The reorganization plan is at the center of a Chapter 11 bankruptcy case. The plan generally must be approved by a majority of the creditors. After approval, it must be confirmed by the bankruptcy court.
The confirmation hearing focuses on 13 requirements. The sixth requirement requires any part of the plan relating to a part of the business that is regulated must be approved by the regulatory agency.
Maintaining Regulatory Agency Autonomy
The purpose of agency approval is to preserve agency autonomy. In other words, a debtor's need to reorganize its debts can't take away the authority of the regulatory agencies to do their jobs. Regulatory agencies serve many purposes, such as:
- Protecting consumer rights
- Protecting the environment
- Preserving the safety of food, drugs and other products
- Preserving the safety rights of workers
Agency Approval Examples
It's helpful to look at examples of regulatory agency approval.
Utility Company Rate Changes
A utility company may propose a plan that changes its customers' service rates. For example, an electric company may propose rate increases that could help pull it out of debt. However, the failure of the company to maintain financial stability might have been due to poor management. It would be unfair to make the customers pay for the company's financial mistakes.
In such cases, the rate change has to be approved by the regulatory agency that has authority over the company. The court won't confirm the plan if this requirement isn't satisfied.
Plan Proposal Includes a Merger
A plan may propose a merger between companies that dominate a certain market. Examples of this would be a merger between computer giants like Microsoft and Dell or Yahoo and Google. Of course, monopolies could exist in any segment of the marketplace, not just in technology.
A merger creating a monopoly or some other illegal restraint on trade is subject to antitrust laws. A plan that proposes such a merger would need approval by the Federal Trade Commission before the court confirms the plan.
Other examples include manufacturing companies that produce widely used items like toys, or a company that produces or distributes food. During financial hardship, companies such as these could propose plans that reduce their safety measures to save money.
These companies are subject to regulation by the Food and Drug Administration or the Consumer Product Safety Commission. These agencies would have to approve any plan proposals that would make changes in the debtor's operation that could have a harmful impact on society.
Questions for Your Attorney
- I have a small company that is regulated; at what point do I need to seek approval by the agency?
- What if the only thing keeping my plan from being confirmed is approval by the agency?
- Is it possible to appeal an agency's disapproval of certain aspects my plan?