445 B.R. 64
Bankr. E.D.N.Y.2011Background
- Debtor Yair Babayoff, pro se, filed Chapter 11 in February 2009; committee of unsecured creditors was not appointed and Debtor remained in possession.
- Property: six-family Brooklyn building at 1416 Putnam Ave; HPD holds a secured claim of about $517,896; Debtor also co-owns a second residence with an $80,000 mortgage.
- Creditor Fachlaev asserts an unsecured claim of about $385,000 and seeks conversion or dismissal; Nakos holds a secured claim of $12,355; other secured and priority claims exist, totaling over $590,000 to City agencies and others.
- Debtor’s operating reports were inconsistent, late, or missing; counsel withdrew in 2010 for lack of information to prepare a disclosure statement; the Debtor filed two incomplete Chapter 11 plans that failed to meet 1123/1125 requirements.
- Previous related proceedings include a 2008 Chapter 7 case for Debtor’s father and a 2007 Chapter 7 petition by Debtor that was dismissed; the Court entered a conditional order linking noncompliance to potential conversion.
- Court ultimately scheduled a motion to convert or dismiss; after briefing and a hearing, the matter was held under advisement and converted to Chapter 7.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether cause exists to convert or dismiss under 1112(b). | Fachlaev argues failure to file plan/disclosure, mismanagement, and undue delay. | Babayoff contends potential for reorganization exists and timely compliance can be achieved. | Cause found; case converted to Chapter 7. |
| Whether the failure to file a disclosure statement or plan justifies 1112(b)(4)(J) relief. | Without feasible plan or disclosure, confirmation is unlikely and delay harms creditors. | Debtor contends plan/disclosure could be amended and confirmed; noncompliance is contested. | Delays and incomplete disclosures justify conversion/dismissal; relief granted. |
| Whether the debtor's failure to comply with court orders supports 1112(b)(4)(E) and (F). | Debtor ignored conditional order and deadlines, failing monthly operating reports and fees. | Debtor asserts some compliance and attempts to cure defaults. | Repeated noncompliance with court orders supports conversion. |
| Whether conversion to Chapter 7 is in the best interests of the estate as opposed to dismissal. | Trustee appointment could maximize asset recovery, liquidate assets, and address secured claims. | Dismissal might preserve some estate value; conversion is not necessary. | Conversion to Chapter 7 is in the best interests of creditors and the estate. |
Key Cases Cited
- In re AdBrite Corp., 290 B.R. 209 (Bankr.S.D.N.Y. 2003) (illustrative grounds for 1112(b) relief)
- In re C-TC 9th Ave. P'ship, 113 F.3d 1304 (2d Cir. 1997) (grounds for where 1112(b) grounds are used)
- In re Koerner, 800 F.2d 1358 (5th Cir. 1986) (nebulous plan and 1123/1125 adequacy concerns)
- In re Tornheim, 181 B.R. 164 (Bankr.S.D.N.Y. 1995) (compliance with court orders and progress toward confirmation)
- In re Local Union 722, Int'l Bhd. of Teamsters, 414 B.R. 443 (Bankr.N.D. Ill. 2009) (plan confirmation unlikely when creditor majority opposes)
- In re Westhampton Coachworks, Ltd., 2010 WL 5348422 (Bankr.E.D.N.Y. 2010) (considerations for conversion vs dismissal)