Post pet disclosure and solicitation.
a. (b) Requirement of disclosure: An acceptance or rejection of a plan may not be solicited after the commencement of the case under this title from a holder of a claim or interest w/ respect to such claim or interest, unless, at the time of or b/4 such solicitation, there is transmitted to such holder the plan or summary of the plan, and a written disclosure statement approved, after notice and a hearing, by the court as containing adequate information. The court may approve a disclosure statement w/out a valuation of the debtor or an appraisal of the debtor’s assets.
b. 1125(a)(1)— adequate information in a disclosure statement
(i) need to give info sufficient to allow reasonable investor to make an informed decisions.
(ii) Disclosure just needs to be whatever is reasonably practicable considering the nature and history of the debtor. This means that there may be less of a disclosure requirement for small businesses as compared to what should be disclosed for big public held corporations.
c. Example of possible inadequate disclosure
(i) failure to disclose possible preference case against one of the creditors. Some will say they still made informed decision b/c they were satisfied w/ what they were getting. Others will say that wouldn’t have voted for the plan b/c it should have included more money to UC’s since the pot could get bigger if the pref case is won.
(ii) Debtor may misstate a fact—like say that he has more backorders than he actually has in order to make prospect look better. Note that isn’t a lie about projections b/c you know how many backorders you have.
d. 1125(e)—Safe harbor rule—No person connected w/ the solicitation of plan acceptances and rejection is liable for a violation of the securities laws, so long as that person acts in good faith and in compliance w/ Title 11. Extremely hard to win on claim that disclosure fails to comply w/ SEC unless you show things like intentional misrep.
e. Possible remedies for failing to give adequate disclosure:
(i) §1144—Revocation of an order of confirmation. These are very difficult to get. Have to show that the order was gotten by fraud. (Possible fraud—misstating backlog of orders—that is fraud on court who has to determine feasibility as well as on creditors.)
(ii) Estoppel: A party who made a misrep or failed to state something in a disclosure statement may now be estopped from asserting it. (Ex. Debtor might be estopped from pursuing pref action against creditor b/c he failed to disclose it.)
(iii) Res Judicata: A party who made a misrep or failed to state something in a disclosure statement may not be able to reopen issues that should have been addressed b/4 confirmation.
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