Meaning
Voting process in an insolvency proceeding allows a group of creditors whose legal rights are altered by a reorganization plan to cast ballots on its approval. Use of impaired class voting ensures that those who are being asked to accept less than full payment have a collective voice in the outcome. A class is considered impaired if the plan changes its contractual and legal rights.
This mechanism stops being used if the class is being paid in full, as they are then presumed to have accepted the plan.
Groups Consent
Units of similar claims are bundled together to simplify the negotiation of a complex restructuring. During impaired class voting, the members of each group decide whether the proposed deal is better than a total liquidation. This prevents a single small creditor from blocking a plan that the majority of their peers support.
It forces a consensus among stakeholders who share the same level of priority.
Statutory Threshold
Approval requires a specific majority of both the number of creditors and the total value of the claims within the group. To pass through impaired class voting, the plan typically needs the support of more than half in number and two thirds in dollar amount of those who actually cast ballots. If these thresholds are not met, the class is deemed to have rejected the plan.
This mathematical requirement balances the power of large institutional lenders against a high volume of smaller trade creditors.
Plan Confirmation
Support from at least one impaired group is a mandatory requirement for a presiding official to even consider a non-consensual plan. Without a successful impaired class voting result from at least one segment, the restructuring fails. This protects the process from being entirely driven by the debtor.
