## Facts

- Cardinal Congregate I (CCI), a limited partnership, owned and operated a 121-unit senior-citizen retirement facility.
- CCI filed a voluntary Chapter 11 case and proposed a reorganization plan supported by an amended disclosure statement after withdrawing earlier versions.
- Affiliates of CCI’s general partner provided loans and services and held insider claims, but the disclosure statement did not adequately identify the affiliates or provide detailed information about those claims.
- The disclosure statement relied on references to monthly operating reports rather than presenting an integrated summary of postpetition operations and financial condition.
- The disclosure statement included non-detailed pro forma figures without explaining underlying assumptions, accounting/valuation methods, or the calculation of “net cash flow,” a key plan funding concept.
- The statement provided insufficient detail regarding contemplated sale or refinancing transactions and their effects on claims and interests.
- The statement lacked a detailed estimate of administrative expenses and did not meaningfully disclose potential causes of action that could affect recoveries.
- Creditors objected, arguing the disclosure statement lacked “adequate information” under 11 U.S.C. § 1125 and that the plan appeared facially unconfirmable, making solicitation wasteful.

## Issues

1. Whether the amended disclosure statement contained “adequate information” under 11 U.S.C. § 1125(a) to enable a hypothetical reasonable investor typical of claim and interest holders to make an informed judgment about the plan.
2. Whether the court may deny disclosure-statement approval when the underlying plan is so patently unconfirmable that solicitation and confirmation proceedings would be futile and waste estate and court resources.

## Decision

- The court denied approval of CCI’s amended disclosure statement.
- The court held the statement did not provide “adequate information” within the meaning of § 1125.
- The court treated plan confirmability as a relevant consideration at the disclosure-statement stage where confirmability defects are apparent.
- The court required a substantially more detailed disclosure statement before votes could be solicited.

## Legal Principles

- A Chapter 11 disclosure statement must include information of a kind and in sufficient detail, as far as reasonably practicable, to enable a hypothetical reasonable investor typical of claim and interest holders to make an informed judgment about the plan.  
- Adequacy under § 1125 is determined on a case-by-case basis, considering the debtor’s circumstances and the creditor body, but the disclosure must be coherent and usable without requiring creditors to reconstruct core facts from scattered filings.
- Material information commonly expected includes: the debtor’s financial condition and postpetition performance; projections and their assumptions; accounting and valuation methods; sources of funding; risks; claim treatment; administrative expense estimates; liquidation analysis; insider relationships and compensation; and pending or potential litigation or estate causes of action.
- When a plan relies on a defined cash-flow metric, the disclosure statement must explain how it is defined and calculated so creditors can assess likely distributions.
- If sale or refinancing is a significant funding component, the disclosure statement should explain the transaction’s terms and consequences for allowed claims and interests.
- A bankruptcy court may decline to approve a disclosure statement when the related plan is facially unconfirmable and proceeding to solicitation would be futile and wasteful.

## Conclusion

The court refused to approve the debtor’s amended disclosure statement because its omissions and lack of explanatory detail prevented informed voting under § 1125, and it recognized that obvious confirmability defects can justify denying approval to avoid futile solicitation and unnecessary administrative costs.


In re Cardinal Congregate I, 121 B.R. 760 (Bankr. S.D. Ohio 1990)