Disclosure Statement and the Voting Process

Introduction

Once the plan of reorganization is filed, the case moves into the disclosure-statement-and-vote phase. The disclosure statement is the prospectus-style document that accompanies the plan and provides creditors with the information they need to make an informed voting decision. The voting itself happens through a structured process: ballots distributed by the debtor's solicitation agent, a 28-35 day voting period, tabulation of returned ballots, and a determination of whether each impaired class has accepted or rejected the plan under Section 1126's two-pronged threshold. The disclosure-statement-and-vote phase typically runs 60-120 days from disclosure-statement filing through the close of voting, and it produces the formal creditor consent (or, where consent is not achieved, the cramdown setup) that supports plan confirmation.

The disclosure statement matters because it shapes how creditors evaluate the plan. A well-drafted disclosure statement that clearly explains the plan economics, the recovery analysis, and the key risks produces informed voting; a poorly drafted one produces uncertainty and potential plan-confirmation challenges. The voting process matters because it converts pre-petition coordination into formal binding consent: a creditor who votes in favor cannot subsequently challenge the plan at confirmation on the same grounds. Together the two mechanisms produce the procedural foundation that makes plan confirmation possible.

The disclosure statement is required under Section 1125 of the Bankruptcy Code as a prerequisite to soliciting votes on a Chapter 11 plan. The statute prohibits any solicitation of plan acceptance after the case commencement unless the solicitation is accompanied by either the plan itself or a summary of the plan plus a court-approved disclosure statement containing "adequate information."

Disclosure Statement (Section 1125)

The prospectus-style document required under Section 1125 of the Bankruptcy Code as a prerequisite to soliciting votes on a Chapter 11 plan. The disclosure statement must contain "adequate information" defined as "information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor's books and records, including a discussion of the potential material Federal tax consequences of the plan to the debtor, any successor to the debtor, and a hypothetical investor typical of the holders of claims or interests in the case, that would enable such a hypothetical investor of the relevant class to make an informed judgment about the plan." The bankruptcy court approves the disclosure statement at a hearing held at least 28 days after the disclosure statement is filed, and the court can also conditionally approve a disclosure statement to allow simultaneous solicitation under Section 1125(f), with the conditional approval mailed at least 25 days before the confirmation hearing.

The disclosure statement typically runs 100-400 pages and addresses the full range of information that a sophisticated creditor would need to evaluate the plan. The core content categories include:

The "hypothetical investor" standard means the disclosure statement must address the information needs of a reasonably sophisticated investor in the class, not the most sophisticated or the least sophisticated. Courts evaluate adequacy by reference to the specific facts of the case: a complex multi-debtor case with mass-tort liabilities requires more disclosure than a simple single-debtor financial restructuring.

After the disclosure statement is filed, the court schedules a hearing under Bankruptcy Rule 3017(a) with at least 28 days' notice. The U.S. Trustee, UCC, and individual creditors can file written objections, typically focused on information gaps or inaccuracies. The court approves (sometimes with modifications), conditionally approves under Section 1125(f), or denies. Most disclosure statements are approved at the first hearing with negotiated modifications.

After disclosure-statement approval, the debtor's solicitation agent (Kroll, Stretto, Epiq, or one of a handful of other specialized firms) begins distributing solicitation packages to creditors. Each package contains the disclosure statement, the plan, the proposed confirmation order, voting instructions, and a customized ballot for each holder. The solicitation typically takes 5-10 business days to complete, with creditors then having a 28-35 day window to review the materials and return ballots.

Ballots are organized by class. Each class is solicited separately, and each holder receives a ballot specific to its class. Holders with claims in multiple classes (e.g., a creditor with both secured and unsecured claims) receive multiple ballots. The ballot specifies the holder's claim amount, the class, and the proposed plan treatment, with checkboxes for "accept" or "reject" plus space for any election among multiple plan options.

Voting deadline and tabulation report

The voting deadline is typically 5-10 days before the confirmation hearing. After the deadline, the solicitation agent tabulates the returned ballots and produces a formal voting report that is filed with the court. The voting report shows the total claims solicited in each class, the claims that returned ballots, and the percentage of returned claims that voted to accept (versus reject).

The solicitation agent handles distribution of solicitation packages, collection of ballots, and tabulation. The market is concentrated among Kroll Restructuring Administration (formerly Prime Clerk), Stretto, and Epiq Global, which together handle nearly all major Chapter 11 solicitations. Ballots are date-stamped on receipt, scanned, sequentially numbered, and entered into a database tracking voting class, claim amount, accept/reject vote, and any plan-option elections; the agent then produces a formal tabulation report filed with the court. For mass-claim cases (FTX, Hertz, Boy Scouts), tabulation can run hundreds of thousands of individual ballots.

The GOL Linhas Aéreas case is a representative recent example: a 179-page disclosure statement filed in SDNY on March 11, 2025 supported a plan eliminating approximately $1.7 billion of pre-petition funded debt plus up to $850 million of other obligations.

Section 1126(c) of the Bankruptcy Code establishes the two-pronged threshold for class acceptance: a class is deemed to have accepted the plan if creditors holding at least two-thirds in dollar amount and more than one-half in number of the allowed claims of voting creditors in the class voted to accept. Both prongs must be satisfied; either alone is insufficient.

The "voting creditors" qualifier is consequential. Only ballots actually cast count toward the calculation. Creditors who do not vote are excluded from both the numerator and the denominator. The result is that classes can technically meet the acceptance threshold even with relatively low overall participation, as long as the casting creditors are heavily in favor.

Section 1126(e) of the Bankruptcy Code lets the bankruptcy court "designate" (disqualify) any vote that was "not in good faith, or was not solicited or procured in good faith." Designated votes are not counted in either the numerator or denominator of the acceptance calculation, with the result that a creditor whose vote is designated effectively loses its plan-confirmation voice. The provision is intended to prevent strategic actors from using vote-buying or claim-acquisition tactics to manipulate plan outcomes against the legitimate interests of the affected class.

Section 1126(e) Vote Designation

The bankruptcy court's power, on request of a party in interest, to disqualify a creditor's vote on a Chapter 11 plan when the acceptance or rejection was "not in good faith" or "not solicited or procured in good faith." Courts apply the power sparingly as the exception, not the rule. Bad-faith findings typically arise when (1) the voting creditor has an "ulterior motive" tied to a transaction or strategic objective beyond protecting its claim, (2) the creditor seeks an advantage not available to other class members, (3) the creditor's actions are inconsistent with rational creditor self-interest, or (4) the creditor would benefit under a third-party agreement that depends on plan failure. Designation does not extinguish the underlying claim; it only disqualifies the creditor's vote on this specific plan.

In re DBSD North America (2010, aff'd 2011)

The leading modern case is In re DBSD North America (Bankr. S.D.N.Y. 2010, aff'd 2011). DISH Network purchased DBSD's first-lien bank debt at par shortly after the debtors filed an amended plan, with the explicit purpose of using the vote to block the plan and instead acquire DBSD's spectrum rights through a different transaction. Bankruptcy Judge Gerber granted the debtors' designation motion, finding that DISH's purchase was driven by a strategic objective unrelated to protecting its claim. The Second Circuit affirmed, articulating the modern framework: claims-purchase and vote-blocking are not per se bad faith, but using votes to advance an ulterior strategic objective inconsistent with the creditor's interests as a creditor crosses the line.

In re Innkeepers USA Trust (2010)

In re Innkeepers USA Trust (Bankr. S.D.N.Y. 2010) extended the analysis. Innkeepers' debtor-in-possession sought to designate votes cast by Five Mile Capital and Lehman ALI, who had purchased certain claims to support a competing plan. Judge Chapman ultimately did not designate the votes but used the designation analysis to scrutinize the strategic dynamics, with the case providing additional guidance on when claim purchases for plan-influence purposes cross into bad faith.

Post-DBSD framework for distressed credit funds

The post-DBSD framework matters substantially for distressed credit funds. Funds that purchase claims pre-emergence with the intent to influence a plan must structure their position carefully: pure claim-purchase economics (with voting consistent with rational creditor self-interest in maximizing recovery) is generally protected, but claim purchases driven by transaction-specific strategic objectives (acquiring assets, blocking competing transactions, or extracting value beyond the plan recovery) are vulnerable to designation motions. Sophisticated funds rely on counsel to structure their positions to demonstrate creditor-self-interest motivation rather than ulterior strategic motivation.

A growing trend in modern Chapter 11 practice is the "combined hearing" in which the disclosure statement is conditionally approved and the plan is confirmed at a single hearing rather than through the traditional sequenced approach (disclosure-statement hearing first, voting period, then confirmation hearing). Combined hearings compress the post-petition timeline materially and have become standard in prepackaged Chapter 11 cases.

Combined-hearing procedures for prepackaged cases in the Southern District of New York are governed by General Order M-621 (issued January 22, 2024), which embeds prepack combined-hearing procedures within its rapid-prepack framework. Under those procedures, a debtor with a prepackaged plan can file a combined-hearing motion at filing, request expedited scheduling, conduct pre-petition voting on the disclosure statement and plan together, and proceed to a single combined hearing typically within 30-45 days post-petition. The court conditionally approves the disclosure statement and confirms the plan at the same hearing, with the combined order entered immediately. (SDNY's separately issued General Order M-634 of May 31, 2024 addresses combined-hearing guidelines for traditional, non-prepackaged Chapter 11 cases.)

Combined hearings in recent practice

Combined hearings have driven the dramatic compression of prepackaged Chapter 11 timelines. Mitel emerged in approximately 103 days from filing through combined-hearing procedures (filed March 9, 2025; emerged June 20, 2025); ModivCare emerged in 117 days; Wolfspeed's plan was confirmed September 8, 2025, with emergence on September 29, 2025 (21 days later; 91-day prepack total). The combined-hearing approach is unavailable in traditional contested cases (where the disclosure-statement and confirmation hearings inherently serve different procedural functions) but has become the default for clean prepacks where the substantive plan terms are agreed pre-petition.

The mechanical process of converting received ballots into class acceptance determinations involves several specific steps that solicitation agents follow to produce the tabulation report submitted to the court.

The solicitation-agent ecosystem has become specialized over the past two decades, with three major firms (Kroll Restructuring Administration, Epiq Corporate Restructuring, and Stretto) handling most large-case mandates. The agents charge fees of $500K-$5M depending on case size, with the largest cases (mass tort claims, multi-class structures, parallel international solicitations) generating the highest fees.

The dual-threshold mechanism is designed to balance the interests of large institutional holders (who would dominate a pure-amount threshold) and small individual creditors (who would dominate a pure-number threshold). The "two-thirds plus majority" standard requires both kinds of consent, with neither group able to railroad the plan over the other's opposition. The mechanism is a common topic in restructuring interviews because it captures one of the genuinely interesting design choices in the Bankruptcy Code.

The disclosure statement and voting process is the procedural mechanism that converts plan negotiation into formal creditor consent. The combination of the adequate-information standard for the disclosure statement, the 28+ day notice period for the disclosure-statement hearing, the 28-35 day voting period, and the Section 1126 dual thresholds for class acceptance produces a structured framework that protects creditor information rights while still allowing efficient plan confirmation. Understanding the mechanics, the thresholds, and the conditional-approval track for rapid prepacks is essential foundational knowledge for any restructuring banker working on substantive plan engagement.