There were no Sub V opinions in August that I could find, so I’ll pick-up with the September opinions. And by now, you know the drill: I’ll provide, in a single post, short summaries of each month’s notable Subchapter V opinions from across the country (which basically means all Sub V opinions from that month). Rather than providing all-encompassing summaries, I’ll provide a roadmap of the issues and then you can click the opinions if you want to dig deeper.
Sorry that I got behind, but here are the September Subchapter V opinions:
Saturno is a good Sub V confirmation opinion. Ultimately, the Court denied confirmation for two reasons, but determined the debtor could fix the issues in the confirmation order.
First, it asked the debtor to amend its plan by making it clear that, while plan confirmation can fix collateral values for § 506 purposes, it can’t “effect allowance” of a creditor’s claim.
Second, after hearing competing appraisal testimony, the court determined that the secured amount of the creditor’s claim needed to be increased. The opinion provides a detailed example of how bankruptcy courts weigh appraisal methodologies and evidence.
The court also addressed feasibility, observing that a Sub V debtor can establish plan feasibility by either showing (i) it can make all plan payments under § 1191(c)(3)(A) or (ii) there is a reasonable likelihood it can make all plan payments and that the plan includes appropriate remedies for plan defaults under § 1191(c)(3)(B), with the reasonable likelihood requirement being “indistinguishable” from § 1129(a)(11)’s feasibility standard.
The court found the plan to be feasible, despite determining that the secured claim needed to be increased, because the pre-balloon payments were fixed (regardless of the secured claim amount) and the evidence showed that a refinance at maturity was “reasonably likely.”
Finally, in addressing feasibility, the court assessed the proposed Till interest rate, first by providing a good overview of Till and then evaluating the rate. While the bank focused appropriately on the “nature of the collateral” and “plan feasibility”—each relevant to Till—it determined that the creditor’s evidence didn’t carry the creditor’s burden of showing that the increase over the prime rate was insufficient to cover debtor-specific risks.
RGW is barely worth noting except to say that it confirms that, regardless of whether a Sub V debtor confirms a plan consensually, § 1141(d)(3), which is not specific to Sub V, “may still deprive a Chapter 11 debtor of their right to receive a Chapter 11 discharge.” Click the link if you’re interested in how courts address § 1141(d)(3)’s three requirements.
Fama is a mind numbingly detailed Sub V eligibility opinion—33 printed pages out of Lexis. It appears to discuss almost all of the eligibility opinions that came before it. In one sentence: The “engaged in” requirement is measured as of the petition date and, even if the business has not been in operation for quite some time, “commercial or business activities” can include addressing “residual debt” in litigation and marshaling “residual business assets.”
Subchapter V has been around long enough that we’re starting to see courts address for Sub V debtors what they routinely address for regular Chapter 11 debtors, including dismissal and conversion issues. I almost didn’t mention M.A.R. because it’s mostly just a 40-page, rather garden variety § 1112(b) discussion. However, it’s interesting to note because, despite there being overwhelming other reasons to convert this Sub V to a Chapter 7, the court determined that the debtor having “proposed six [!] alternative Chapter 11 plans” over four months did not give the court a basis to convert under § 1112(b)(4)(J) (i.e., for the debtor’s failure “to make meaningful and substantive” confirmation progress within the Code’s “time frames”). After all, Sub V’s § 1193(a) lets a debtor “modify a plan at any time before confirmation.”
Like Mateos (covered in the July edition), Trinity is a § 1189(b) opinion. As a reminder, § 1189(b) lets a court extend the 90-day plan filing deadline when the “need for the extension is attributable to circumstances for which the debtor should not justly be held accountable” (the “Circumstances Test”). And in Trinity, Judge Jacobvitz dives deep into what he characterizes as a “split” among the courts about how to interpret that test.
Specifically, he identifies three approaches to applying the Circumstances Test:
- Approach 1: Focus on circumstances beyond the debtor’s control (which excludes equitable considerations, and with the debtor’s counsel’s acts/omissions being within the debtor’s control).
- Approach 2: Employ the four-factor Baker test, which focuses on whether: (i) circumstances are within the debtor’s control; (ii) the debtor has made progress in drafting a plan; (iii) deficiencies preventing the draft are reasonably related to the cited circumstances; and (iv) parties object or have moved to dismiss/convert the case.
- Approach 3: Make an “equitable” inquiry—is the debtor “fairly responsible” for his inability to file a timely plan? That includes striking balance between a speedy case and access to a realistic reorganization scheme; considering prejudice to creditors; etc.
The court adopted the third approach and, based on an equitable inquiry (you can read about by clicking the link), granted the extension. The debtor had reached a resolution with most of its major creditors, was close to a deal with its two remaining major creditors, and a one-month extension would not result in any undue prejudice.
That’s it. Stay tuned for the October Sub V case summaries before month end.