Voluntary Conversion

In a voluntary conversion, a debtor may convert a Chapter 11 case to a case under Chapter 7 at any time as of right. This right is subject to certain restrictions. First, a debtor may not convert the case as of right if a trustee has been appointed. Second, a debtor may not convert the case as of right if the Chapter 11 case was commenced by an involuntary petition. Third, the debtor may not convert the case as of right if the case was previously converted to a Chapter 11 case from another chapter by a party other than the debtor. If any of these limitations apply, the case may be converted to a Chapter 7 case only in accordance with the provisions set forth in the Bankruptcy Code. In addition, a Chapter 11 case may not be converted to a liquidation case if the debtor is not eligible for Chapter 7 relief.

Discretionary Conversion to Case Under Chapter 12 or 13

A debtor, and only the debtor, may request conversion to a case under Chapter 12 or 13. However, the court has discretion to deny the debtor's motion. The court may not convert a Chapter 11 case to a case under Chapter 12 or 13 if the debtor has already received a discharge. Also, the court may not convert the case to a case under Chapter 12 or 13 if the debtor is not eligible for Chapter 12 or 13 relief. Additionally, the court may not convert the case to a case under Chapter 12 unless the conversion is ''equitable.''

Discretionary Conversion or Dismissal for Cause

The court is permitted to convert or dismiss a Chapter 11 case, whichever is in the best interests of creditors and the estate, for cause. Any party in interest may move for relief and, in certain instances, the court may grant relief upon its own motion.

Scope and Limits of Court's Discretion

The court may also convert or dismiss a case for reasons that are not specifically enumerated in the Bankruptcy Code, provided that these reasons are sufficient to demonstrate the existence of cause. Because relief is discretionary rather than mandatory, the court may decline to convert or dismiss a case even in the presence of cause. In general, decisions granting or denying relief are reviewed on appeal under the abuse of discretion standard.

Distinguishing between Appropriate and Inappropriate Chapter 11 Cases

The essential difficulty lies in distinguishing between ''appropriate'' and ''inappropriate'' Chapter 11 cases. Generally, the court may exercise its discretion and deny relief if mitigating factors demonstrate that, notwithstanding the presence of cause, it remains likely that the benefits of reorganization will be achieved at an acceptable cost consistent with the requirements and limitations of the Bankruptcy Code.

Obtaining Approval of Creditor Class or Cram Down of Plan

A plan of reorganization cannot be confirmed unless the plan proponent obtains the approval of a majority of creditors in each class of impaired claims. A plan may be confirmed under the cram-down provisions of the Bankruptcy Code if the plan proponent can demonstrate that the plan is ''fair and equitable'' and does not unfairly discriminate against any dissenting class. In addition, at least one class of impaired claims must vote to accept the plan. If it becomes reasonably apparent that the debtor cannot obtain the favorable vote of at least one class of impaired claims or that the debtor cannot cram down a dissenting class, there is no point in incurring the cost of the plan process and cause exists to dismiss or convert the case.

Revocation of an Order of Confirmation

The court may revoke an order of confirmation on the request of a party in interest at any time within 180 days after entry of the order, but only if the court finds that the order was procured by fraud.

Conversion or Dismissal; Best Interest of Creditors and the Estate

Once cause for relief is established, the Bankruptcy Code offers a choice between converting the Chapter 11 case to a case under Chapter 7, or outright dismissal, ''whichever is in the best interest of creditors and the estate.'' The Bankruptcy Code does not define the phrase ''best interest of creditors and the estate.'' Significantly, however, the section speaks of the singular best ''interest'' of creditors and the estate as a group, and thus requires the decision to be based on their collective best interest.

Who May Request Conversion or Dismissal

A request to convert or dismiss a Chapter 11 case may be made by any party in interest. Under the Bankruptcy Code, the term ''party in interest'' is defined to include ''the debtor, the trustee, a creditor's committee, an equity security holder's committee, an equity security holder, or any indenture trustee."

Effect of Dismissal

Unless the court orders otherwise, the dismissal of a Chapter 11 case operates to reinstate any superseded custodianship, undo any avoided transfer and revest the property of the estate in the entity that had possession immediately prior to the commencement of the case.