Building Exhibit B Projections That Survive Subchapter V Confirmation

Plan projections are the detailed financial forecasts filed with the plan that demonstrate its feasibility. In a Subchapter V case they are the document that has to convince the court, the Subchapter V trustee, and the U.S. Trustee that the business can emerge and meet its obligations. The label varies by court and by drafter; "Exhibit B" is a common convention, and this article uses it.

The feasibility standard under § 1129(a)(11)

The legal hurdle is 11 U.S.C. § 1129(a)(11), which § 1191(a) applies to Subchapter V plans: confirmation must not be likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor.¹ The court's inquiry is whether the projections present a realistic, achievable path on reasonable assumptions. The standard is not absolute certainty. It is a reasonable probability of success, supported by evidence, and the projections are most of that evidence.

Courts have been receptive to Subchapter V plans built for smaller businesses, but that receptivity depends entirely on the credibility of the numbers. A plan with thin projections is not saved by the debtor's size.

The three assumption categories that determine viability

Every line in the projection stems from an assumption, and the assumptions fall into three categories that draw scrutiny.

Revenue assumptions. Growth rate, customer retention, pipeline, backlog. A court will not accept optimism; revenue assumptions must be grounded in the debtor's post-petition performance, its pre-petition history, or verifiable market data.

Expense and working capital assumptions. Cost of goods sold, payroll, rent, other operating expenses, and the working capital cycle: receivable collection periods and inventory turnover. These must reflect post-petition reality, such as rejected leases and renegotiated vendor terms.

Capital structure and debt service assumptions. The terms of any new financing, the treatment of secured and unsecured claims under the plan, and the resulting payment schedule. The cash flow must cover those payments with a margin. A mismatch between the plan's treatment of a claim and the payments shown in the projection is a primary source of objections.

Building the model: period, consistency with MORs, sensitivity

Three points of procedure decide most of the argument before it starts.

Projection period. The projection should cover at least the plan term, which for a nonconsensual Subchapter V plan is three to five years under § 1191(c)(2), and many drafters extend it to show sustainability beyond the last plan payment.² Monthly detail for the first year and quarterly detail after is a common and readable structure.

Consistency with the monthly operating reports. The U.S. Trustee compares the first months of the projection to the operating reports the debtor has already filed. If the reports show flat collections and the projection shows collections rising 15 percent in month one, the objection writes itself. The 13-week cash flow the debtor has been maintaining during the case is the bridge between the filed reports and the multi-year projection; the first quarter of Exhibit B should be recognizably the same forecast.

Sensitivity analysis. A base case, a downside case (revenue 10 percent below plan, for example), and a stress case. The purpose is to show that the plan still funds under adverse but plausible conditions. A model that shows the business surviving the loss of a customer representing 20 percent of revenue, because the restructured cost base is that much lower, answers the feasibility question before it is asked.

Documentation failures that draw objections

Objections usually target the documentation, not the arithmetic.

Unexplained assumption jumps. A retailer with a history of flat sales projects a 25 percent increase in year one. Without a new distribution contract, a marketing program with tracked results, or comparable industry data, that assumption does not survive.

Misalignment between the plan and the projection. The plan pays a secured creditor over five years; the projection shows four. Professional fees to be paid under the plan are missing as a line item. Either one is a fatal inconsistency.

Ignoring post-petition trends. Six months of operating reports show declining revenue; the projection begins with an increase. The debtor's own filings contradict the assumption, and the U.S. Trustee will say so.

Structuring the exhibit for adversarial review

Open with a narrative summary that lists every major assumption, its basis, and its source. For example: "Revenue is projected to grow 8 percent annually, the average growth rate achieved in the 24 months before the downturn that led to the filing, as shown in the attached historical income statements."

Make the financial grids detailed and the line items descriptive. "Software subscriptions," "professional fees," and "marketing" defend better than "other expenses." Add supporting schedules as separate tabs or appendices: the debt amortization schedule, a reconciliation of the opening balance sheet to the last operating report, a pipeline breakdown by probability. The goal is an audit trail from each assumption to the final cash flow line.

"Best estimate" versus precision

Courts recognize that projecting a small business's future is not an exact science. The standard is a best estimate on reasonable judgment, not statistical precision. The judge's job is to decide whether the assumptions are explained and plausible, not to recalculate each figure.

A projection that assumes a modest annual price increase, supported by a recent supplier contract or an industry price index, is likely to be accepted. The same assumption justified only as "anticipated inflation" is likely to be questioned. The difference is the quality of the reasoning, not the size of the number, and the U.S. Trustee's objection usually functions to point at the place where the reasoning is missing.

Integrating the plan's treatment of claims with the cash flow

Every monetary term in the plan needs a matching outflow in the projection.

Secured claims. If the plan pays a $500,000 secured claim over five years at 6 percent, the projection shows that exact monthly payment for the full term.

Administrative and priority claims. Allowed professional fees, unpaid post-petition taxes, and other priority claims are scheduled for payment when they will actually be paid. A single lump sum in year one, if that is not when the cash goes out, misstates the timing.

Unsecured claims. Whether the plan pays a percentage over time or issues a note, the cash impact appears where it occurs. In a nonconsensual case, the payments should tie to the disposable-income calculation under § 1191(d).

The projection also has to reflect the plan's operational effects. A rejected lease removes the rent and adds a rejection claim. New financing adds the drawdown and the debt service that follows.

Your next step

Take the most recent monthly operating report and compare its revenue, gross margin, and operating cash flow to the starting point of the current projection draft. Document any variance above a threshold you choose, 10 percent is common, with a one-sentence justification tied to a specific post-petition event. That exercise creates the link between actual performance and projected feasibility that the court is looking for. If you want the projections built or stress-tested, contact us.