471 B.R. 300
Bankr. S.D. Florida2012Background
- Sundale filed a voluntary petition under chapter 11 on Dec 12, 2007 and Kendall Hotel & Suites filed on Jan 30, 2008; the cases were jointly administered.
- The Debtors operated as debtors-in-possession under §§1107 and 1108 during the cases.
- The Debtors’ Second Amended Chapter 11 Plan of Reorganization was filed Mar 7, 2009 and substantively consolidated the estates.
- The Plan was confirmed by the Confirmation Order dated May 26, 2009, with an effective date of Jul 10, 2009.
- On Aug 2–5, 2010 FACE and Ocean Bank objected to Sundale’s post-petition financing and sought conversion to chapter 7 for cause, leading to a later ruling that the Plan was substantially consummated and to a hearing on conversion.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether a chapter 11 case may be converted to chapter 7 after substantial consummation for cause. | Moving Creditors contend conversion is permissible for cause under §1112(b). | Reorganized Debtors argue no conversion post-substantial consummation is allowed. | Yes, conversion may occur after substantial consummation if there is cause. |
| Whether conversion revests assets in the chapter 7 estate when the plan vested assets in the reorganized debtor. | Creditors contend assets revest in the estate upon conversion. | Debtors contend revesting does not occur absent a plan provision. | Absent an express plan/confirmation provision, assets vested in the reorganized debtor do not revest automatically. |
| Whether converting to chapter 7 is in the best interests of creditors and the estate. | Conversion could facilitate resolution of disputes and allow avoidance actions. | There may be little for a chapter 7 trustee to administer and creditors might not benefit. | Conversion is in the best interests of creditors despite limited post-conversion assets. |
Key Cases Cited
- In re Smith, 201 B.R. 267 (D. Nev. 1996) (debtor’s plan post-confirmation effects; asset revesting varied by approach)
- In re RJW Lumber Co., 262 B.R. 91 (Bankr. N.D. Cal. 2001) (revestment of post-confirmation assets and avoidance actions)
- In re Midway, Inc., 166 B.R. 585 (Bankr. D.N.J. 1994) (Bezner approach; post-confirmation assets revested if necessary to distribute under plan)
- Pioneer Liquidating Corp. v. U.S. Trustee (In re Consolidated Pioneer Mtg. Entities), 264 F.3d 803 (9th Cir. 2001) (plan provisions implying revesting of assets on conversion; continuation of plan mechanics)
- In re TSP Industries, Inc., 117 B.R. 375 (Bankr. N.D. Ill. 1990) (absence of plan results in no revesting upon post-confirmation conversion)
- In re Carter, 201 B.R. 838 (Bankr. S.D. Ala. 1996) (post-confirmation conversion; assets outside estate; revesting issue)