BANKRUPTCY CORNER
BANKRUPTCY CORNER
Continuing Saga of the Nondischargeable Corporate Debt in Subchapter V
JASON S. RIGOLI
There is a substantial dispute among the courts about whether the language of § 1192 of the Bankruptcy Code 1 provides an exception to discharge under § 523( a) to corporate debtors. The Eleventh Circuit has not weighed in, but may have the opportunity in the near future, because Judge Oldshue recently issued an opinion holding that the exceptions to discharge found in § 523( a) do not apply to corporate debtors as the preamble in § 523( a) limits its applicability to“ individual debtors.” Spring v. Davidson( In re Davidson), Adv. Pro. No. 23-3005-JCO, 2025 Bankr. LEXIS 339, 2025 WL 511226( Bankr. N. D. Fla. Feb. 14, 2025) 2.
The § 523( a) Exceptions to Discharge Could Only Apply in a Case Involving a Nonconsensual Plan
For purposes of this article, assume that the § 523( a) exceptions to discharge apply to corporate debtors, that is not the end of the inquiry. Section 523( a) is made applicable to subchapter V chapter 11 cases by 11 U. S. C. § 1192( 2).
Section 1192, however, applies exclusively to and only in subchapter V case“ confirmed under § 1191( b).” 11 U. S. C. §§ 1181( c) and 1192. Section 1191( b) set forth the standards for confirming a“ nonconsensual” or“ cramdown” plan in a subchapter V bankruptcy case. 11 U. S. C. § 1191( b). A plan confirmed under § 1191( b) is considered“ nonconsensual” or“ cramdown” because one or more impaired classes vote against the plan, however, the Court determines that, notwithstanding, such votes against confirmation, the Plan meets all other requirements, does not discriminate unfairly and is“ fair and equitable” to the impaired, non-accepting classes. See 11 U. S. C. § 1191( b); Halo Hum. Res., LLC v. Am. Dental of LaGrange, LLC( In re Am. Dental of LaGrange, LLC), 2025 Bankr. LEXIS 189 at * 10-11( Bankr. M. D. Ga., Jan. 31, 2025).
When is a Plan“ Nonconsensual”
The plan confirmation process in chapter 11, generally, requires creditors and interest holders to vote on the plan, either accepting or rejecting the proposed plan and treatment of the claim or interest holder. See 11 U. S. C. §§ 1126, 1129( a)( 10), and 1191( a). A plan puts various creditors and interest holders into different classes. 11 U. S. C. § 1122. The votes of each creditor or interest holder are then counted and applied to the“ class” in which the claim or interest is to be treated. A“ class” votes to accept a plan if“ at least two-thirds in amount and more than one-half in number of the allowed claims of such class held by creditors … have accepted … such plan.” 11 U. S. C. § 1126. If all classes vote to accept the plan, then confirmation of the plan is consensual, and the subchapter V plan would be confirmed under 11 U. S. C. § 1191( a).
If, however, each of the impaired classes of creditor votes to reject the plan or no votes are cast to accept or reject the plan, then the plan is nonconsensual and must be confirmed under 11 U. S. C. § 1191( b).
Conclusion
To the extent the § 523( a) exceptions to discharge apply in a corporate subchapter V, the exceptions only apply in cases where the creditor is large enough to control the impaired class or in those cases where no impaired creditors cast a vote rendering the plan nonconsensual and confirmed under 11 U. S. C. §§ 1191( b) and 1192.
This article was submitted by Jason S. Rigoli, Esq., Furr and Cohen, P. A., 2255 Glades Road, Suite 419A, Boca Raton, FL 33431, jrigoli @ furrcohen. com
1
11 U. S. C. §§ 101, et seq.
2
Please see June 2024 Palm Beach County Bar Association Bulletin, p. 9, Is that Corporate Debt Dischargeable in Subchapter V?, for an analysis of the interplay between the language in § 523( a) and § 1192 giving rise to the split of authority.
PBCBA BAR BULLETIN 12
BANKRUPTCY LAW CLE
Demystifying Sub V: A Guide for Chapter 13 Practitioners
Thursday, April 17, 2025 12:00 P. M.- 2:00 P. M. Live via Zoom
Hon. Erik P. Kimball
U. S. Bankruptcy Court Southern District of FL
Tarek Kiem, Esq. Kiem Law, PLLC
Bradley Shraiberg, Esq. Shraiberg Paige, P. A.
Amanda Klopp, Esq. Akerman
Julianne Frank, Esq.