A recent decision from the U.S. Bankruptcy Court for the District of South Carolina, found here, delivers a clear and practical warning for lenders, special assets teams, and other creditors: if you want a Chapter 11 plan confirmed – or want leverage over its terms – you should vote.
In this case, the court refused to treat creditor silence as acceptance of a Subchapter V plan. The class that failed to return its ballot was not counted as accepting, and the debtor could not rely on creditor inaction to satisfy the Bankruptcy Code's confirmation requirements. The court emphasized that confirmation is a statutory exercise, not an equitable one, and judges will not rewrite the Code to rescue a plan from creditor apathy.
The takeaway is simple but significant: failing to vote is not neutral. It can be outcome‑determinative and may prevent confirmation of a plan that creditors actually support – or eliminate leverage creditors might otherwise have used to improve treatment. Silence might cause confirmation to be longer or more costly, neither of which a creditor wants if it supports the plan terms, but not voting may still be useful for a creditor seeking to delay discharge without formally opposing the plan. Silence can be deemed an inadvertent tool with an effect similar to voting against the plan.
For institutions managing distressed credits, this decision reinforces the importance of timely, intentional voting and close coordination between credit and legal teams when a plan that a creditor favors is on the table. A creditor supporting the proposed treatment of its claim should, just like any U.S. Citizen, vote.
To learn more about this decision, please contact Jane H. Downey or reach out to any member of Baker Donelson's Corporate Restructuring and Bankruptcy Group.