A Subchapter V debtor was entitled to more time for filing a plan when the delay was occasioned by a fight between the landlord and the lender, for reasons explained by Bankruptcy Judge Sean H. Lane of New York.
Permitting the lender and the landlord to litigate in state court, Judge Lane modified the automatic stay because the lender stipulated that the outcome would not impair the debtor’s rights.
The debtor operated a 160-bed nursing home that opened in 2019. To build the facility, the debtor’s landlord arranged financing from a lender that claimed to have an assignment of rents as additional security.
Before bankruptcy, the landlord sued the debtor, contending that the lease was terminated. The debtor removed the suit to bankruptcy court after filing a petition for reorganization under Subchapter V of chapter 11.
Also before bankruptcy, the lender initiated foreclosure against the landlord in state court, alleging that the landlord had defaulted. The foreclosure was dismissed in view of the state foreclosure moratorium.
In bankruptcy, both the landlord and the lender were claiming the right to receive rent payments from the debtor. In connection with approval of final DIP financing, Judge Lane concluded that the landlord was entitled to rent because the lender had not perfected the assignment of rent.
The Plan Extension Motion
The debtor filed a motion for more time to file a plan. Aiming to foreclose the landlord, the lender filed a companion motion to modify the automatic stay. Judge Lane decided both motions in his February 1 opinion.
Subchapter V puts the debtor on a short leash under Section 1189(b) by requiring the debtor to file a plan within 90 days of filing. The statute goes on to say that the “court may extend the period if the need for the extension is attributable to circumstances for which the debtor should not justly be held accountable.”
Judge Lane said that Section 1189(b) creates a “stringent and a higher standard than the ‘for cause’ standard in Section 1121(d)(1) that governs extensions of time to file a plan in a traditional Chapter 11 case.” He said that the heavier burden on the debtor is designed to “move a case forward expeditiously.”
Judge Lane said that “generalized excuses” that suffice in ordinary chapter 11 cases will not work in Subchapter V. The debtor, however, had a good and sufficient excuse.
The treatment of the landlord would be the key element of the plan, especially because the lease gave the debtor a purchase option. Having been removed to bankruptcy court, the lawsuit between the landlord and the debtor was operating under a truncated schedule laid down by Judge Lane. The outcome would decide whether the lease had terminated before bankruptcy and whether the debtor retained a purchase option.
Judge Lane said that “it is hard to see how the Debtor could be blamed for unduly delaying adjudication of the lease issue,” given that the judge himself had set the schedule for the litigation. He said that “it does not appear practical, fair, or wise to require the Debtor to file a plan when the central issue of the lease remains unresolved.”
Without prejudice to further applications, Judge Lane gave the debtor a 60-day extension of the plan-filing deadline, by which time he would have heard summary judgment motions on the lease issues.
The Automatic Stay
Aiming to foreclose the landlord in state court, the lender wanted Judge Lane to modify the automatic stay or declare that it did not apply to a dispute between two nondebtors. The landlord opposed stay modification.
A difficult decision was made easier with two stipulations by the lender.
The lender agreed that the debtor would not be a party in the foreclosure action. The lender also agreed that the debtor’s purchase option would “remain intact.”
Judge Lane concluded that the lender had satisfied the standards for stay modification. Prominently, the foreclosure action would not impinge on the debtor’s rights, and the foreclosure action would be “the most expeditious and economical way to resolve the dispute between these two non-debtors.”
A Subchapter V debtor was entitled to more time for filing a plan when the delay was occasioned by a fight between the landlord and the lender, for reasons explained by Bankruptcy Judge Sean H. Lane of New York.
Permitting the lender and the landlord to litigate in state court, Judge Lane modified the automatic stay because the lender stipulated that the outcome would not impair the debtor’s rights.
The debtor operated a 160-bed nursing home that opened in 2019. To build the facility, the debtor’s landlord arranged financing from a lender that claimed to have an assignment of rents as additional security.
Before bankruptcy, the landlord sued the debtor, contending that the lease was terminated. The debtor removed the suit to bankruptcy court after filing a petition for reorganization under Subchapter V of chapter 11.
Also before bankruptcy, the lender initiated foreclosure against the landlord in state court, alleging that the landlord had defaulted. The foreclosure was dismissed in view of the state foreclosure moratorium.
In bankruptcy, both the landlord and the lender were claiming the right to receive rent payments from the debtor. In connection with approval of final DIP financing, Judge Lane concluded that the landlord was entitled to rent because the lender had not perfected the assignment of rent.