When a nonconsensual plan is confirmed in Subchapter V, the bankruptcy court has discretion to discharge the Subchapter V trustee and close the case after substantial consummation, according to an opinion by Bankruptcy Judge Michelle V. Larson of Dallas.

The corporate debtor in Subchapter V confirmed a nonconsensual chapter 11 plan and gave notice of the effective date of the plan one month later. The plan called for the debtor to make plan payments, not the trustee.

Two months after the effective date, the debtor gave notice of substantial consummation of the plan and filed a motion seeking entry of a final decree and discharging the trustee. The Subchapter V trustee lodged the only objection.

When a plan is nonconsensual, the Bankruptcy Code does not say whether the court may close the case before the completion of plan payments. In her August 22 opinion, Judge Larson said the question was an issue of first impression in the district.

Unlike a consensual plan, the debtor with a nonconsensual plan does not receive a discharge until after the completion of plan payments, as provided in Section 1192.

The Statute

Section 350 and Bankruptcy Rule 3022 say that the court “shall” close the case when it has been “fully administered” and “the court has discharged the trustee.” The Advisory Committee Note says that closing the case “should not be delayed solely” because all plan payments have not been made.

Under Section 1101(2), a chapter 11 case has been “substantially consummated” when all property has been transferred under the plan, the debtor or the successor has assumed management and plan payments have commenced.

For Subchapter V plans that were confirmed consensually under Section 1191(a), Section 1182(c)(1) provides that “the services of the trustee shall terminate when the plan has been substantially consummated.” In a nonconsensual case confirmed under Section 1192(b), “the Code is silent regarding termination of the Subchapter V trustee’s service,” Judge Larson said.

The Subchapter V Trustee’s Handbook, prepared by the U.S. Trustee program, says that the Subchapter V trustee under a nonconsensual plan should remain in place for the life of the plan, even when the debtor is making plan payments.

Persuasive Authorities

To answer the question, Judge Larson identified three cases on the topic. One held that the trustee should remain in place until all payments have been made and the trustee files the final report. In re Gui-Mer-Fe, 21-01659, 2022 WL 1216270, at *8 (Bankr. D.P.R. Apr. 15, 2022).

Judge Larson was persuaded by In re DynoTec, 21-30803, 2024 WL 2003065 (Bankr. D. Minn. April 5, 2024), and In re Florist Atlanta, 24-51980, 2024 WL 3714512 (Bankr. N.D. Ga. Aug. 7, 2024).

In DynoTec, Bankruptcy Judge Kesha L. Tanabe decided that the Code “provides sufficient flexibility to allow for the discharge of a Subchapter V trustee prior to completion of the plan payments, even where such a case was confirmed non-consensually,” Judge Larson said.

Judge Larson then went on to say that she found Florist Atlanta to be “most persuasive.” To read ABI’s report on Florist Atlanta, click here.

In Florist Atlanta, Judge Larson described Bankruptcy Judge Paul W. Bonapfel as having held that “the Bankruptcy Code gives bankruptcy courts discretion to determine, based upon the specific facts of each case, whether, when, and how a non-consensual Subchapter V case should be closed prior to entry of discharge.”

The Trustee May Be Discharged

Turning to the facts of the case before her, Judge Larson said the three elements of “substantial consummation” had been shown. Under “traditional analysis,” she said that “this case can be considered fully administered.”

Next, Judge Larson analyzed whether the trustee could be discharged before completion of her statutory duties. Even if the case where closed and the trustee had not filed her final report, Judge Larson said that the case could be reopened.

In the case before her, Judge Larson said that the trustee was neither administering assets nor making plan payments. She concluded that “the Trustee’s statutory duty to file a final report in this case is not sufficient cause to keep these cases open, and it is thus appropriate to order the termination of the services of the Subchapter V Trustee.” Also, closing the case could allow the debtor to avoid incurring some administrative expenses.

Judge Larson held that the debtor had “fulfilled both the predicate statutory requirements under the Bankruptcy Code and this Court’s specific requirements under the Confirmation and Post-Confirmation Orders for issuance of a final decree.”

“Nevertheless,” Judge Larson said, issuing a final decree would be “inappropriate,” based on the debtor’s “stated intention” to reopen the case three years later to allow entry of discharge. She therefore decided that the “best approach” was “for the case to be ‘administratively closed’ subject to reopening when the case is ripe for entry of discharge.”

Judge Larson ended her opinion by directing the trustee to file her final report within two weeks and for the debtor to pay the trustee’s fees in full. She directed that the case be closed administratively when the trustee has been paid.