The question of when a Chapter 11 plan may assign similar claims to different classes, for example, by placing unsecured bank and trade debt in separate classes, is among the most hotly debated issues under the Bankruptcy Code. In its final report, Bankruptcy: The Next Twenty Years, the National Bankruptcy Review Commission recommends adoption of a "rational business justification" standard for claims classification, asserting that it "will bring predictability to this unsettled area of the law." In fact, the Commission's proposal would do very little to resolve the problems that have plagued the current statute. Moreover, it would confuse the extant law governing unfair discrimination among classes of similar claims. The classification controversy is rooted in § 1129(a)(10) of the Code, which states that a Chapter 11 plan may be confirmed only if it has been accepted by at least one class of claims that is impaired by the plan. In many cases, plan proponents find it necessary to allocate similar claims among several classes in order to gain acceptance by an impaired class. While the courts are nearly unanimous in the view that the classification statute prohibits classification schemes motivated solely by the need to secure an assenting impaired class, they cannot agree on a test for determining when separate classification of similar claims is permissible.
Scott F. Norberg,
The Bankruptcy Review Commission Recommendation on Classification of Claims in Chapter 11
, 18 MISS. COLL. L. REV. 411
Available at: http://ecollections.law.fiu.edu/faculty_publications/231