11 U.S.C. § 1123 — Contents of Chapter 11 Plan

Quick Answer

Section 1123(a) lists eight categories of provisions that every Chapter 11 plan must contain — class designation, treatment of impaired and unimpaired classes, equal treatment within classes, means of execution, charter amendments where applicable, restrictions on voting securities, officer-and-director provisions, and required tax disclosures. Section 1123(b) lists permissive provisions a plan may include. Section 1123(d) provides that the amount necessary to cure a default is determined in accordance with the underlying agreement and applicable non-bankruptcy law.

The Eight Mandatory Provisions of § 1123(a)

Section 1123(a) opens with: “Notwithstanding any otherwise applicable nonbankruptcy law, a plan shall —.” The use of shall across all eight subparts means the requirements are mandatory; a plan that omits any of them is not confirmable.

§ 1123(a)(1) — Designation of Classes of Claims and Interests

The plan must designate, subject to § 1122, classes of claims (other than priority claims of the kinds specified in § 507(a)(2), (a)(3), and (a)(8)) and classes of interests. Administrative expenses, priority tax claims, and certain employee priorities are paid in full under § 1129(a)(9) and are not separately classified for voting purposes.

Classification matters because voting under § 1126, acceptance and impairment analysis under § 1129(a)(8), and cramdown analysis under § 1129(b) all operate class-by-class.

§ 1123(a)(2) — Specify Unimpaired Classes

The plan must specify any class of claims or interests that is not impaired. Unimpaired classes are deemed to accept the plan under § 1126(f), do not vote, and are paid the legal rights they enjoyed before the case.

§ 1123(a)(3) — Specify Treatment of Impaired Classes

The plan must specify the treatment of any class of claims or interests that is impaired. Impairment is defined in § 1124: a class is unimpaired only if the plan leaves unaltered the legal, equitable, and contractual rights of the holders, or cures defaults and reinstates the original maturity.

§ 1123(a)(4) — Equal Treatment Within Classes

The plan must provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to less favorable treatment. This is the principle of intra-class equality, and it is among the most rigorously enforced provisions of § 1123.

§ 1123(a)(5) — Means of Execution

The plan must provide adequate means for the plan’s implementation. The statute provides a non-exhaustive list including retention of estate property; transfer of property; merger or consolidation; sale of property; satisfaction or modification of liens; cancellation or modification of any indenture; curing or waiving of any default; extension of maturity dates or change of interest rates; amendment of the debtor’s charter; and issuance of securities.

Means-of-execution drafting is where deal structure becomes plan structure. New-money investments, exit financing facilities, debt-for-equity swaps, rights offerings, and reverse mergers are all implemented through § 1123(a)(5) mechanics.

§ 1123(a)(6) — Restrictions on Non-Voting Equity

The plan must provide for the inclusion in the charter of the debtor or any reorganized affiliate of a provision prohibiting the issuance of non-voting equity securities, and provide for an appropriate distribution of voting power among classes of equity securities. This prohibition on non-voting equity is an old anti-abuse rule preventing post-confirmation corporate structures designed to disenfranchise certain holders.

§ 1123(a)(7) — Officer and Director Provisions

The plan must contain only provisions for the selection of officers and directors of the reorganized debtor that are consistent with the interests of creditors and equity security holders and with public policy. This requirement is interpreted to require disclosure of post-confirmation governance arrangements (identity of directors and officers, compensation terms, related-party arrangements) in the plan and disclosure statement.

§ 1123(a)(8) — Individual Debtor Future Earnings

For individual debtors, the plan must provide for the payment to creditors under the plan of all or such portion of earnings from personal services performed by the debtor after the commencement of the case or other future income of the debtor as is necessary for the execution of the plan. This provision parallels the Chapter 13 commitment of disposable income to plan payments.

Permissive Provisions Under § 1123(b)

Section 1123(b) lists provisions a plan may contain. These are the menu of available structural tools that turn a generic statutory framework into a tailored reorganization:

• § 1123(b)(1): Impair or leave unimpaired any class of claims or interests (the basic impairment choice).
• § 1123(b)(2): Provide for the assumption, rejection, or assignment of executory contracts or unexpired leases not previously rejected under § 365.
• § 1123(b)(3): Provide for the settlement or adjustment of any claim or interest belonging to the debtor or the estate, or the retention and enforcement by the debtor, by the trustee, or by a representative of the estate of such claim or interest. This is the textual home for litigation-trust structures and reserved-cause-of-action provisions.
• § 1123(b)(4): Provide for the sale of all or substantially all of the property of the estate and the distribution of the proceeds among holders of claims or interests (the “plan of liquidation” mode).
• § 1123(b)(5): Modify the rights of holders of secured claims, other than a claim secured only by a security interest in real property that is the debtor’s principal residence, or of unsecured claims. (The anti-modification carve-out for principal-residence mortgages applies only in Chapter 13 by virtue of § 1322(b)(2); § 1123(b)(5) actually permits residence modifications in some Chapter 11 cases, but the area is subject to substantial cross-doctrinal complexity.)
• § 1123(b)(6): Include any other appropriate provision not inconsistent with the applicable provisions of this title. This catch-all is the textual basis for many of the most heavily negotiated plan elements, including third-party releases, exculpation clauses, channeling injunctions, and gatekeeping provisions.

§ 1123(d) — Cure of Defaults

Section 1123(d), added by the BAPCPA amendments in 2005, addresses how cure amounts are calculated when a plan reinstates a contract or lease that was in default before the petition was filed.

The provision was enacted in part to overrule a line of cases that had limited cure amounts to a federal-law construct (such as the federal judgment rate of interest) when the underlying contract specified a higher default rate. Under § 1123(d), the contract’s own default-interest, late-charge, and attorney’s-fee provisions govern the cure calculation, subject to any preemptive Bankruptcy Code provision or applicable usury law.

The practical effect: a debtor proposing to reinstate a defaulted loan under § 1124(2) must pay the actual amount the contract requires — including default interest at the contract rate, late charges, and reasonable attorneys’ fees if the contract so provides — not a discounted federal-law alternative.

How § 1123 Interacts with § 1129 Confirmation

Section 1123 prescribes plan contents; § 1129 prescribes confirmation requirements. The two are tightly coupled:

• A plan that lacks any § 1123(a) mandatory provision violates § 1129(a)(1) (compliance with applicable provisions of the title).
• A plan that classifies similarly situated claims separately without statutory justification can violate both § 1122 and § 1129(a)(1).
• Unequal treatment within a class violates § 1123(a)(4) and supplies an independent ground for denial under § 1129(a)(1).
• Means of execution that are not feasible violate § 1129(a)(11) (feasibility).
• § 1123(b)(3) settlements and litigation-trust structures must satisfy the Rule 9019 reasonableness standard and the § 1129(a)(7) best-interests test.

Related Bankruptcy Code Sections

• Section 1122 — Classification of claims and interests
• Section 1124 — Impairment of claims and interests
• Section 1125 — Disclosure statement
• Section 1126 — Acceptance of plan
• Section 1129 — Confirmation of plan
• Section 365 — Executory contracts and lease cures (interfaces with § 1123(b)(2))