Y. 2023). In a case where the debtors’ “toggle” chapter 11 plan expressly contemplated two alternative transactions, but the debtors proposed certain changes prior to the plan’s implementation, the court held that, even if the alterations qualified as a plan “modification,” no additional disclosure or voting was necessary because the changes did not materially and adversely impact creditors.

Celsius Networks is an interesting case study regarding the mechanics and requirements governing post-confirmation chapter 11 plan modifications. The ruling also highlights the difficulty of comparing creditor recoveries and rights under complex chapter 11 transactions, particularly in cases involving fluctuating asset values. Another key takeaway from the decision is that the proponents of a confirmed chapter 11 plan are understandably loathe to characterize a change to the plan as a “modification” because additional disclosure and resolicitation of the plan are costly in terms of time and money, particularly in large cases involving thousands of creditors.

The full article is accessible here.