Judicial Review of Plan Support Agreements: A Review and Analysis
Bankruptcies today are often made up of a swarm of corporate-subsidiaries with very deep and complicated capital structures.1Ad-ditionally, the secondary market in corporate debt is as vibrant as ever. This confluence of events has led to highly contentious confirmation hearings. As such, corporations entering into Chapter 11 have been executing pre-confirmation side agreements with their creditors in increasing numbers. These agreements, or plan support agreements, are meant to lock up support for a proposed plan in advance of the plan confirmation hearing. Like any agreement, the weaker party, in this case the debtor-in-possession (hereinafter “debtor”) must bargain away some of its rights to induce the stronger party, or the creditors to sign onto the agreement.Accordingly, if these bargains are left unchecked, debtors may give away valuable protections afforded to them by the Bankruptcy Code, in exchange for creditor entrance into the plan support agreement. Plan support agreements, otherwise known as restructuring sup-port agreements or lock-up agreements (hereinafter “PSA” “lock-up agreement” or “agreement”), are pre-or post-petition contracts entered into by the debtor and certain creditors, wherein the debtor and creditors agree to support a proposed reorganization plan subject to specific terms or conditions. PSA’s are executed in order to “bind [the creditor and debtor] to a deal, even when the underlying restructuring documents remain to be drafted and executed[,]” usually to complement prepackaged bankruptcy plans. Typically, the PSA prohibits both parties from soliciting or supporting any plan not memorialized within the agreement. After executing the PSA and finalizing the terms therein, the plan proponent would file a disclosure statement with the court and solicit votes in accordance with the standard Chapter 11 plan confirmation process.
