589 B.R. 631
Bankr. N.D. Ill.2018Background
- Aurora Memory Care, LLC (AMC) operated a health-care facility; its parent is Aurora Real Estate & Property Investments, LLC (ARE), owned by Taher Kameli.
- AMC was a relief defendant in an SEC enforcement action against Kameli's EB-5 investment activities; the SEC sought disgorgement but AMC was not accused of wrongdoing.
- West Suburban Bank loaned AMC $6.5 million (secured by the facility and ownership pledges); loan matured Dec. 1, 2016; state court appointed a receiver and the Bank pursued foreclosure/replevin claims.
- An involuntary chapter 11 petition was filed April 18, 2018; AMC consented to relief and the case proceeded as a voluntary chapter 11. The receiver remained in possession.
- AMC failed to file timely schedules and has not filed any monthly operating reports; its schedules (late) show secured debt of $8.561M ($8.4M to the Bank) and asserted facility value of $10M then amended to $16M (appraisal not produced).
- AMC has proposed refinancing via a prospective lender (T2) based on a nonbinding LOI with conditions (including dismissal with prejudice from the SEC action and substantial upfront fees); the court found no firm financing commitment and concluded AMC cannot feasibly service proposed debt even at full occupancy.
Issues
| Issue | Bank's Argument | AMC's Argument | Held |
|---|---|---|---|
| Whether "cause" exists under 11 U.S.C. § 1112(b) to convert or dismiss | AMC failed to file required monthly operating reports and has no reasonable likelihood of confirming a plan | AMC asserted prospective financing (T2) and an appraisal supporting equity cushion | Court: Cause exists based on no operating reports and infeasibility of any confirmation plan |
| Whether AMC established the § 1112(b)(2) exceptions (unusual circumstances; likelihood of confirmation; reasonable justification and cure) | Bank: No unusual circumstances; no evidence financing exists; no justification or cure shown | AMC: Financing via T2 (and asserted appraisal) would permit reorganization | Court: AMC failed to meet its burden; no unusual circumstances and no reasonable likelihood of plan confirmation |
| Whether the case should be dismissed or converted to chapter 7 | Bank preferred dismissal | AMC implicitly preferred continuing chapter 11 to pursue refinancing | Court: Converted to chapter 7 because schedules suggest potential equity for unsecured creditors; conversion better serves creditors and estate |
| Whether the receiver's possession excuses AMC's duties (e.g., filing operating reports) | Bank: Receiver does not excuse AMC's chapter 11 reporting obligations | AMC suggested receiver hampered timely filings | Court: Receiver's possession does not relieve AMC of reporting duties; failure to file is unexcused cause for conversion/dismissal |
Key Cases Cited
- Bartle v. Coleman, 560 F.3d 724 (7th Cir. 2009) (conversion/dismissal standards and discretion under § 1112(b))
- S.E.C. v. Kameli, 276 F. Supp. 3d 852 (N.D. Ill. 2017) (denial of SEC preliminary injunction in related enforcement action)
- In re Waterworks, 538 B.R. 445 (Bankr. N.D. Ill. 2015) (§ 1112(b) causes list is illustrative, not exclusive; burden shifting)
- In re Domiano, 442 B.R. 97 (Bankr. M.D. Pa. 2010) (mandatory conversion/dismissal where movant meets burden)
- In re Woodbrook Assocs., 19 F.3d 312 (7th Cir. 1994) (inability to effectuate a plan supports dismissal)
- In re Repurchase Corp., 332 B.R. 336 (Bankr. N.D. Ill. 2005) (feasibility requirement and need for reasonable assurance of commercial viability)