556 B.R. 383
Bankr. C.D. Ill.2016Background
- Debtor Richard M. Sabbun filed Chapter 11 after substantial tax liabilities; IRS filed claims asserting secured and large unsecured portions.
- Debtor proposed a First Amended Chapter 11 Plan providing full payment to some secured creditors and a 30% (later 44 via stipulation) pro rata dividend to general unsecured creditors paid in quarterly installments.
- Disclosure statement initially had feasibility and budget discrepancies; after revisions the court approved an amended disclosure statement and set balloting and confirmation deadlines.
- No non-insider creditor cast an affirmative ballot supporting the amended plan; two initial reported acceptances were invalid (one was a professional who had not timely filed a claim; the other was an insider/owner).
- Debtor obtained a post-deadline stipulation with the IRS in which the IRS agreed to "affirmatively accept" the plan as modified, but the IRS publicly stated it does not vote and would not return a ballot.
- Court denied confirmation because no impaired class had affirmatively accepted the plan under 11 U.S.C. § 1129(a)(10); the stipulation was not treated as an informal ballot and leave to file another plan was denied.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a post-deadline stipulation by the IRS can be treated as an "informal" affirmative ballot under § 1129(a)(10) | Stipulation contains substantially all Official Form 314 information and should be counted as acceptance | IRS intentionally did not vote and refused to return a ballot; stipulation filed after balloting deadline without motion for extension | Stipulation is not an affirmative ballot; cannot be counted toward § 1129(a)(10) acceptance requirement |
| Whether late ballots or stipulations may be allowed under excusable neglect | Debtor argued court should use discretion to treat stipulation as informal ballot or extend deadline | No motion showing excusable neglect; IRS policy was deliberate non-voting, not neglect | Court refused to extend or treat stipulation as ballot; intentional non-vote defeats equitable relief; excusable neglect standard not met |
| Whether insider or unscheduled/unallowed ballots may be counted | Debtor initially reported votes by Vascik and Heartland as acceptances | Vascik was a retained professional with no filed claim; Heartland was an insider/owner; neither had allowed claims | Ballots by Vascik and Heartland were invalid and could not be counted |
| Whether to permit another amended plan after two failed plans with no accepting votes | Debtor sought leave to file another amended plan | Court flagged repeated delays, procedural defects, and absence of any legitimate accepting vote | Court denied leave to file another plan and directed parties to consider dismissal or conversion |
Key Cases Cited
- In re M.J. Waterman & Assocs., Inc., 227 F.3d 604 (6th Cir. 2000) (court discretion to consider informal documents but denial not abuse where deadlines missed)
- In re Vita Corp., 358 B.R. 749 (Bankr. C.D. Ill. 2007) (failure to return ballot is not acceptance)
- Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P'ship, 507 U.S. 380 (1993) (excusable neglect standard for extending time deadlines)