DISPOSITION OF UNCLAIMED FUNDS UNDER A CONFIRMED CHAPTER 11 PLAN - New December 1, 2016, amended December 1, 2017
(a) A chapter 11 plan must provide for the distribution of any unclaimed property that cannot be distributed pursuant to section 347(b) of the Bankruptcy Code, including that any unclaimed property may be
(1) Reallocated pursuant to the absolute priority rule;
(2) Reallocated for distribution pursuant to the plan’s distribution scheme; or
(3) Donated to a not-for-profit, non-religious organization designated to receive unclaimed property.
(b) If a confirmed chapter 11 plan does not provide for the disposition of unclaimed property that cannot be distributed pursuant to section 347(b) of the Bankruptcy Code, or such unclaimed property has not otherwise been disposed of pursuant to an order of the Court, such unclaimed property shall be reallocated for distribution pursuant to the plan’s distribution scheme.
(c) If a confirmed chapter 11 plan does not provide for the disposition of unclaimed property that cannot be distributed pursuant to section 347(b) of the Bankruptcy Code, or such unclaimed property has not otherwise been disposed of pursuant to an order of the Court, and all claims have been paid in full, then the Court may, after notice and a hearing, approve a motion by the plan administrator, or similar appointee, to donate any unclaimed property to an appropriate not-for-profit, non-religious organization.
Comment
This rule was added in 2016. Section 347(b) governs the treatment of any property “remaining unclaimed” at the expiration of the time allowed for acts necessary for participation in a plan confirmed under chapter 9, 11 or 12. Section 1143 establishes a five year limit from the date the confirmation order is entered to take such acts. Under section 347(b), any “security, money, or other property” remaining unclaimed at this time reverts to the debtor or to the entity that acquired the assets of the debtor under the plan.
Section 347(b) may not provide a satisfactory result in the liquidating chapter 11 case of a debtor in which no entity acquires most of the debtor’s assets and the debtor essentially ceases to exist. Although there may remain a shell entity to which assets can be returned, doing so may serve no useful purpose. The rule’s proposed solution is to require the inclusion of preemptive provisions in the chapter 11 liquidating plan, to provide for the alternative distribution of any unclaimed property within five years of the date the confirmation order is entered. This would avoid the five year distribution deadline created by section 1143 and the resulting application of section 347(b).
Subdivisions (b) and (c) of this rule were amended in 2017 to clarify that unclaimed property that has been disposed of pursuant to an order of the Court is not subject to the provisions of the rule.