An assignee for the benefit of creditors in Florida does not have authority or power to put a company into bankruptcy, according to the Eleventh Circuit Court of Appeals.
A company filed a so-called ABC to liquidate assets quickly and cheaply. Despite landing a buyer, the assignee could not consummate the sale. Acting on his own and without authority from the company’s board, the assignee filed a chapter 7 petition. The bankruptcy trustee subsequently secured bankruptcy court approval for two settlements, bringing in $260,000.
A creditor unsuccessfully opposed the settlements, contending that the company was in bankruptcy improperly due to lack of proper authorization. The arguments were rejected by the bankruptcy judge and on a first appeal in district court.
In the Eleventh Circuit, the creditor won in an opinion on Dec. 17 by Circuit Judge Julie E. Carnes. She said the ABC did not give the assignee “free-wheeling power to pull it out of the very framework from which his powers as assignee arose and plunge it into a different legal system not of its choosing.” She said that Florida’s ABC statute does not carry within it “the seeds of its own destruction.”
Judge Carnes also refused to dismiss the appeal under the doctrine of equitable mootness, which is typically used to dismiss an appeal from a consummated chapter 11 plan.
Without discussing whether equitable mootness is restricted to appeals from plan confirmations, Judge Carnes applied the usual tests to decide that the appeal was not moot, in large part because the $260,000 was still intact. Although one of the settlements had been consummated, the $260,000 had not been distributed to creditors. She said the transactions were “neither particularly complicated nor irreversible.”