Bankruptcy Judge Martin Glenn of Manhattan gave us a checklist for deciding when structured dismissals, retentions of jurisdiction and “comfort orders” are appropriate. His June 9 opinion clears up some of the ambiguity about structured dismissals created by Jevic Holding Corp. (In re Jevic Holding Corp.), 137 S. Ct. 973 (2017).
A chain of restaurants sold all the assets about five months after filing a chapter 11 petition. The remaining assets were insufficient to confirm a plan or pay all administrative claims.
The debtors proposed a so-called structured dismissal where the debtors’ counsel would take a haircut on its fees to allow payment in full of all other administrative claims. Before the court would dismiss the case formally, the debtors were to file certifications about the payment of administrative claims, professional expenses and fees owing to the U.S. Trustee.
The debtors wanted Judge Glenn to retain jurisdiction over a pending adversary proceeding scheduled for trial this summer. Although not objecting to a structured dismissal per se, the U.S. Trustee took issue with some aspects of the requested relief.
Judge Glenn began his analysis by observing that structured dismissals “remain somewhat of an open issue” after Jevic. He interpreted the Supreme Court as leaving “the door open where such dismissals do not violate the absolute priority rule and otherwise comply with the applicable provisions of the Bankruptcy Code.” He cited the Collier treatise for support. To read ABI’s report on Jevic, click here.
“It is clear that dismissal is warranted here,” Judge Glenn held. Why? Because the debtors “have sold substantially all of their assets, have no further operations, and have insufficient resources to fund a plan,” he said.
There were no alternatives. Conversion to chapter 7, the appointment of a chapter 11 trustee or installation of an examiner “would impose costs that would only further erode the value of the already administratively insolvent estates with no apparent benefit, and are therefore not ‘in the best interests of creditors and the estate[s].’ 11 U.S.C. § 1112(b)(1),” Judge Glenn said.
Despite dismissal, the debtor wanted Judge Glenn to retain jurisdiction over a pending adversary proceeding.
The Second Circuit had held that termination of the main bankruptcy case “ordinarily” should result in dismissal of related adversary proceedings. Porges v. Gruntal & Co. (In re Porges), 44 F.3d 159, 162 (2d Cir. 1995). However, the appeals court went on to say that dismissal of the underlying case “case does not automatically strip a federal court of jurisdiction over an adversary proceeding which was related to the bankruptcy case at the time of its commencement.” Id. Rather, the retention of jurisdiction is left to the bankruptcy court’s “sound discretion.” Id.
Under the Porges factors, Judge Glenn decided that retention of jurisdiction over the pending adversary proceeding was “clearly warranted” in the interests of “judicial economy, convenience to the parties, and fairness.”
The U.S. Trustee objected to the entry of orders approving distributions made by the debtor as a prelude to dismissal, contending that a comfort order was not necessary.
Although the U.S. Trustee “may be correct” that no order is required, Judge Glenn said it “does not mean that the Court cannot (or even should not) approve the distribution scheme.” He said that a comfort order “would provide certainty to the Debtors and the creditors, and promote the orderly winding up of the estates, which is precisely the purpose of the contemplated structured dismissal.”
Bankruptcy Judge Martin Glenn of Manhattan gave us a checklist for deciding when structured dismissals, retentions of jurisdiction and “comfort orders” are appropriate. His June 9 opinion clears up some of the ambiguity about structured dismissals created by Jevic Holding Corp. (In re Jevic Holding Corp.), 137 S. Ct. 973 (2017).
A chain of restaurants sold all the assets about five months after filing a chapter 11 petition. The remaining assets were insufficient to confirm a plan or pay all administrative claims.
The debtors proposed a so-called structured dismissal where the debtors’ counsel would take a haircut on its fees to allow payment in full of all other administrative claims. Before the court would dismiss the case formally, the debtors were to file certifications about the payment of administrative claims, professional expenses and fees owing to the U.S. Trustee.
The debtors wanted Judge Glenn to retain jurisdiction over a pending adversary proceeding scheduled for trial this summer. Although not objecting to a structured dismissal per se, the U.S. Trustee took issue with some aspects of the requested relief.
Judge Glenn began his analysis by observing that structured dismissals “remain somewhat of an open issue” after Jevic. He interpreted the Supreme Court as leaving “the door open where such dismissals do not violate the absolute priority rule and otherwise comply with the applicable provisions of the Bankruptcy Code.” He cited the Collier treatise for support.