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trustee or debtor in possession. Thus, a violation of any substantive provision of the Code, such as unauthorized use of cash collateral, may preclude the defalcating proponent from obtaining confirmation of a plan,34 but courts should be cautious in applying this remedy where confirmation of the plan might be in the best interests of creditors even though the proponent has transgressed the Code.
The Code continues the provisions of Chapters X, XI and XII of the Act35 that precluded confirmation of a plan that is not proposed in good faith. § 1129(a)(3). If no objection is filed, the Rules allow the court to find good faith without evidence. Rule 3020(b)(2). This implies that the good faith standard is to be objectively determined from the provisions of the Plan and its compliance with the Code and its purposes, as some courts have held.36 Other courts, however, have used language that suggests there is also a subjective element to the test,37 or that the court must examine "the totality of the circumstances surrounding the confection" of the plan,38 which could also include
33
In re Texaco, Inc., 81 B.R. 813, 816 (Bankr. S.D.N.Y. 1988).
34
In re Cothran, 45 B.R. 836 (S.D. Ga. 1984).
35
Act §§ 221(3), 366(4) and 472(4).
36
In re 203 N. LaSalle Street Partnership, 126 F.3d 955 (7th Cir. 1997), rev'd on other grounds, 119
S. Ct. 1411 (1999); In re McCormick, 49 F.3d 1524 (11th Cir. 1995); In re Boulders on the River, Inc., 164 B.R. 99 (9th Cir. BAP 1994)("The good faith that is required to confirm a plan of reorganization requires the plan to achieve a result consistent with the objectives and purposes of the Bankruptcy Code."); In re Corey, 892 F.2d 829, 835 (9th Cir. 1989), cert. denied, 498 U.S. 815 (1990); Hanson v. First Bank of South Dakota, N.A., 828 F.2d 1310, 1315 (8th Cir. 1987), quoting In re Toy & Sports Warehouse, 37 B.R. 141 (Bankr. S.D.N.Y. 1984); In re Pike's Peak Water Company, 779 F.2d 1456, 1459-60 (10th Cir. 1985); In re Madison Hotel Associates, 749 F.2d 410, 425 (7th Cir. 1984)("the term is generally interpreted to mean that there exists 'a reasonable likelihood that the plan will achieve a result consistent with the objectives and purposes of the Bankruptcy Code'").
37 Kane v. Johns-Manville Corp., 843 F.2d 636, 649 (2d Cir. 1988) ("the good faith test means that "the plan was proposed with honesty and good intentions and with a basis for expecting that a reorganization can be effected.'"); In re Sun Country Development, 764 F.2d 406 (5th Cir. 1985) ("where the plan is proposed with a legitimate and honest purpose to reorganize and has a reasonable hope of success, the good faith requirement of Section 1129(a) (3) is satisfied").
38
In re Cajun Elec. Power Coop, 150 F.3d 503 (5th Cir. 1998); In re T-H New Orleans Ltd. Ptshp., 116 F.3d 790 (5th Cir. 1997)("The requirement of good faith must be viewed in light of the totality of the circumstances surrounding establishment of a Chapter 11 plan, keeping in mind the purpose of the Bankruptcy Code is to give debtors a reasonable opportunity to make a fresh start."); In re Texas Extrusion Corp., 844 F.2d 1142, 1160 (5th Cir. 1988); In Re Jasik, 727 F.2d 1379, 1383)(Chapter 11 cases), quoting Public Finance Cord. v. Freeman, 712 F.2d 219, 221 (5th Cir.
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