Jan 03, 2026

chapter 11 POR tests plz help

Cross referencing different guides and not sure what i'm dealing with anymore

So, Rxinterviews says it's: Best interest, Cram down, and feasibility

But i'm cross-referencing resources and seeing "Good Faith", "Fair and equitable" to also be part of the "3" tests court look at

Best interest test: by accepting you won’t be worse off than if the company just did a liquidation (cuz it’s in my best interest to get the most value i can)

Good Faith: Testing if management held their fiduciary duties to the creditors (hard to use this because failure to define “good faith”)

Feasibility Test: once restructured, the debtor will not likely liquidate or will not experience the need for further financial organiztion in the future

Cram down: saying even if impaired classes don’t accept the deal, if the judge deems it equitable can still take the tough stand

Fair and Equitable: plan can be fair and equitable if secured creditors retain lines and receive deferred payments totaling at least that allowed of their secured claims. Secured creditors lines attach to proceeds of any out of the ordinary course sale of their collateral. Realization by the secured creditor of the indubitable equivalent of their secured.

These are my typed up definitons, not sure what to think. How important are these tests? can a RX master step in here please and thankyou.

4 Comments

WSO Monkey Bot

5mo

Alright, let’s untangle this web of Chapter 11 Plan of Reorganization (POR) tests for you. Based on the most helpful WSO content and restructuring insights, here’s the breakdown:

The Core Chapter 11 POR Tests:

Best Interest Test
- This ensures that creditors are not worse off under the proposed plan than they would be in a Chapter 7 liquidation.
- Think of it as: "If I’m a creditor, am I getting at least as much as I would if the company were liquidated?" If not, the plan fails this test.
Feasibility Test
- The court evaluates whether the reorganized company can realistically survive post-bankruptcy without needing another restructuring or liquidation.
- Translation: "Can this company actually make it work, or are we just delaying the inevitable?"
Cram Down Test
- This comes into play when not all impaired classes accept the plan. The court can still confirm the plan if it’s deemed "fair and equitable" and doesn’t unfairly discriminate against dissenting classes.
- It’s the court saying: "Even if some creditors don’t like it, the plan is reasonable enough to push through."

Additional Concepts You Mentioned:

Good Faith
- This is more of a general requirement for the plan to be proposed in good faith, meaning it’s intended to achieve a legitimate reorganization and not to defraud or manipulate creditors.
- While important, it’s not one of the "big three" tests but is still a factor the court considers.
Fair and Equitable
- This is a subset of the Cram Down Test. It’s the standard the court uses to determine whether the plan can be confirmed over the objections of impaired classes.
- For secured creditors, it means they must retain their liens or receive payments equal to the value of their secured claims. For unsecured creditors, it often means no junior class (e.g., equity holders) can receive anything unless the senior class is paid in full (the "absolute priority rule").

How Important Are These Tests?

Critical. These tests are the backbone of Chapter 11 POR confirmation. If the plan fails any of these, it won’t be approved by the court.
For restructuring interviews, understanding these tests is essential. They’re often used to assess your technical knowledge and ability to think through creditor dynamics and court processes.

TL;DR for Your Definitions:

Your definitions are solid but could use some tightening:
- Best Interest Test: Creditors must get at least as much as they would in liquidation.
- Feasibility Test: The plan must show the company can survive post-restructuring.
- Cram Down: The court can confirm the plan over objections if it’s "fair and equitable."
- Good Faith: The plan must be proposed with honest intentions.
- Fair and Equitable: A standard under the Cram Down Test ensuring secured creditors are protected and the absolute priority rule is followed.

Pro Tip for Interviews:

If asked about these tests, focus on the interplay between them. For example, explain how the Best Interest Test protects creditors, while the Feasibility Test ensures the plan is sustainable, and the Cram Down Test provides a mechanism to move forward even with dissenting classes. Sprinkle in examples like secured vs. unsecured creditor dynamics to show depth.

You’re on the right track—keep refining your understanding, and you’ll crush those RX interviews!

Sources: https://www.wallstreetoasis.com/forum/investment-banking/how-to-prepare-for-restructuring-technical-questions?customgpt=1, How to Prepare for Restructuring Technical Questions

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9898cabo

5mo

Most Helpful

Also recruiting right now, so I might be wrong, but I'm assuming the Cramdown test used in the rx guides would be correct since in the BKC Code in section 1129 it states, "Notwithstanding section 510(a) of this title, if all of the applicable requirements of subsection (a) of this section other than paragraph (8) are met, the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not disciminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan"

So essentially the cramdown test includes fair and equitable, cannot discriminate unfairly, and one class must accept. Potentiality: if asked, you could state the best interest and feasibility test, and for the third state the cramdown while also mentioning the 3 tests of the cramdown.

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big_dawg

5mo

Doing Rx after graduation and just finished a bankruptcy law class. Generally the three requirements to confirm a POR are the Good Faith Test, Best Interests Test, and Feasibility Test. Not entirely relevant, but technically there's a requirement that all impaired classes vote for the plan, with the exception that a plan can be confirmed without full consent - which is a cramdown - as long as it doesn't discriminate unfairly against non-supporting classes and it's fair and reasonable. Here are a few paraphrased snippets of the Bankruptcy Code.

§ 1129(a)(3): the plan must be proposed in good faith and not be illegal.
- Generally this prevents parties from proposing pointless plans that would never be accepted, simply to waste or burn time.
§ 1129(a)(7): Best Interests Test – for each impaired creditor that does not accept, the plan must provide at least what they would receive in a hypothetical chapter 7.
§ 1129(a)(11): the plan must be feasible and not likely to be followed by a liquidation or further reorganization.
- This is why "chapter 33" filings are automatically liquidations and why rapid refiling (like Spirit or Joann) is often a liquidation.

Cramdowns are governed by § 1129(a)(8), which says that the plan must either leave the class unimpaired, or the class must accept the plan. If a class rejects the plan, it can still be confirmed via cramdown in § 1129(b).

§ 1129(b)(1): the court can confirm a plan if it meets all § 1129(a) requirements other than (a)(8) and for each impaired class that does not accept, the plan does not discriminate unfairly and it is fair and equitable.
- Here's an example of unfair discrimination: a company has certain unsecured creditors that are generally friendly, so they receive 80% recovery, while other unsecured creditors receive 20%. If there's not a sound reason for the first group to receive a significantly better recovery, they should receive the same as other unsecured creditors - so the second group can claim unfair discrimination. This also stops using recovery to "buy votes" - by providing an arbitrary class more just so they vote for the plan.
§ 1129(b)(2)(A) Secured Claims: a plan is fair and equitable to secured claims if the creditor retains its lien on collateral and receives deferred cash payments totaling the PV of its claim; the collateral is sold under § 363 and the secured creditor gets those proceeds; or the creditor receives the "indubitable equivalent" of its secured claim, which can include a substitution of collateral, cash equal to collateral value, new securities with an identical risk profile, etc.
§ 1129(b)(2)(A) Unsecured Claims: a plan is fair and equitable to unsecured claims if the unsecured class is paid in full or no class junior to them receives anything on account of their junior interest.
- This is the Absolute Priority Rule.

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