Noting that “Subchapter V cases are supposed to proceed quickly,” Bankruptcy Judge Thomas B. McNamara of Denver observed that “confirmation in Subchapter V cases often takes the same amount of time or even longer than in standard Chapter 11 reorganizations.”
Judge McNamara said that “Subchapter V debtors and their attorneys in this jurisdiction almost never meet the 90-day mandate” in Section 1189(b) for filing a plan. Usually, he said, debtors ask for extensions “on generic grounds.” Other times, he said, debtors “manipulate the deadline by filing bogus placeholder plans of reorganization on the ninetieth day” that are “obviously deficient.”
Judge McNamara was prompted to write his January 29 opinion by a Subchapter V debtor’s motion for a 44-day extension of the 90-day deadline to file a plan. The disposition of the motion depended on the meaning of Section 1189(b), which says “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.”
The debtor asked for more time given a pending motion for approval of so-called DIP financing. However, the debtor withdrew the financing motion before the extension motion was set for hearing.
No one opposed the plan-filing extension, but Judge McNamara said he was “not a rubber stamp,” So, he proceeded to analyze whether the extension was permissible under Section 1189(b).
The Four Interpretations of Section 1189(b)
Before addressing the facts, Judge McNamara explored the meaning of Section 1189(b). He said that the burden on the debtor is “stringent” and higher than showing “cause.” He said that courts “differ” about “the standards to be used for deciding what exactly constitutes ‘circumstances for which the debtor should not justly be held accountable.’” [Emphasis in original.]
Judge McNamara found four interpretations. He called the first the “beyond the debtor’s control standard” and said it searches for external reasons that contributed to the debtor’s inability to file a plan by the deadline. Next, he set out the “mixed standard,” which represented a “confusing middle ground” that has been interpreted “to mean different things.”
Judge McNamara referred to the third and fourth interpretations as the “equitable balancing standard” and the “case by case” approach.
The Chapter 12 Meaning Prevails
Deciding which standard to apply, Judge McNamara said that “the reason for the requested extension must tie to the specific circumstances identified by the debtor.” He went on to say that the statutory language “should not justly be held accountable” means “simply that the debtor should not be responsible for external events that the debtor did not cause.”
Judge McNamara noted that the language in Section 1189(b) is exactly the same as in Section 1221 governing plan-filing extensions for family farmers in chapter 12. He noted that Section 1221 has been in place for 30 years and has been “consistently . . . construed . . . as a strict Beyond-the-Debtor’s-Control Standard.”
Similarly, Judge McNamara quoted the Collier treatise for saying, “The court should allow an extension only if the debtor clearly demonstrates that the debtor’s inability to file a plan is due to circumstances that are beyond the debtor’s control.”
With the meaning of Section 1189(b) “already having been settled” in Section 1221, Judge McNamara applied the “beyond the debtor’s control” standard.
The rest was easy. The debtor had withdrawn the financing motion, the only reason the debtor had given for a plan-filing extension. Finding “no basis at all for a Section 1189(b) extension of the 90-day plan filing period,” he denied the motion.
Noting that “Subchapter V cases are supposed to proceed quickly,” Bankruptcy Judge Thomas B. McNamara of Denver observed that “confirmation in Subchapter V cases often takes the same amount of time or even longer than in standard Chapter 11 reorganizations.”
Judge McNamara said that “Subchapter V debtors and their attorneys in this jurisdiction almost never meet the 90-day mandate” in Section 1189(b) for filing a plan. Usually, he said, debtors ask for extensions “on generic grounds.” Other times, he said, debtors “manipulate the deadline by filing bogus placeholder plans of reorganization on the ninetieth day” that are “obviously deficient.”
Judge McNamara was prompted to write his January 29 opinion by a Subchapter V debtor’s motion for a 44-day extension of the 90-day deadline to file a plan. The disposition of the motion depended on the meaning of Section 1189(b), which says “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.”