## Facts

- Featherworks Corporation filed Chapter 11 after losing prepetition litigation to Far West Garments, Inc., resulting in a judgment.
- Arthur Puro controlled Featherworks through insider affiliates, including Windsor Trading Corporation (owned by his wife and daughter) and Hudson Feather & Down Products, Inc. (Featherworks’ owner).
- Walter E. Heller & Co. held a secured claim of about $5 million; after stay relief and foreclosure efforts yielded about $3.5 million, Heller asserted an unsecured deficiency claim of about $1.5 million.
- Featherworks proposed a plan funding a $40,000 pro rata distribution to unsecured creditors via a Windsor contribution; unsecured creditor classes included Heller (deficiency), Far West, insiders (Windsor and Hudson), and attorneys.
- Heller voted to reject the plan; after excluding insider votes, no impaired accepting class existed for confirmation.
- After the voting deadline, Windsor paid Heller $25,000, and Heller sought leave to change its ballot from rejection to acceptance, which would supply the necessary accepting impaired class.
- Far West objected, seeking to disqualify the changed acceptance and requesting referral to the U.S. Attorney based on 18 U.S.C. § 152 (prohibiting fraudulent and willful payments for actions such as plan voting in bankruptcy cases).
- Heller and Puro characterized the $25,000 as settlement consideration to release Windsor and Puro from threatened litigation over allegedly misrepresented inventory quality, followed by Heller’s decision to accept the plan.

## Issues

1. Whether the court should permit and count Heller’s post-deadline change from rejection to acceptance when the change followed an insider’s $25,000 payment connected to Heller’s plan position.
2. Whether the payment-and-vote-change circumstances warranted referral to the U.S. Attorney for potential prosecution under 18 U.S.C. § 152.

## Decision

- The court refused to recognize Heller’s payment-induced change of vote and disqualified the attempted acceptance for plan-confirmation purposes.
- The court treated the insider side payment, closely linked in timing and effect to the vote switch, as improper interference with the Chapter 11 voting process.
- The court addressed the § 152 concern by distinguishing the court’s civil authority to protect the process (including disregarding tainted votes) from the higher intent showing required for criminal liability and referral.

## Legal Principles

- Bankruptcy courts may disqualify or disregard plan votes (and deny late vote changes) when obtained through consideration that functions as vote-buying or collusion and distorts class decision-making.
- A post-ballot, outside-the-plan payment by an insider to a pivotal creditor, tied to changing plan acceptance, raises serious concerns of unfair discrimination and sub rosa distributions, and may justify refusing to count the vote.
- Voting deadlines and the finality of solicitation are enforced absent strong justification; discretion to reopen voting is especially limited where the requested change is linked to suspect side deals.
- Civil remedies to protect plan-voting integrity (e.g., disqualification of an acceptance) do not require the same proof as criminal sanctions under 18 U.S.C. § 152, which requires fraudulent and willful intent.

## Conclusion

The court protected the integrity of Chapter 11 voting by refusing to count a creditor’s post-deadline switch to plan acceptance after receiving an insider’s side payment, treating the transaction as improper vote-buying and declining to let it manufacture an accepting impaired class for confirmation.


In re Featherworks Corp., 25 B.R. 634 (Bankr. E.D.N.Y. 1982)