A bankruptcy court is within its power to determine at the disclosure statement level that a plan for a Chapter 11 bankruptcy won’t meet the standards for confirmation without holding a confirmation hearing, the U.S. Court of Appeals for the Third Circuit has ruled.
The underlying bankruptcy involved a manufacturing company facing 29,000 possible asbestos claims. In its fifth proposed plan, the company included a surcharge that would be paid by each asbestos claimant who went through its settlement process. The company would then use the surcharges to pay its creditors a plan the Third Circuit said was far too speculative because it depended on the possibility of future litigation.
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