586 B.R. 881
Bankr. E.D. Mich.2018Background
- Debtor Cheerview Enterprises owns a shuttered gas station/convenience store in Lansing; assets valued at $250,000 and secured debt (Stockbridge $403,000; U.S. Oil $42,000) exceed value. Chapter 11 filed Nov. 21, 2017.
- Stockbridge (successor to SSB Bank) and U.S. Oil objected to plan/disclosure statement and made §1111(b) elections; Stockbridge moved for relief from the automatic stay.
- Debtor proposed a Third Amended Disclosure Statement and Plan premised on (a) an RPF supplier agreement requiring 70,000 gal/month and (b) a Waverly lease whereby a new entity (Waverly) would operate the site. Debtor’s projections assume 54,000 gal/month and conservative expenses.
- A small contractor, Fadi’s, performed work Nov. 7, 2017 for $8,360 and received a purchase-money security interest perfected within 30 days; Fadi’s voted to accept the plan. Opponents argued Fadi’s claim was contrived and should be disqualified.
- After an evidentiary hearing, the court approved the disclosure statement but denied plan confirmation for failure to satisfy §1129(a)(8) and (11) and for violating the absolute-priority rule; the court also granted stay relief under §362(d)(1) and (2).
Issues
| Issue | Stockbridge / U.S. Oil Argument | Cheerview Argument | Held |
|---|---|---|---|
| Adequacy of disclosure under §1125 | Disclosure lacks sufficient detail re: RPF agreements and Waverly lease | Disclosure attached agreements and sufficient detail for size/complexity of case | Disclosure statement adequate; objection overruled |
| Vote validity and §1129(a)(10) (Fadi’s ballot) | Fadi’s claim manufactured; unperfected security = avoidable preference; Fadi’s is insider; vote should be disqualified | Work was performed, PMSI perfected within 30 days, Fadi’s not insider, vote in good faith | Fadi’s holds allowed secured claim; not an insider; vote counts; §1129(a)(10) satisfied |
| Feasibility under §1129(a)(11) | Plan projections unrealistic (depend on hitting 70,000 gal/mo; payroll and expenses implausible); Waverly untested | RPF and management will enable sales; projections show sufficient cash flow | Plan not feasible: projections unrealistic, inconsistent with objective facts; §1129(a)(11) not met |
| Cram-down / absolute priority under §1129(b) | Even if cramdown available, plan must be fair and equitable to dissenting unsecured class; debtor proposes new-value auction to let equity retain stock | Plan provides auction/new-value mechanism for equity retention | Plan violates absolute-priority rule: proposed new-value/auction is insufficiently specified and appears contrived; cannot cram down Class 4 |
| Relief from stay under §362(d) | Stockbridge: no equity and property not necessary to effective reorganization; property deteriorating; no adequate protection | Debtor sought to reorganize under plan (but court denied confirmation) | Stay relief granted under §362(d)(1) (cause) and §362(d)(2) (no equity, not necessary to effective reorg) |
Key Cases Cited
- Pepper v. Litton, 308 U.S. 295 (U.S. 1939) (insider/domination considerations when assessing creditor-debtor relationships)
- United Sav. Ass'n v. Timbers of Inwood Forest Assoc., Ltd., 484 U.S. 365 (U.S. 1988) (property "necessary to an effective reorganization" requires reasonable possibility of successful reorganization in reasonable time)
- Bank of Am. Nat'l Tr. & Sav. Ass'n v. 203 N. LaSalle St. P'ship, 526 U.S. 434 (U.S. 1999) (new value corollary to absolute-priority rule; requirements for new-value retention)
- In re Triple S Restaurants, Inc., 422 F.3d 405 (6th Cir. 2005) (courts scrutinize transactions among parties in confidential relations)
- In re Waterford Hotel, Inc., 497 B.R. 255 (Bankr. E.D. Mich. 2013) (debtor bears burden to prove plan satisfies §1129 requirements)
- In re Griswold Building, LLC, 420 B.R. 666 (Bankr. E.D. Mich. 2009) (manipulation of classes to manufacture acceptance is impermissible)
- In re Made in Detroit, Inc., 299 B.R. 170 (Bankr. E.D. Mich. 2003) (‘‘visionary promises’’ insufficient for feasibility)