664 B.R. 408
Bankr. W.D. Ky.2024Background
- Debtor Jody D. Lashley (sole proprietor) filed for bankruptcy under Subchapter V of Chapter 11 on September 29, 2023.
- U.S. Trustee filed a motion to convert Lashley’s case to Chapter 7 or dismiss it for failure to comply with statutory requirements, with Lashley objecting.
- Lashley repeatedly failed to timely submit complete and accurate monthly operating reports and failed to adequately explain large cash withdrawals.
- Lashley did not timely file a confirmable Subchapter V plan and failed to provide required plan disclosures (liquidation analysis, projections).
- After nearly a year, Lashley had made no substantial progress toward reorganization, had insufficient income to support a plan, and had not secured a viable sale of key assets.
- Court held an evidentiary hearing and found no unusual circumstances warranting retention of the case in Chapter 11, opting to convert to Chapter 7 for the benefit of creditors.
Issues
| Issue | U.S. Trustee's Argument | Lashley's Argument | Held |
|---|---|---|---|
| Failure to timely file monthly operating reports | Cause for conversion or dismissal under § 1112(b)(4)(F) | Work and partner's health caused delays, but excusable | Not excused; constitutes cause |
| Failure to file/confirm a plan within statutory time | No confirmable plan filed within 90 days or any extension | Circumstances explain delay, progress being made | Delay unreasonable; cause exists |
| Prospects for successful reorganization | Insufficient income and no credible sale prospects | Asset sale is possible, equity in property exists | Prospects too remote/speculative |
| Best interests of creditors: Conversion or dismissal? | Chapter 7 will allow trustee to liquidate assets for creditor benefit | Dismissal or continued Chapter 11 better for estate | Conversion to Chapter 7 best serves creditors |
Key Cases Cited
- Trident Assocs. Ltd. P'ship v. Metro. Life Ins. Co., 52 F.3d 127 (6th Cir. 1995) (Courts may find non-statutory bases for cause to convert or dismiss bankruptcy case)
- In re Berryhill, 127 B.R. 427 (Bankr. N.D. Ind. 1991) (Monthly operating reports are critical to the Chapter 11 process and creditor oversight)
- In re Wahlie, 417 B.R. 8 (Bankr. N.D. Ohio 2009) (Non-exclusive list of conversion/dismissal cause grounds)
- In re DCNC N.C. I, LLC, 407 B.R. 651 (Bankr. E.D. Pa. 2009) (Conversion/dismissal warranted where debtor unable to effectuate a plan)