622 B.R. 236
Bankr. S.D. Tex.2020Background
- Pearl Resources LLC and Pearl Resources Operating Co. LLC (Debtors) filed Chapter 11 small‑business (Subchapter V) petitions in March 2020 and elected Subchapter V treatment. A joint, modified plan was filed August 21, 2020; confirmation contested at an August 13 hearing.
- Debtors’ principal assets are oil & gas leaseholds and related equipment in Pecos County, Texas (Garnet State and Brandenburg leases). Debtors’ valuations (uncontested at hearing) put asset values far above filed claims.
- Several subcontractors/lienholders (Nabors, Pilot Thomas, TransCon, plus others) filed statutory mineral or judgment liens and objected to plan confirmation; many lien validity disputes are pending in adversary proceedings.
- Plan treatment: release objecting creditors’ prepetition liens except as to a defined Garnet State Lease Collateral; objectors retain replacement liens on that collateral to the extent of any allowed claim; payments to come from debtor Disposable Income (overseen by Subchapter V trustee) and, if necessary, sale of assets within two years; springing liens and foreclosure remedies if unpaid by year three.
- Key contested legal themes: (1) whether the Subchapter V plan satisfied statutory content and feasibility requirements; (2) whether cramdown under §1191(b) is permissible over dissenting impaired secured classes; and (3) whether the plan gives objecting secured creditors the indubitable equivalent of their claims while modifying Texas statutory mineral liens.
- For reasons explained in the opinion, the court confirmed the modified Subchapter V plan under 11 U.S.C. §1191(b).
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether the plan satisfies Subchapter V plan content (§1190) | Debtors: plan includes business history, liquidation analysis, projections, income submission, and default remedies | Objecting creditors: challenged sufficiency of projections and income specifics | Court: plan met §1190 requirements (history, liquidation analysis, projections, trustee control of Disposable Income, remedies) |
| Whether the plan can be cramdown‑confirmed under §1191(b) (fair & equitable / no unfair discrimination) | Debtors: plan does not unfairly discriminate; meets disposable income test; trustee will disburse; sale/backstop remedies protect creditors | Objectors: plan is speculative, lacks defined Disposable Income metrics, discriminates by releasing liens and substituting limited collateral | Court: satisfied §1191(b): plan not unfairly discriminatory and is fair & equitable; confirmed under §1191(b) |
| Whether Texas statutory mineral liens are immune from modification | Objecting creditors: statutory mineral liens are sacrosanct and cannot be modified in plan | Debtors: §1123(a)(5)(E) permits lien modification; no special extra‑statutory protection for mineral liens | Court: no special protection for Texas mineral liens; liens may be modified under plan if cramdown requirements met |
| Whether objecting secured creditors receive the indubitable equivalent / plan feasibility | Objectors: replacement lien and payments are speculative; insufficient certainty and collateral protection | Debtors: assets provide substantial equity cushion; trustee oversight, sale obligation, springing lien and recourse preserve creditor recovery | Court: plan provides indubitable equivalent to secured claims (retained lien on valuable Garnet collateral, payment regime, sale backstop, springing lien); plan is feasible |
Key Cases Cited
- Wellness Intern. Network, Ltd. v. Sharif, 135 S. Ct. 1932 (2015) (Supreme Court authority on bankruptcy court constitutional adjudicatory power)
- Stern v. Marshall, 564 U.S. 462 (2011) (Supreme Court decision on bankruptcy courts’ constitutional limits)
- In re Sun Country Dev., Inc., 764 F.2d 406 (5th Cir. 1985) (indubitable equivalent and secured‑creditor protections in cramdown)
- In re Briscoe Enter., Ltd., II, 994 F.2d 1160 (5th Cir. 1993) (good‑faith standard for plan proposal)
- Matter of T‑H New Orleans Ltd. P’ship, 116 F.3d 790 (5th Cir. 1997) (feasibility standard for confirmation)
- In re Inv. Co. of The Southwest, Inc., 341 B.R. 298 (B.A.P. 10th Cir. 2006) (use of collateral/equity cushion to satisfy indubitable equivalent)
- In re Bate Land & Timber, LLC, 877 F.3d 188 (4th Cir. 2017) (approving partial dirt‑for‑debt treatment where plan provided indubitable equivalent)