By: Donald L Swanson
Here’s a Subchapter V dilemma:
- I’m Trustee in a Subchapter V case, in which Debtor’s plan is confirmed non-consensually (i.e., under § 1191(b)), with plan payments being made by Debtor to creditors;
- the fact of my presence in the case as Trustee suggests I have something to do; but
- there is no statutory duty for a non-disbursing Subchapter V trustee after substantial consummation of a confirmed plan, beyond filing a final report and absent unforeseen developments.
So, what am I supposed to be doing in the case as Subchapter V Trustee, beyond filing a final report?
The answer is this: nothing, absent unforeseen developments.
That’s according to three recent bankruptcy court opinions. What follows is a summary of each.
Minnesota Opinion
The first opinion is In re DynoTec Industries, Inc., Case No. 21-30803, Minnesota Bankruptcy Court (entered April 5, 2024; Doc. 201).
It addresses a Subchapter V Trustee’s application for allowance of fees for the Trustee’s post-confirmation services.
Debtor achieves a confirmed Subchapter V plan on December 12, 2021. The confirmation is non-consensual—under § 1191(b).
The confirmation Order:
- makes the Debtor responsible for all plan payments to creditors and leaves the Trustee with “no duties with respect to plan payments, and no duty to monitor or supervise Debtor’s future cash flow”; and
- authorizes the Trustee to perform only “statutory duties in accordance with 11 U.S.C. § 1183 until the case is closed or the Trustee’s appointment is terminated, whichever date occurs first.”
A year later, Trustee files a status report detailing the Trustee’s, (i) actions on liquidating Debtor’s accounts receivables for the benefit of the secured creditor, and (ii) recommendations for ensuring Debtor’s completion of its obligations under the Plan; and
The Trustee also files the Application in question: for allowance of Trustee’s compensation for post-confirmation services.
The Trustee’s Application, (i) is based upon an alleged § 1183(b)(7) duty “to facilitate completion of the plan,” and (ii) seeks to “surcharge” a final plan distribution to the secured creditor.
The secured creditor objects to the Application, and the Bankruptcy Court sustains the objection.
Here’s why.
The confirmation Order clearly limits the Trustee’s post-confirmation activities to “express statutory duties under § 1183 only.”
After entry of the confirmation Order, the Trustee’s only outstanding duty was to file a final report under § 1183(b)(1) and § 704(a)(9).
About an alleged general duty to “facilitate completion of a case,” there is no such duty. Subchapter V does specify a § 1183(b)(7) duty to “facilitate confirmation of a consensual plan.” But that duty does not apply in this post-confirmation context.
The confirmation Order all but eliminates the Trustee’s role after confirmation. The Trustee has no post-confirmation duties and cannot be compensated for the post-confirmation services in question.
Northern Georgia Opinion
The second opinion is In re Florist Atlanta, Inc., Case No. 24-51980, Northern Georgia Bankruptcy Court (entered August 8, 2024; Doc. 71).
The Bankruptcy Court confirms Debtor’s plan as non-consensual (under § 1191(b)) because two classes of creditors fail to vote on the plan.
Under the terms of the confirmed plan, the Debtor (not the Trustee) will make all plan payments to creditors.
So, the Bankruptcy Court orders that the services of the Subchapter V Trustee “will terminate” upon the occurrence of the following two events:
- “substantial consummation of the plan (i.e., when the Debtor commences payments under the plan),” and
- “the Subchapter V Trustee’s filing of the final report of administration of this case.”
Here is a summary of the Bankruptcy Court’s rationale.
When the Debtor makes its first payment under the plan, substantial consummation of the plan occurs under § 1102(1).
Thereafter, the only post-confirmation duties of the Subchapter V trustee are:
- to make a final report and file a final account;
- to file post-confirmation reports as are necessary or as the court orders;
- to appear and be heard on any proposed modification of a plan or sale of estate property; and
- to perform certain duties if the debtor is removed from possession.
Debtor’s confirmed plan does not provide for any Subchapter V Trustee services after substantial consummation of the plan, and no one has requested that the Trustee file any post-confirmation reports.
Additionally, all parties at the confirmation hearing agreed that no need exists for post-confirmation services from the Subchapter V Trustee.
Accordingly:
- the Subchapter V Trustee’s services will terminate upon substantial consummation and the filing of the Trustee’s final report (which report is due within 14 days after Debtor’s notice of substantial consummation is filed); and
- if Subchapter V trustee services become necessary thereafter (e.g., if Debtor seeks a post-confirmation plan modification or to sell property of the estate, or if Debtor is removed from possession), a Subchapter V trustee can be reappointed at that time.
Northern Texas Opinion
The third opinion is in the jointly administered case of In re Lager and JBL Hose Service, LLC, Case No. 22-30072, Northern Texas Bankruptcy Court (filed August 23, 2024; Doc. 263).
The Bankruptcy Court confirms Debtors’ joint plan. And the confirmation is non-consensual—i.e., it is under § 1191(b).
Then, on April 16, 2024, Debtors move for a “Final Decree” that, (1) “the cases be closed,” and (2) “this Court maintain jurisdiction to enforce” the terms of the confirmed plan.
More specifically, Debtors want to administratively close their jointly administered Subchapter V cases, even though (i) years of plan payments are yet to be made, and (ii) Debtors are not entitled to receive a discharge until all those payments are made.
The Bankruptcy Court orders that:
- these jointly administered cases can be administratively closed;
- the Subchapter V Trustee is to file a final report under § 1183(b)(1) and § 704(a)(9);
- Debtors are to pay all post-confirmation fees incurred by the Trustee to the date of this order; and
- The case “is subject to being re-opened after the completion of the plan payments” so that Debtor can “request entry of a final decree, a discharge order and for the Trustee to file her final report.”
–Two Cases Cited
This order, (i) cites the Minnesota and Northern Georgia opinions described above, and (ii) provides extensive further analysis in its 23-pages.
–Filing Fee to Reopen
Presumably, the filing fee for reopening the Subchapter V case is $1,167 under the current fees schedule.
Conclusion
It’s great to see bankruptcy courts wrestling with the dilemma of what a non-disbursing Subchapter V trustee is supposed to be doing after a non-consensual plan confirmation.
Both the Northern Georgia and Northern Texas opinions come up with creative solutions, based on the requests placed before them.
Of those two, I like the idea of simply terminating the Trustee’s services, rather than administratively closing the case, because of the filing fee involved in reopening a closed case. Here’s hoping that such an approach becomes standard practice in bankruptcy districts across the land.
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