These days, “success” in a chapter 11 case is measured differently. A generation ago, a successful chapter 11 reorganization entailed restructuring the debt, perhaps over three years. Sales were few and far between. Today, success more often than not means selling the assets quickly.
In a chapter 11 case before Bankruptcy Judge Scott W. Dales of Grand Rapids, Mich., all the parties aside from the U.S. Trustee judged the case a success. The assets were all sold, and the debtor was evidently left with $2.9 million in cash plus receivables.
However, the secured lender held what Judge Dales called an “unassailable” lien on cash and receivables but was owed $17 million. All agreed that the cash belonged to the lender as “cash collateral.”
Judge Dales said there was “no prospect for reorganization now” and “absolutely no prospect for payment to any unsecured creditors” in view of cash collateral orders and financing for the chapter 11 effort.
The debtor, the official creditors’ committee and the lender filed a motion to dismiss the chapter 11 case. The U.S. Trustee opposed and filed a motion for conversion to chapter 7, contending that a trustee would be capable of making the final distributions.
According to Judge Dales, the U.S. Trustee argued that dismissal would set a “bad precedent by allowing interested parties to use the bankruptcy sale process under Section 363 to skirt court-supervised distributions that would occur under a confirmed plan, or in the case of conversion, Section 727.”
The debtor submitted that dismissal would make the Western District of Michigan an “attractive venue” for chapter 11 cases.
Judge Dales said he had “no legitimate interest . . . in promoting our district as a haven for chapter 11 cases.” Instead, he addressed the U.S. Trustee’s conversion motion by evaluating “the interests of this estate and the creditors of this estate.” [Emphasis in original.]
Judge Dales said there was “no serious suggestion” that the parties intended to ignore bankruptcy priorities by turning the case into a “structured dismissal” of the type outlawed by the Supreme Court in Czyzewski v. Jevic Holding Corp., 137 S. Ct. 973 (2017).
Judge Dales found “no persuasive reason” to override the wishes of the official committee and the largest unsecured creditor. Conversion to chapter 7, he said, “would increase administrative expenses and engender confusion among the creditor body, without promising any meaningful recovery for unsecured creditors.”
Judge Dales denied the conversion motion and scheduled a hearing on the motion to dismiss.
These days, “success” in a chapter 11 case is measured differently. A generation ago, a successful chapter 11 reorganization entailed restructuring the debt, perhaps over three years. Sales were few and far between. Today, success more often than not means selling the assets quickly.
In a chapter 11 case before Bankruptcy Judge Scott W. Dales of Grand Rapids, Mich., all the parties aside from the U.S. Trustee judged the case a success. The assets were all sold, and the debtor was evidently left with $2.9 million in cash plus receivables.
However, the secured lender held what Judge Dales called an “unassailable” lien on cash and receivables but was owed $17 million. All agreed that the cash belonged to the lender as “cash collateral.”
Judge Dales said there was “no prospect for reorganization now” and “absolutely no prospect for payment to any unsecured creditors” in view of cash collateral orders and financing for the chapter 11 effort.