Planning a Smooth Chapter 11 Distribution Process

The basis for distributions to creditors is, of course, confirmation of a plan of reorganization, or as permitted (and recently quite prevalent), a plan of liquidation. One particular difference of note when dealing with a reorganizing debtor or a liquidating debtor is the provision concerning unclaimed funds. For example, with respect to liquidating Chapter 11 plans, there is no point in using common boilerplate language that effectively contemplates unclaimed property will go to a defunct entity or the asset buyer.

We already know that the Bankruptcy Code and Rules are brief on the topic of distribution. Bankruptcy Code Sections 347(b), 1143 and Federal Bankruptcy Rule 3021 are our only guides. According to Rule 3021, after a plan is confirmed, distributions are to be made: 1) on claims that have been allowed; and 2) to the holder of record at the time of commencement of distribution, unless a different time is fixed by the plan or the order confirming the plan. Section 347(b) together with Section 1143 in relevant reading provides that unclaimed property remaining at the expiration of five years after entry of the confirmation order becomes the property of the debtor or of the entity acquiring the assets of the debtor under the plan.