480 B.R. 669
Bankr. W.D. Tex.2012Background
- Mangia Pizza filed Chapter 11; Cloud Cap filed a competing plan after acquiring a de minimis claim.
- Cloud Cap proposed a fund to pay admin, secured, and priority claims with 22% to unsecured and immediate control by Sayers could be avoided.
- Debtor proposed to pay all creditors in full over time from operations, potentially by 2022.
- IRS secured claim was treated differently in Cloud Cap’s plan (Class 2(a)) but court found it not an impaired accepting class.
- Both plans were set for confirmation; contested issues included feasibility, impairment, and bad-faith voting concerns.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Is IRS secured claim an impaired accepting class under 1129(a)(10)? | Cloud Cap argues IRS is impaired and can vote. | Debtor argues IRS is not impaired due to statutory treatment and offset rights. | IRS claim not an impaired accepting class; no voting class. |
| Was Jeff Sayers' vote cast in bad faith under 1126(e)? | Cloud Cap claims Sayers acted to block Cloud Cap and gain control. | Debtor argues motives are legitimate creditor interests and not proven bad faith. | No bad-faith designation; Sayers' vote not designated absent proven ulterior motive. |
| Does Debtor's plan violate the absolute priority rule (1129(b)(2)(B)(ii))? | Cloud Cap/Negro contend control and equity to insider violates absolute priority. | Debtor asserts new value or insider arrangement avoids violation; plan difficult. | Plan violates absolute priority rule; control/value retention by insider impermissible. |
| Is Debtor's plan feasible under 1129(a)(11)? | Cloud Cap/Negro argue plan relies on uncertain future income and insufficient capital. | Debtor relies on Sayers’ infusion and projected cash flows; feasible only if assumptions hold. | Plan not feasible; evidence insufficient to demonstrate probable success. |
| Should confirmation be denied or plan modified due to unfair discrimination or other issues under 1129(b)? | Negro/Cloud Cap allege unfair discrimination and inadequate treatment of similar claims. | Debtor contends treatment is appropriate; disparities justified by plan design. | Confirmation denied for Debtor’s Plan; Cloud Cap’s Plan could be modified to cure issues. |
Key Cases Cited
- In re Greenwood Point, LP, 445 B.R. 906 (Bankr.S.D.Ind. 2011) (secured tax claims may be treated as a class for voting; impairment standard discussed)
- In re Perdido Motel Group, Inc., 101 B.R. 289 (Bankr.N.D.Ala. 1989) (unsecured tax claims and impairment/class status analyzed)
- In re Bryson Properties, 961 F.2d 496 (4th Cir. 1992) (priority tax claims and impairment considerations; cramdown implications)
- In re Sunflower Racing, Inc., 219 B.R. 587 (Bankr.D. Kan. 1998) (vote of secured tax claim holders and impairment considerations)
- In re Lothian Oil, Inc., 650 F.3d 539 (5th Cir. 2011) (recharacterization standards for debt vs. equity)
- In re American Solar King Corp., 90 B.R. 808 (Bankr.W.D. Tex. 1988) (3019/plan modification relevance; not required to re-solicit when no harm)
- In re DBSD N. Am., Inc., 634 F.3d 79 (2d Cir. 2011) (second circuit on designation of votes and good faith standards)