Disclosure Statement

A document, similar to a prospectus, that a Chapter 11 plan proponent must file with its Chapter 11 plan. Sometimes as big as a phone book and even less interesting to read.

The purpose of the disclosure statement is to provide information that will enable creditors to make an informed decision whether to accept or reject the plan. A disclosure statement usually includes a history of the debtor leading up to the bankruptcy filing, its current financial and legal state of affairs, and a summary of the proposed Chapter 11 plan.

Solicitation of votes to accept or reject the plan may be made only after distribution of an approved disclosure statement. Creditors may file objections to the proposed disclosure statement. Lenders often use the objection process and the hearing on approval of the disclosure statement to try to convince the court that the plan is hopelessly unconfirmable and that the court should end the case then and there—a tactic that seldom succeeds but does so often enough that lenders’ counsel feel compelled to keep at it.

Bankruptcy Code § 1125. See also Adequate Information, Solicitation.

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