STUDENT ID No. 3143541 MARIAN IVY F.

REYES-FAJARDO
BUSINESS BANKRUPTCY IN THE UNITED STATES: PAPER Nos. 5 and 6

1. Did the simulation give you any insight into the structure or interrelationship of the provisions of
Chapter11?  If so, explain and describe.

Yes. I represented the tort claimants in the simulation. I was an unsecured debtor and therefore I did
not enjoy priority in payment as compared to the secured debtors and those enjoying administrative
priority like the trade creditors (§1129(a)(9)(A)). Without a security, I did not enjoy Chapter 11
provisions that we studied on relief from stay (§362(d)), adequate protection (§361) and credit bid
(§363(k)). I was also in no position to offer an asset sale (§363(b)).

The structure of Chapter 11 is such that the provisions are interrelated that my claim will not be
satisfied under Chapter 11 without first considering the satisfaction of the requirements of the other
secured creditors (consent by class; § 1129(a)(8)); and if so satisfied, that the reorganization plan would
merit confirmation because it passes the best interest test (§1129(a)(7)); and feasibility test (§1129(a)
(11)). At cram down, the plan also has to be “fair and equitable” in that, I will receive/retain property of
the value of the allowable interest or holders of claims or interests that are junior to the claims of my class
(in this case, equity interest holders) will receive no payout (§1129(b)(2)).

The simulation made me realize the preparation that is required to protect the interest of my client
tort claimants. I was going into the bankruptcy with very minimal bargaining power. My claim (in the
range of $1,500,000.00 to $3,000,000.00), though allowed at $2,000,000.00, was just one of the three
unsecured claims, the other being ZapBank, which had an unsecured claim in the range of $5,000,0000 to
$6,500,000.00 and the trade creditors in the amount of $5,000,0000.00. If both ZapBank and trade
creditors agree to the Plan, their consent would already meet the vote requirement of 2/3 in amount and
more than ½ of the number of claims (§1129(a)(8) in relation to §1126(c), (d)).

Coming in as a contingent and disputed claim, I had a real fear that the debtor will just ignore my
claim and/or agree only to a minimal valuation of the same. My burden was to prove that I was entitled
to the full amount of my claim, which would have required me to present evidence of the same, of which
I did have a full grasp of. I had apprehensions that the debtor would also classify my claim as a different
class from the other unsecured creditors, which, if affirmed by the court, would have given the debtor the
right to give the trade creditors a different treatment or to receive less( §1123(a)(4)). It was therefore
imperative for me to get the debtor to agree to an acceptable valuation, which we eventually arrived at a
$2,000,000.00 amount. I was well aware that the result of the confirmation of a plan was a discharge
(§524(a), (e)), and that the only chance of the tort claimants being paid was for our claim to be allowed. I
also knew that in a liquidation scenario, the tort claimants would need to file a case to prove their claim,
expend litigation expenses only to be paid a measly liquidation value or dispense with litigation and still
be limited to the liquidation value. It was clear that the tort claimants would be better off in a
reorganization plan.

The debtor offered me full payment of $2,000,000.00 in one year. While the amount represented
way more what the tort claimants expected for, I knew that under my analysis, this amount was not
feasible. I understood that confirmation required the plan proponent prove by a preponderance of the
evidence that the plan is feasible or that there is evidence (considering its monthly income earnings and
the asset valuation, among others) that will support the inference of a sufficiently successful operation to
enable performance of the provisions of the plan. (In re Trans Max Technologies (2006) (CB 10-66)). In
hindsight, if I had been working more assiduously for my client, I should have, in anticipation of the
disapproval of the plan, initiated a meeting with the other creditors to prepare our own plan, taking into
account all the interrelated Chapter 11 provisions. The final valuation of the amounts involved and the
final agreement of the amounts to be paid for the claims, secured and unsecured, required a juggling of
competing interests among creditors themselves, between each creditor and debtor, and between classes
of creditors and debtor. This necessitated, I realized, negotiation with the other stakeholders, a serious
evaluation of the alternative strategies through the creative use of the tools provided by the Chapter 11
provisions to come up with a financing scheme (with due consideration to cash flow limitations) that will
result in a reorganization value acceptable to all creditors and compliant with the requirements of Chapter
11. This was valuable insight into the structure and interrelationship of the provisions of Chapter 11.