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To Confirm or Not to Confirm? Third Circuit Rules That Bankruptcy Court May Determine at Disclosure Statement Stage That a Chapter 11 Plan Is Patently Unconfirmable

On July 25, 2012, the Court of Appeals for the Third Circuit Court in In re American Capital Equipment, LLC affirmed the bankruptcy courts decision finding (a) at the disclosure statement stage, that the debtors chapter 11 plan was patently unconfirmable and (b) converting the chapter 11 case to chapter 7. While bankruptcy courts in various jurisdictions already have widely recognized the authority to deny approval of a disclosure statement where a plan is patently unconfirmable, the Third Circuit has become the first circuit court to explicitly confirm such authority. Moreover, in its decision, the Third Circuit cautioned that courts must protect due process, including by ensuring that plan proponents have sufficient notice that confirmation issues will be determined at the disclosure statement hearing.

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