2015 Bankr. LEXIS 2682
Bankr. D. Colo.2015Background
- Experient Corporation (Debtor) filed Chapter 11 after a state-court judgment against it; owner William O’Neil was president and majority shareholder; John Randall and related parties held significant minority interests and asserted unsecured claims.
- Examiner Tom Connolly was appointed and concluded O’Neil was a net debtor to Experient; recommended plan reflect that finding.
- Debtor proposed a liquidating Second Amended Plan: sale of operating assets to lead programmer Robert McCarthy for $50,000 plus waiver of his unsecured claim; cash, receivables, avoidance and legal claims retained for a plan trustee to monetize.
- Randall and related creditors (the Randall Creditors) objected, challenging good faith, feasibility, valuation, voting/claims treatment, insider status of McCarthy, and compliance with §§ 1129(a)(3), (7), (8), (11) and § 1129(b).
- Expert business valuation (Shari Lutz) concluded Experient’s fair market value was $0; only one competing offer (McCarthy’s) existed.
- Bankruptcy court held a trial, found key witnesses (O’Neil, McCarthy, Lutz) credible (Randall and Bateman less so), and confirmed the Second Amended Plan over the Randall Creditors’ objections.
Issues
| Issue | Plaintiff's Argument (Randall Creditors) | Defendant's Argument (Experient) | Held |
|---|---|---|---|
| Good faith of plan (§ 1129(a)(3)) | Plan is a gift of assets to McCarthy for $50,000; structured to disadvantage creditors and favor insiders | Plan is a transparent liquidating plan based on examiner’s findings; no conflicted votes; sale preserves going-concern value and yields funds for creditors | Plan proposed in good faith; § 1129(a)(3) satisfied |
| Best-interest test (§ 1129(a)(7)) | Creditors would receive more if debtor continued as going concern | Chapter 7 conversion (per stipulation with UST) would yield materially less; plan yields higher pro rata distribution to unsecureds | § 1129(a)(7) satisfied; plan better for creditors than Chapter 7 liquidations |
| Fair and equitable / absolute priority (§ 1129(b)) | Plan discriminates and violates absolute priority by stripping assets and impairing classes to favor insiders/equity | Unimpaired or accepting class voted in favor; equity receives nothing unless unsecureds paid in full; absolute priority satisfied | No unfair discrimination; absolute priority rule met; § 1129(a)(8) / § 1129(b) satisfied |
| Feasibility (§ 1129(a)(11)) | Plan not feasible; sale undervalues business; future litigation/claims uncertain | Liquidating plan with only realistic sale offer; McCarthy can close and has financing; trustee will administer remaining assets | Plan is feasible as a liquidating plan; § 1129(a)(11) satisfied |
Key Cases Cited
- In re Paige, 685 F.3d 1160 (10th Cir. 2012) (good-faith and feasibility standards for plan confirmation)
- Travelers Ins. Co. v. Pikes Peak Water Co., 779 F.2d 1456 (10th Cir. 1985) (test for good faith under § 1129(a)(3))
- In re Briscoe Enters., Ltd., II, 994 F.2d 1160 (5th Cir. 1993) (plan acceptance and cramdown principles)
- Allen v. Geneva Steel Co. (In re Geneva Steel Co.), 281 F.3d 1178 (10th Cir. 2002) (absolute priority rule discussion)
- In re U.S. Med., Inc., 531 F.3d 1272 (10th Cir. 2008) (non-statutory insider analysis)
- Norwest Bank Worthington v. Ahlers, 485 U.S. 197 (1988) (absolute priority rule and reorganization principles)