Mercifully, I’m going to experiment with how short I can make case summaries. Earlier this month, Michigan Bankruptcy Judge Applebaum denied confirmation in Lapeer Aviation’s Subchapter V bankruptcy cases. Lapeer operates the Dupont-Lapeer Airport (D95), which is about 25 miles east of Flint. Before addressing 4 objections, which were raised in a two-day evidentiary hearing , the Court reminds us that, even without objections, it has an independent duty to inquire into the plan confirmation requirements.
Ultimately, the Court denied confirmation for liquidation test and unfair discrimination reasons.
Good Faith under § 1129(a)(3)
The Court concluded that the plan had been proposed in good faith because the debtors filed it to preserve the business, restructure, and maximize value and, thus, sought a result that was consistent with the Code.
Best Interests of Creditors under § 1129(a)(7)
We’ve covered the best interests of creditors test before so I’ll cut to the chase: The plan didn’t satisfy that test because (i) the debtors had valuable litigation claims worth as much as $2.3 million; (ii) the evidence didn’t establish that a Chapter 7 trustee would abandon those claims; and (iii) while the plan devoted the litigation proceeds to the disposable income comittment, it left the debtors in sole control of whether to bring the claims. Thus, the Court couldn’t conclude that creditors would receive at least as much under the plan as they’d receive in a Chapter 7, and advised that the plan needed to require the debtors to pursue them and/or seek authority to settle them.
Feasbility under § 1129(a)(11)
We’ve also covered feasibility in prior posts. A plan, including a Subchapter V plan, must establish by a preponderance, with projections rooted in “objective fact,” that the plan offers a “reasonable assurance of success”—not a guarantee, just something realistic rather than “visionary.” In finding the plan feasible, the Court overruled the objection that, beacuse the debtors’ airport management agreements would soon expire and might not be renewed after new bidding, the plan was not feasible. There was a reasonable prospect of renewal.
Unfair Discrimination under § 1191(b)
Using the “Markell Test” for unfair discrimination, the Court found that the plan unfairly discrminated as to its two equity classes because (i) one equity holder (who was in control and the debtors’ primary representative) got to keep his interest; (ii) the other equity older (an economic owner at most who rejected the plan) was being forced to sell his interest for $15,000; and (iii) such disparate treatment was unfairly discriminatory because there was a reasonable likelihood—particularly given the valuable litigation claims—that the net present value of what the surviving equity holder would receive would exceed what the forced surrender holder would receive. It didn’t matter that the latter owner had opposed the reorganization.
The Debtors filed their Third Amended Plan a few days later to fix the two issues.
And there you go—500 words. Not bad, I hope!