635 B.R. 127
Bankr. E.D. Pa.2022Background
- Six affiliated debtors (five NYC/Philly real estate entities and one Philadelphia parcel) filed Chapter 11 on May 23, 2021; all are single-asset real estate (SARE) debtors and their projects were at varying stages of completion.
- Sharestates (construction lender) ceased funding construction, holds large secured claims against all properties, and moved to dismiss or convert the cases under 11 U.S.C. §1112(b).
- Debtors pursued an aggressive plan-centered strategy that sought (among other relief) to limit creditors’ credit bids; the court denied the Credit Bid Limitation Motion, rendering the filed plan unconfirmable.
- The cases had been pending >210 days at the Motion hearing; Debtors had not made required §362(d)(3) interest payments nor filed a confirmable plan within the SARE statutory timeframe.
- Court granted Sharestates’ Motion to Dismiss/Convert: dismissed the three NYC debtors (Kingsland, Hancock, 231 E. 123) and Frankford; converted Pier Village and Penn Treaty to Chapter 7; discussed effects on an ongoing adversary proceeding.
Issues
| Issue | Debtors' Argument | Sharestates' Argument | Held |
|---|---|---|---|
| Whether “cause” exists under §1112(b) to dismiss or convert | Debtors asked for more time to propose a new sale process and amended plan | Movant argued lack of progress, SARE special deadlines, and no likelihood of plan confirmation | Court: "Cause" exists — no reasonable prospect of plan confirmation and §362(d)(3) SARE concerns applied |
| Whether §1112(b)(2) "unusual circumstances" bar dismissal/conversion | Debtors argued continuation would permit a sale process and preserve claims | Sharestates said no unusual circumstances; prompt relief needed | Court: Debtors made no showing of unusual circumstances; §1112(b)(2) inapplicable |
| Whether to dismiss or convert (best interests of creditors/estate) | Debtors preferred dismissal to preserve rights and avoid trustee control | Sharestates (and others) preferred conversion to Chapter 7 for trustee-run sale and investigation; offered carve-out for administrative/unsecured claims | Court: Split result — dismissed NY Debtors and Frankford (insufficient non‑insider unsecured claims/no meaningful estate) ; converted Pier Village and Penn Treaty (substantial mechanic’s lien and other unsecured claims warrant Chapter 7) |
| Effect on the adversary proceeding (AP) and jurisdiction | Debtors wanted to retain control of AP claims | Sharestates expected trustee control where estates converted; others supported conversion | Court: Conversion transfers control of AP claims for Pier Village/Penn Treaty to the trustee; dismissed debtors retain non‑bankruptcy forum rights and AP jurisdictional status must be resolved later; mixed control acceptable |
Key Cases Cited
- In re Am. Cap. Equip., LLC, 688 F.3d 145 (3d Cir. 2012) (establishes burden-shifting and requirement to grant relief when cause is shown under §1112(b))
- Pacor, Inc. v. Higgins, 743 F.2d 984 (3d Cir. 1984) (tests for bankruptcy court "related to" jurisdiction)
- In re DCNC N.C. I, LLC, 407 B.R. 651 (Bankr. E.D. Pa. 2009) (debtor’s inability to confirm a plan supports §1112(b) relief)
- In re Creekside Sr. Apartments, L.P., 489 B.R. 51 (B.A.P. 6th Cir. 2013) (discusses Congress’ intent that SARE cases proceed expeditiously)
- In re KVN Corp., Inc., 514 B.R. 1 (9th Cir. B.A.P. 2014) (Chapter 7 sales should provide some benefit to unsecured creditors)