625 B.R. 417
Bankr. W.D. Mo.2020Background
- Kevin and Susan Thurmon owned 70% of Dowel, LLC, which operated two pharmacies; Dowel closed and sold almost all business assets in April 2020, leaving residual receivables and two cars subject to a secured creditor’s liens.
- By the August 2020 chapter 11 filing the business had no employees, customers, vendors, or intent to resume operations; Dowel remained a Missouri entity in good standing.
- The Thurmons elected subchapter V small business debtor status on their petition and timely filed required SBRA reports, monthly operating reports, and a plan.
- The United States Trustee (UST) objected to the subchapter V designation, arguing the debtors were not "engaged in commercial or business activities" at filing because they had ceased operations and retired.
- The Thurmons argued the statute does not require being "currently" engaged and pointed to precedent allowing former operators to qualify; their consensual plan was accepted by impaired voting classes (including the primary secured creditor, which later withdrew its joinder).
- The court sustained the UST’s eligibility objection (striking the subchapter V election) but overruled the UST’s limited objection to confirmation, finding a disclosure statement unnecessary under the circumstances and requiring inclusion of UST quarterly fees in the confirmation order.
Issues
| Issue | UST’s Argument | Thurmon(s)’ Argument | Held |
|---|---|---|---|
| Whether debtors were "engaged in commercial or business activities" for subchapter V eligibility at filing | Debtors had ceased operations, sold assets, retired — not actively engaged | Statute does not require being "currently" engaged; Dowel LLC remained an entity in good standing; precedent supports eligibility | "Engaged in" requires active/current involvement; debtors were not engaged; subchapter V designation stricken (proceed as regular Chapter 11) |
| Whether the consensual plan is confirmable without a disclosure statement and without explicitly providing UST quarterly fees | Plan is not confirmable because no disclosure statement and does not provide for UST fees required in non‑subchapter V cases | Rule 1020 and §1181(b) made §1125 inapplicable when plan was filed; creditors had adequate information and voted; UST waived request for disclosure statement | Overruled UST objection to confirmation; disclosure statement requirement waived/not required given circumstances; plan must be modified to provide for UST quarterly fees and proposed confirmation order filed within 14 days |
Key Cases Cited
- Toibb v. Radloff, 501 U.S. 157 (1991) (Congress did not categorically restrict Chapter 11 to business‑operating debtors)
- In re Tim Wargo & Sons, Inc., 869 F.2d 1128 (8th Cir. 1989) ("conduct"/"engaged in" requires an active role in the operation)
- In re Easton, 883 F.2d 630 (8th Cir. 1989) (income/debts count toward farming only if debtor had significant degree of engagement or operational role)
- Montgomery v. Ryan (In re Montgomery), 37 F.3d 413 (8th Cir. 1994) (debtor bears burden to prove eligibility when electing subchapter relief)
- In re Pittsburgh & Lake Erie Properties, Inc., 290 F.3d 516 (3d Cir. 2002) (statutory phrase "engaged in" read in present tense to require current engagement)