After a corporate debtor’s chapter 11 case has been converted to chapter 7, former managers of the corporation lack authority to appeal the conversion order on behalf of the debtor.
In its June 7 opinion, the Tenth Circuit said that former managers would have had the right to appeal on their own behalf.
A bank had a $1.3 million judgment against an individual who owned several corporations along with a yacht and a Land Rover. Evidently, the bank had difficulty recovering on the judgment because the state court appointed a receiver to take possession and sell all of the individual’s assets, including the corporations.
The receivership court entered an order directing a turnover of the property to the receiver and granting the receiver exclusive control over the assets.
One of the corporations filed a chapter 11 case, but the receiver and the bank moved to convert. The bankruptcy court granted the motion and converted to chapter 7.
On the first appeal, the district court dismissed the appeal, ruling that the chapter 7 trustee alone had authority to appeal the conversion order.
Stop right here. Sounds peculiar, doesn’t it? No trustee would ever appeal a conversion order that gave her a big payday by appointing her as trustee. But wait. There’s more.
The former manager filed an appeal to the Tenth Circuit on behalf of the debtor corporation.
The result was preordained by the circuit’s own precedent, In re C.W. Mining Co., 636 F.3d 1257, 1265 (10th Cir. 2011).
In his June 7 opinion for the Tenth Circuit, Circuit Judge Scott M. Matheson, Jr. described C.W. Mining as holding that “the debtor’s former management could no longer appeal on the debtor’s behalf” after the chapter 7 trustee had been appointed.
C.W. Mining did not leave former managers at the mercy of the trustee, who (as we said) is unlikely to appeal. Judge Matheson quoted C.W. Mining as having said that “former management may still ‘appeal a bankruptcy court order in their own right.’ Id. at 1266.”
“Permitting someone other than the trustee to litigate or appeal on behalf of the debtor would threaten the ‘orderly manner’ of bankruptcy proceedings. Id. at 1262,” Judge Matheson said.
Again citing C.W. Mining, Judge Matheson said that the former managers “still have the authority to appeal the conversion order on their own behalf. But they did not bring their own appeal.” [Citation omitted.]
Judge Matheson affirmed the district court’s judgment dismissing the appeal.
After a corporate debtor’s chapter 11 case has been converted to chapter 7, former managers of the corporation lack authority to appeal the conversion order on behalf of the debtor.
In its June 7 opinion, the Tenth Circuit said that former managers would have had the right to appeal on their own behalf.
A bank had a $1.3 million judgment against an individual who owned several corporations along with a yacht and a Land Rover. Evidently, the bank had difficulty recovering on the judgment because the state court appointed a receiver to take possession and sell all of the individual’s assets, including the corporations.
The receivership court entered an order directing a turnover of the property to the receiver and granting the receiver exclusive control over the assets.
One of the corporations filed a chapter 11 case, but the receiver and the bank moved to convert. The bankruptcy court granted the motion and converted to chapter 7.