480 B.R. 238
Bankr. N.D. Tex.2012Background
- Geijsels and The Luckie Dutchman, LLC filed Chapter 11 petitions; Lone Star obj ected to confirmation of the Second Amended Joint Plan of Reorganization.
- Plan provides that Lone Star debts are split into two secured classes (PCA and FLCA) with deferred payments and balloon terms.
- Lone Star contends the Plan uses encumbered cash collateral to fund payments to junior creditors, undermining its secured position.
- Court evaluated Lone Star’s claims, cash collateral status, and the adequacy protections, finding undersecured status evolved to oversecured during case.
- Court found the Plan infeasible and not fair and equitable to Lone Star, denying confirmation and granting relief from stay.
- There was a related adversary proceeding arising from homestead and related collateral issues, with settlement subsequent to the memorandum.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the Plan is proposed in good faith under 1129(a)(3) | Lone Star argues lack of good faith due to structure and projections. | Geijsels contend plan is a legitimate reorganization. | Plan found not to be unconfformed on good faith; feasibility and fair treatment more decisive. |
| Whether the Plan is feasible under 1129(a)(11) | Lone Star asserts projections are overly optimistic and unsustainable. | Debtors argue projections and cash flow show viability. | Plan not feasible given cash constraints, volatility, and lack of cushion. |
| Whether Lone Star receives fair and equitable treatment under 1129(b) | Lone Star contends plan improperly uses encumbered cash to pay junior claims. | Debtors rely on adequate protection and oversecured status to justify treatment. | Plan fails fair and equitable standard; encumbered cash collateral cannot be used as proposed. |
| How to define Lone Star's secured claim and effect of cash collateral | Lone Star argues it should be oversecured and accrue postpetition interest/fees. | Committee/Debtors contend under 506(b) and T-H New Orleans analysis supports phased accrual. | Lone Star became oversecured during case; interest/fees accrue and cash collateral applies to claim. |
Key Cases Cited
- In re Texas Extrusion Corp., 68 B.R. 712 (N.D. Tex. 1986) (good faith and feasibility analyses in plan confirmations; nonbankruptcy acts considered relevant)
- In re Sun Country Dev., Inc., 764 F.2d 406 (5th Cir. 1985) (good faith determined by totality of circumstances and potential for fresh start)
- In re Madison Hotel Assocs., 749 F.2d 410 (7th Cir. 1984) (trial court best positioned to assess good faith; purpose of reorganization)
- In re T-H New Orleans Ltd. P’ship, 116 F.3d 790 (5th Cir. 1997) (oversecured status and accrual of interest under § 506(b); timing of valuation)
- United States v. Timbers of Inwood Forest Assocs., Ltd., 484 U.S. 365 (Supreme Court 1988) (valuation rules for secured claims; § 506(b) and 552(b) implications)