12.8.2 Right to propose a plan

As I have noted, a pre-insolvency plan procedure is derived from the collective enforcement rights of the creditors. It provides them with an alternative means of collectively enforcing their claims. Accordingly, creditors should have control over what happens to the available value. This means that they ultimately need to be able to determine the contents of the plan. From this it follows that not only the debtor, but also, and particularly, the creditors should have the right to propose a plan. If creditors are not able to propose a plan and thus to develop an alternative to the plan proposed by the debtor, the debtor can in effect hold the creditors to ransom with the threat of bankruptcy as the only remaining alternative. The creditors then have no real influence over the contents of the plan, and no choice but to accept the debtor’s proposal.

If it is the debtor who proposes a plan, no judicial entry test should be required. A creditor, however, should have the right to propose a plan only after the court has established that the debtor is in a financial state of insolvency or pre-insolvency and that the creditors’ underlying rights of collective enforcement have been or inevitably will be triggered.