MEMORANDUM OPINION
FACTUAL AND PROCEDURAL BACKGROUND
The debtor, Arrow Huss, Inc., is engaged in the design, manufacture, sale and maintenance of amusement rides. The debtor was incorporated in 1981 and is a leader in that industry. The debtor suffered substantial financial losses on attractions constructed for the 1984 New Orleans World Fair as a result of unexpectedly low visitor attendance.
On November 20, 1984, an involuntary Chapter 11 petition was filed against the debtor and an order for relief was entered on December 18. Prior to the filing of the involuntary petition, several officers and employees of the debtor incurred debts on behalf of the debtor, including credit card charges for corporate business expenses, medical expenses to be paid through the company’s employee benefit plan, and travel and moving expenses incurred at the request of the debtor. The debtor acknowledges liability for these claims.
After entry of the order for relief, credit card companies began contacting several officers and employees requesting payment of the charges from them individually. On January 11, 1985, the debtor filed a motion to extend the protection of the automatic stay to its present officers and employees with respect to claims which might be asserted against them individually, and requested a hearing on five days notice to all creditors and parties in inter *855 est. 1 The Court entered an order reducing the time for notice and the matter was heard on January 17, 1985.
At the hearing, the debtor’s attorney made a proffer that if the officers and employees were required to defend against these collection actions, some would terminate their employment with the debtor and others would be unable to devote the necessary time and attention to the reorganization effort. 2 Counsel argued that without injunctive relief, the debtor’s attempts to reorganize under Chapter 11 would be severely jeopardized. No creditor appeared in opposition to the motion.
The Court was concerned about the limited notice and the breadth of the injunction sought, but believed the debtor made a sufficient showing of hardship to justify temporary relief. Accordingly, the Court determined that collection efforts on the above-described obligations against present officers and employees of the debtor should be enjoined for a period of 45 days. But the injunction was subject to being vacated or modified within that time upon motion of a party in interest, and any extension of the injunction beyond 45 days would require a further evidentiary hearing on 20 days notice to parties in interest.
The exigent circumstances of the case required that the Court rule from the bench, but the Court reserved the right to issue a memorandum opinion elaborating upon the basis for its ruling.
DISCUSSION
This proceeding presents a problem often found in Chapter 11 cases. Because the creditor cannot reach the debtor who is protected by the automatic stay, it proceeds against the principals of the debtor who stand as guarantors, co-obligors, or sureties. Those individuals must divert their energies from the reorganization effort to defending themselves in the litigation. The principal question to be decided is whether and to what extent the bankruptcy court may exercise its injunctive *856 power under Section 105(a), 3 in effect, to extend the protection of the automatic stay to the debtor’s officers and employees during the pendency of a Chapter 11 case.
It is well settled that Section 362 of the Bankruptcy Code, which stays actions against the debtor and against property of the estate, does not forbid actions against its nondebtor principals, partners, officers, employees, co-obligors, guarantors, or sureties.
4
The legislative history shows that Congress may have considered the issue of a general stay of actions against guarantors in reorganization cases,
5
but apparently rejected such a blanket stay and limited co-debtor stays to Chapter 13.
See
11 U.S.C. § 1301. As enacted, Chapter 11 contains no specific provision authorizing stays against nondebtor codefendants.
6
Therefore, the sole statutory basis for the issuance of an injunction against these collection efforts is Section 105.
7
Under this provision, bankruptcy courts have used the injunctive power to provide temporary protection to co-obligors during the pendency of a Chapter 11 case.
See, e.g., In re Equity Funding Corp. of America,
In extraordinary cases, and under limited circumstances, the exercise of this power is necessary and appropriate to effect the objectives of Chapter 11. “In order for a beleaguered debtor to prepare a proposed plan of reorganization, it may be necessary to protect the codebtor principals of the debtor from their creditors in order to allow them time to do the necessary work.”
In re A.J. Mackay Company,
In
In re Johns-Manville Corp., supra,
From the courts which have considered the question, no clear guidelines have emerged that may be applied in deciding whether to grant this extraordinary type of relief.
See generally,
“Case Study: Trio of Cases Illustrate Current Scope of Injunctive Relief Freezing Creditor Action Against Nondebtors,”
Broken Bench Review,
Vol. 4, No. 3, pp. 17-22 (March, 1985). Clearly, something more than the mere fact that one codefendant has filed a Chapter 11 petition must be shown in order to warrant a stay of proceedings against a nondebtor codefendant.
Royal Truck & Trailer, Inc. v. Armadora Maritima Salvadorena, S.A., supra,
Several courts have applied the four-part test for issuance of an injunction under Rule 65 of the Federal Rules of Civil Procedure.
See, e.g., In re Anje Jewelry Co., Inc.,
(1) Substantial likelihood that the mov-ant will eventually prevail on the merits;
(2) A showing that the movant will suffer irreparable injury unless the injunction issues;
(3) Proof that the threatened injury to the movant outweighs whatever damage the proposed injunction may cause the opposing party; and
(4) A showing that the injunction, if issued, would not be adverse to the public interest.
Lundgrin v. Claytor,
In the civil litigation context, the probability-of-success on the merits requirement is generally relaxed somewhat where irreparable injury is threatened and the balance of hardships tips in favor of the movant. “[I]t will ordinarily be enough that the plaintiff has raised questions going to the merits so serious, substantial, difficult and doubtful as to make them a fair ground for litigation and thus for more deliberate investigation.”
Community Communications v. City of Boulder,
In this Court’s view, the injunction factors, while furnishing a context for the Court’s inquiry should not end it. A great *859 er refinement in definition is called for. Relevant considerations, as distilled from case law, include the following:
(1) Whether continuation of the litigation against the nondebtor would frustrate the ability of the debtor to develop and go forward with its plan of reorganization. 10
(2) Whether the debtor is close to having a confirmable plan that will fully satisfy the affected creditor’s claims. 11
(3) Whether the nondebtors’ continuing efforts on behalf of the debtor are essential to prepare and carry out the provisions of the plan. 12
The movant’s burden of proof is a heavy one and must be supported by substantial evidence, the quantum of which will necessarily vary depending on the scope and duration of the stay sought. The movant must make out a clear showing of hardship and adverse impact on the reorganization case if there is even a fair possibility that the stay will prejudice an adverse party.
Cf. Landis v. North American Co.,
Turning to the facts of this case, the Court concludes that the movant’s proffer, in light of the absence of opposition to the motion, was adequate to warrant the imposition of a stay of very limited duration. 13 This is a fairly large Chapter 11 case and the debtor’s key officers and employees should be free at this early stage to devote their efforts to continuing the operation of the business and the formulation of a plan, unhampered by the threat of personal litigation.
CONCLUSION
The power to temporarily enjoin litigation against nondebtor principals of a corporate Chapter 11 debtor during the pendency of the reorganization case is a valid and useful exercise of Section 105. Used sparingly and judiciously, it protects the integrity of the reorganization process by restraining serious interference with the administration of the estate. The judicial discretion to enter a stay under Section 105, however, is susceptible to abuse. The burden is on the debtor to clearly establish the necessity for injunctive relief. This will ordinarily require convincing evidence of an adverse impact on the debtor’s estate which seriously threatens the debtor’s ability to formulate and carry out a plan of reorganization. In view of these considerations and on the facts of this case, the Court believes that creditors should be restrained and enjoined from attempting to collect the above-described debts from the debtor’s officers and employees for a period of 45 days.
Notes
. At the hearing, the issue of whether the Court’s jurisdiction was properly invoked was neither raised nor considered. Bankruptcy Rule 7001(7) provides that a proceeding "to obtain an injunction or request other equitable relief” is an adversary proceeding governed by Part VII of the Bankruptcy Rules, and must be commenced by filing a complaint.
See
Bankruptcy Rule 7003;
In re Sondra, Inc.,
There is no question that these actions against nondebtor co-obligors are "related to” the debtor’s Chapter 11 case.
In re Johnie T. Patton, Inc.,
. Cf. In re Johns-Manville Corp.,
. Section 105(a) provides:
The court may issue any order, or judgment that is necessary or appropriate to carry out the provisions of this title.
.
See, e.g., Otoe County National Bank v. W & P Trucking, Inc.,
. In his testimony before the Subcommittee on Improvements in Judicial Machinery of the Senate Judiciary Committee, Stanford Lerch stated:
I feel there should be some protection built into any act that may at least stay a secured creditor from proceeding against those parties that have personally guaranteed the debt if those parties are personally involved in the rehabilitation effort.
Hearings on S. 2266 and H.R. 8200 Before the Subcomm. on Improvements in Judicial Machinery of the Senate Comm, on the Judiciary, 95th Cong., 1st Sess. 518-19 (1977).
. Section 1481 of the Judicial Code may have given bankruptcy courts the equitable power to stay actions against codefendants.
See In re Larmar Estates, Inc.,
. The predecessor of Section 105 was Section 2a(15) of the former Bankruptcy Act, 11 U.S.C. § ll(a)(15) (repealed). H.R.Rep. No. 95-595, 95th Cong., 1st Sess. 316 (1977), 1978 U.S.Code Cong. & Admin.News, p. 6273. Though Section 105 was intended, in part, to give the bankruptcy court the means to protect its expanded jurisdiction, the several decisions applying Section 2a(15) to co-debtor injunctions remain useful as precedents.
See, e.g., In re Magnus Harmonica Corp., supra,
. In In re Terracor, Inc., No. 81-00599, transcript of ruling (Bkrtcy.D.Utah Oct. 28, 1981), this Court previously exercised its power under Section 105 to stay proceedings against the principals and key employees of the debtor who were integrally involved in the preparation of the debtor’s very complex Chapter 11 plan. The stay in that case prohibited the continuation of litigation commenced in the Central District of Minnesota until the plan was confirmed.
.
Cf. Gold. v. Johns-Manville Sales Corp.,
.
See In re Jon Co., Inc., supra,
.
See In re Larmar Estates, Inc., supra,
.
See In re Johns-Manville Corp.,
. At the beginning of a Chapter 11 case, the Court often must work with less evidence than might be desirable, and will resolve doubts in favor of the reorganization.
See In re Otero Mills, Inc., supra,