Global Processing, Inc., 655 B.R. 486

Background

Debtor: Global Processing, Inc. (Chapter 11). UST moved to convert to Chapter 7 or appoint a Chapter 11 trustee; several creditors (IDALS, Farmers Trust, Unsecured Creditors Committee) joined.
Evidence of widespread mismanagement and self-dealing by owner David Wilcox: messy/incorrect books, unreconciled deposits/checks, $8.3M in uncashed checks, unrecorded transactions, lapsed insurance, and commingling of personal and business funds.
IDALS inspection found roughly $4.7M in withheld checks to producers and state license suspensions for regulatory violations; estimated loss to Iowa producers and indemnity fund roughly $2.1M.
Debtor engaged consultant Greg DeWeese who materially improved recordkeeping, proposed contracts estimated to generate substantial proceeds (~$2.8M), and was proposed as a Chief Reorganization Officer with Wilcox agreeing to cede authority.
Court allowed Wilcox to assert the Fifth; Court drew adverse inferences; found cause under 11 U.S.C. § 1112(b)(4)(A) (substantial/continuing loss and lack of reasonable likelihood of rehabilitation) and, as an alternative to conversion, appointed a Chapter 11 trustee under §1104(a), finding a trustee would maximize creditor recovery and could retain DeWeese.

Issues

Issue	Plaintiff's Argument	Defendant's Argument	Held
Whether movants established "cause" under 11 U.S.C. §1112(b)(4)(A) (substantial/continuing loss and no reasonable likelihood of rehabilitation)	UST/creditors: Debtor's records, withheld payments, negative cash flow, regulatory suspensions, and Wilcox's conduct show substantial continuing loss and no rehabilitation	Debtor: DeWeese's remediation and proposed contracts show reasonable prospect of rehabilitation	Court: Found cause under §1112(b)(4)(A); movants met both elements
Whether "unusual circumstances" under §1112(b)(2) prevent conversion/dismissal	N/A for movants once cause under (4)(A) is found	Debtor: DeWeese's work and proposed CRO appointment are "unusual circumstances" that should bar conversion/dismissal	Court: §1112(b)(2) exception unavailable as a matter of law after finding cause under (4)(A); even on merits Debtor failed to show likelihood of timely plan confirmation or cure
Whether appointment of a Chapter 11 trustee under §1104(a) is appropriate (alternative to conversion)	UST/creditors: Trustee needed due to fraud, dishonesty, incompetence, gross mismanagement; trustee can maximize recoveries	Debtor: Proposes DeWeese as CRO with Wilcox surrendering control instead of trustee appointment	Court: Appointed a Chapter 11 trustee, finding cause for appointment and that a trustee would best serve creditors and could employ DeWeese's expertise
Whether Court should approve DeWeese-negotiated grain contracts (emergency relief)	Debtor: Contracts would generate significant proceeds and aid rehabilitation	Creditors/UST: Most creditors opposed; licensing/regulatory and confirmation barriers remain	Court: Denied most requested relief to approve contracts due to creditor opposition and concerns about plan viability

Key Cases Cited

In re Miell, 419 B.R. 357 (Bankr. N.D. Iowa) (discussing §1112(b) cause standard and discretion pre/post-BAPCPA)
In re Hedquist, 450 F.3d 801 (8th Cir.) (addressing standards under §1112(b) in bankruptcy appeals)
In re New Towne Dev., LLC, 404 B.R. 140 (Bankr. M.D. La.) (interpreting §1112(b) mandatory conversion/dismissal framework)
Loop Corp. v. United States Tr., 379 F.3d 511 (8th Cir.) (holding negative cash flow and intent to liquidate support finding no likelihood of rehabilitation)
In re McQuillen Place Co., LLC, 609 B.R. 823 (Bankr. N.D. Iowa) (compiling §1112(b) considerations)
In re Modanlo, 413 B.R. 262 (Bankr. D. Md.) (analyzing best-interest inquiry under §1112(b)(1))
In re Kerr, 908 F.2d 400 (8th Cir.) (permitting equitable considerations in §1112(b) determinations)