579 B.R. 504
Bankr. E.D. Wis.2017Background
- Green Box NA Green Bay LLC filed Chapter 11 after a receivership and extensive investigations into its former controlling manager, Ronald Van Den Heuvel, who faced SEC inquiries and multiple indictments alleging fraud, commingling of entity assets, and diversion of loan funds.
- Prior to bankruptcy, creditors forced a receivership (May 2015); the state receiver seized records and conducted investigations but found no recoverable unencumbered assets. Van Den Heuvel largely invoked the Fifth Amendment in examinations.
- The debtor confirmed a Chapter 11 plan in February 2017 premised on a “roll-up” (sale to NewCo) to pay unsecured creditors in full; the roll-up failed to occur by the extended deadline.
- Ability Insurance Company (secured creditor) moved to dismiss the Chapter 11 for cause; the debtor consented to dismissal. Wisconsin Economic Development Corporation (WEDC) opposed dismissal and moved to convert to Chapter 7, arguing a trustee might uncover fraudulent transfers or hidden assets.
- The court found cause to end the Chapter 11 (failure to effectuate the confirmed plan) but analyzed whether dismissal or conversion better served creditors given the history of investigations and apparent absence of unencumbered assets.
Issues
| Issue | Ability / Debtor (Argument for dismissal) | WEDC (Argument for conversion) | Held |
|---|---|---|---|
| Whether cause exists under 11 U.S.C. § 1112(b) to dismiss or convert for failure to consummate plan | Cause exists because the roll-up failed and the debtor cannot effectuate the confirmed plan | Agreed there is cause but urged conversion instead of dismissal | Court: Cause exists due to failure to effectuate the plan; proceed to remedy choice (dismissal vs conversion) |
| Whether conversion is appropriate because a Chapter 7 trustee could discover and recover fraudulent transfers or hidden assets | Conversion is a poor use of resources; prior investigations and receivership found nothing; estate lacks funds to support a trustee | A trustee could investigate and possibly recover assets (fraudulent conveyances, alter-ego recoveries) benefiting unsecured creditors | Court: Speculative possibility of recoveries insufficient; conversion would likely waste estate resources; no reasonable likelihood of recoverable assets to fund trustee’s work |
| Whether dismissal would unduly prejudice creditors by eliminating rights that conversion would preserve | Dismissal allows creditors to pursue state-law remedies and benefit from ongoing federal/state investigations without incurring trustee expenses | Conversion preserves a bankruptcy forum and trustee powers to investigate and litigate ownership/claims | Court: Dismissal favored; creditors can pursue state remedies and benefit from existing investigatory efforts; dismissal better protects creditor interests given lack of estate funds |
| Whether allegations of entity commingling / alter-ego and missing IP/patents justify conversion to allow litigation to determine ownership | Debtor and Ability: documents WEDC relies on are unsupported, stale, and unreliable; even if ownership disputes existed, litigation costs would likely exceed recoverable value | WEDC: Financial statements and flowcharts suggest assets and intercompany interests that a trustee could litigate or recover | Court: Evidence is speculative and lacks foundation; likely costs of ownership litigation outweigh any realistic recovery; conversion not justified |
Key Cases Cited
- In re Jartran, Inc., 886 F.2d 859 (7th Cir.) (cause under § 1112(b) is committed to judicial discretion)
- In re Helmers, 361 B.R. 190 (Bankr. D. Kan. 2007) (factors for choosing dismissal vs conversion)
- In re T.S.P. Indus., Inc., 117 B.R. 375 (Bankr. N.D. Ill. 1990) (conversion should not be used as a fishing expedition when assets are unlikely)
- In re Sundale, Ltd., 471 B.R. 300 (Bankr. S.D. Fla. 2012) (discussion of postconfirmation conversion and speculative recoveries)
- In re Gannon Int’l, Ltd., 528 B.R. 906 (E.D. Mo. 2015) (affirming dismissal where estate could not fund trustee and creditors did not offer to fund conversion)
- In re FRGR Managing Member LLC, 419 B.R. 576 (Bankr. S.D.N.Y. 2009) (conversion ordered in part where creditor agreed to fund trustee’s activities)
- In re Hughes, 279 B.R. 826 (Bankr. S.D. Ill. 2002) (effect of failed conditions precedent on plan confirmation arguments)