11 U.S.C. § 1126 — Acceptance of Plan

Quick Answer

Section 1126 governs how Chapter 11 plans are accepted or rejected. The class is the unit of voting. A class of claims accepts the plan when holders of at least two-thirds in amount and more than one-half in number of the allowed claims of the class that actually vote vote to accept. A class of interests accepts when holders of at least two-thirds in amount of the allowed interests that actually vote vote to accept. The court may designate (exclude) votes not cast in good faith. Unimpaired classes are deemed to accept; no-distribution classes are deemed to reject.

§ 1126(a) — The Class as the Voting Unit

Section 1126(a) provides that the holder of a claim or interest allowed under § 502 may accept or reject a plan. But the practical operation of the Code is class-by-class: a plan does not accumulate individual votes for or against in a generalized poll; it accumulates within-class votes against the § 1126(c) and (d) acceptance thresholds.

The classification step under § 1122 precedes voting. Once classes are designated under § 1123(a)(1), ballots are sent to allowed claim and interest holders in each impaired class along with the court-approved disclosure statement under § 1125. Each class is then tallied independently against the relevant acceptance threshold.

§ 1126(c) — Class Acceptance for Claims

The acceptance threshold for a class of claims is the most heavily litigated arithmetic in the Code:

Three operational rules follow:

1. Two-thirds in amount. The dollar amount of accepting allowed claims (in the numerator) divided by the total dollar amount of allowed claims actually voting (in the denominator) must be at least two-thirds.
2. More than half in number. The headcount of accepting allowed claim holders (in the numerator) divided by the total headcount of holders actually voting (in the denominator) must exceed one-half.
3. Of allowed claims that actually vote. The denominator is not the total of all claims in the class. It is the total of voting claims in the class. Non-votes are excluded from both numerator and denominator. A class with one hundred holders in which only ten vote (eight to accept, two to reject) accepts the plan if the dollar arithmetic also works, even though ninety holders never expressed a view.

The two-thirds/one-half formula was inherited from earlier reorganization practice and embeds two distinct anti-control protections: large dollar holders cannot dominate over many small dollar holders (the number test), and many small dollar holders cannot dominate over a class’s economic majority (the amount test). Both must be satisfied.

§ 1126(d) — Class Acceptance for Interests

Equity classes vote under a different threshold:

Note the absence of a number test. For interest classes, only the two-thirds-in-amount threshold applies. This reflects the structural reality that interests are typically measured in shares or units, and the relevant economic metric is the proportion of equity rather than the headcount of holders.

§ 1126(e) — Bad-Faith Vote Designation

Section 1126(e) authorizes the court, on request of a party in interest and after notice and a hearing, to designate (exclude) any vote “not in good faith, or not solicited or procured in good faith or in accordance with the provisions of this title.”

Designation removes the vote from both the numerator and the denominator of the § 1126(c) or (d) calculation. The remedy is targeted: it does not invalidate the holder’s claim or interest, only the holder’s vote on the plan in question.

What Constitutes Bad Faith

The bad-faith standard under § 1126(e) is narrower than ordinary plan-confirmation good-faith analysis under § 1129(a)(3). The leading articulation is In re DBSD North America, Inc., 634 F.3d 79 (2d Cir. 2011), in which the Second Circuit affirmed designation of a competitor’s strategically purchased blocking position. The court emphasized that § 1126(e) is concerned with voting motives that are ulterior to the legitimate interests of creditors as creditors:

• Voting to obtain a competitive advantage in the holder’s own separate business, rather than to maximize recovery on the claim.
• Voting to extract a side payment, threatened lawsuit, or other consideration not available to other class members.
• Voting to block a plan in order to acquire the debtor or its assets on terms not available through the plan process.
• Voting after acquiring claims for the express purpose of obtaining blocking-position leverage.

The standard does not reach votes based on legitimate disagreement with plan economics, plan structure, or plan governance. Creditors are entitled to vote their own self-interest as creditors. Designation is an extraordinary remedy reserved for votes motivated by interests outside the creditor relationship itself.

§ 1126(f) — Deemed Acceptance by Unimpaired Classes

Section 1126(f) provides:

The deemed-acceptance rule is the structural reward for leaving a class unimpaired under § 1124. Unimpaired classes do not vote, do not receive solicitation packages with respect to voting, and are conclusively deemed to accept. This permits proponents to focus solicitation effort and disclosure adequacy on the classes that actually have voting choices to make.

An impairment dispute therefore matters in both directions. If a class is found impaired when the plan treated it as unimpaired, the plan must be re-solicited as to that class, with all the time and disclosure consequences that entails.

§ 1126(g) — Deemed Rejection by No-Distribution Classes

Section 1126(g) mirrors (f) at the opposite end of the spectrum:

A class that receives nothing under the plan is deemed to reject. The class does not vote — the rejection is automatic. The proponent must then satisfy the cramdown requirements of § 1129(b) with respect to that class, including the “fair and equitable” standard, which embeds the absolute priority rule against junior classes receiving any distribution while the deemed-rejecting class is not paid in full.

Section 1126(g) is therefore the structural reason equity classes are deemed to reject when a plan zeros them out, and why such plans must run a full cramdown gauntlet that includes the new-value, absolute-priority, and unfair-discrimination tests.

§ 1126(b) — Pre-Petition Acceptance

Section 1126(b) addresses pre-petition solicitations. A holder of a claim or interest who has accepted or rejected the plan before the commencement of the case is deemed to have accepted or rejected the plan if (i) the solicitation occurred in compliance with any applicable non-bankruptcy law, rule, or regulation governing the adequacy of disclosure, or (ii) the disclosure satisfies a standard of adequate information determined by the court if no applicable non-bankruptcy law governs. This provision dovetails with § 1125(g) to enable the prepackaged-plan architecture.

How § 1126 Interacts with § 1129 Confirmation

The voting outcomes computed under § 1126 become the inputs for two distinct confirmation tests under § 1129:

• § 1129(a)(8): Each class either accepts or is unimpaired. If satisfied, a consensual confirmation is possible without invoking cramdown.
• § 1129(a)(10): At least one impaired class (excluding insider acceptances) accepts. This is the gatekeeper for cramdown — even non-consensual plans require at least one genuinely accepting impaired class.
• § 1129(b): If § 1129(a)(8) is not met, the plan must be “fair and equitable” and must not discriminate unfairly against any dissenting impaired class.

Related Bankruptcy Code Sections

• Section 1122 — Classification of claims and interests
• Section 1123 — Plan contents
• Section 1124 — Impairment
• Section 1125 — Disclosure statement
• Section 1129 — Confirmation of plan and cramdown
• Section 1190 — Sub V plan content and acceptance