Plan of Reorganization

A plan of reorganization is the document that sets out how a company in Chapter 11 bankruptcy will pay its creditors and continue operating. In an asbestos bankruptcy, the plan usually creates an asbestos trust, funds it, and asks the court to send all asbestos claims to that trust.

Origin

Plans of reorganization are the central feature of Chapter 11 of the federal Bankruptcy Code, adopted in 1978. Creditors vote on the plan and the bankruptcy court decides whether to confirm it. For an asbestos trust and channeling injunction under Section 524(g), at least 75 percent of voting asbestos claimants must approve the plan.

Significance in Asbestos Context

The plan is where the terms that shape asbestos claims for decades are set: how much money and stock go into the trust, which related companies and insurers are protected, what claims procedures the trust will use, and who will oversee it. Once confirmed, the plan binds present claimants and, through Section 524(g), people who are not yet sick. That is why a court-appointed representative must speak for future claimants during plan negotiations. Asbestos plans can take years to negotiate and confirm, and lawsuits against the company are on hold during that time. When the plan becomes effective, the trust begins accepting claims, often after an initial period to set up its procedures. For most claimants, the plan is history by the time they are diagnosed, but its terms explain why a particular trust pays what it does.

Example Sentence

The insulation manufacturer's plan of reorganization put most of the company's stock and its insurance rights into a new asbestos trust.

Related Terms

Chapter 11, 524(g) Trust, Channeling Injunction, Future Claimants' Representative, Third-Party Release, Trust Distribution Procedures, Prepackaged Bankruptcy

Notes

• If you received a ballot in an asbestos bankruptcy, show it to your lawyer before the voting deadline.
• A company's lawsuit pause usually lasts until its plan is confirmed and takes effect; ask your lawyer what that means for your case.