575 B.R. 768
Bankr. E.D. Mich.2017Background
- Debtor Packard Square, LLC obtained a ~$53.8M construction loan from Canyon to build a mixed‑use project in Ann Arbor; multiple construction defaults and unpaid subcontractors followed.
- Canyon sued in state court and, on November 1, 2016, obtained appointment of McKinley, Inc. as receiver; the receivership was authorized to borrow (initially up to $19.7M) from Canyon to complete the Project.
- The receiver and its contractor (O’Brien) worked on the Project for >10 months; litigation over receiver conduct, draw requests, and lien claimants proceeded in state court.
- Debtor filed Chapter 11 on September 5, 2017 and moved under 11 U.S.C. § 543(b) to compel the receiver to turnover estate property and file an accounting.
- Canyon moved under § 543(d)(1) to excuse turnover and under § 305(a)(1) (with § 105(a)) to suspend or dismiss the bankruptcy and permit the receivership to continue; the Court also considered the Debtor’s DIP financing motion (denied in a separate opinion).
- The bankruptcy court concluded the receivership was the only viable path to complete and stabilize the Project, excused turnover, dismissed the bankruptcy under § 305(a)(1), and barred new filings by or against the Debtor for two years.
Issues
| Issue | Plaintiff's Argument (Debtor) | Defendant's Argument (Canyon/Receiver) | Held |
|---|---|---|---|
| Whether the state‑court receiver must turn over property and file an accounting under 11 U.S.C. § 543(b) | § 543(b) mandates turnover to the debtor‑in‑possession and accounting | § 543(d)(1) allows the bankruptcy court to excuse turnover where creditors' (and equity's) interests are better served by the receiver remaining in control | Denied turnover; court excused receiver from § 543(b) obligations under § 543(d)(1) |
| Whether the court should excuse the receiver under § 543(d)(1) | Debtor: turnover promotes reorganization and debtor control | Canyon: receiver has been operating for >10 months, has financing pathway to complete Project, turnover would harm prospects and duplicate work | Granted: court found creditors' and equity interests better served by receiver remaining in possession |
| Whether the bankruptcy court should abstain/suspend/dismiss under § 305(a)(1) in favor of the state receivership | Debtor: bankruptcy is the proper forum to protect its reorganizational rights | Canyon & U.S. Trustee: ongoing receivership is advanced; dismissal preferable to suspension; receivership is more efficient | Dismissed the Chapter 11 case under § 305(a)(1) (court elected dismissal rather than suspension) |
| Whether the court may and should bar future bankruptcy filings by or against the Debtor | Debtor: (implicitly) should be able to seek bankruptcy relief later if needed | Canyon: protect receivership and avoid circumvention of rulings | Court barred filings by or against the Debtor for two years under its equitable authority (11 U.S.C. § 105(a) and § 349(a)) |
Key Cases Cited
- Allard v. Coenen (In re Trans‑Industries, Inc.), 419 B.R. 21 (Bankr. E.D. Mich. 2009) (defines "core" bankruptcy proceedings and discusses proceedings "arising under" and "arising in" title 11)
- In re Franklin, 476 B.R. 545 (Bankr. N.D. Ill. 2012) (recognizes state court receiver as a "custodian" under § 543)
- In re Corporate & Leisure Event Prods., Inc., 351 B.R. 724 (Bankr. D. Ariz. 2006) (discusses bankruptcy court discretion to excuse turnover under § 543(d)(1))
- In re Orchards Vill. Invs., LLC, 405 B.R. 341 (Bankr. D. Or. 2009) (excused turnover where receivership improved conditions and was the better vehicle to complete project)
- In re Starlite Houseboats, Inc., 426 B.R. 375 (Bankr. D. Kan. 2010) (dismissed under § 305(a)(1) where state receivership was well underway and dismissal served creditors' interests)
- In re Michael S. Starbuck, Inc., 14 B.R. 134 (Bankr. S.D.N.Y. 1981) (dismissal under § 305(a)(1) appropriate where receivership had substantial prior administration and bankruptcy would duplicate effort)