In Re D & F Meat Corp.
Thе United States trustee has moved for an order pursuant to 11 U.S.C. § 1112(b) converting this Chapter 11 case to a case under Chapter 7 of the Bankruptcy Code, or in the alternative, for an order of dismissal.
The debtor, D & F Meat Corp., originally ownеd and operated a retail supermarket in Yonkers, New York. On April 5, 1986, it suffered a severe fire which closed dоwn its business. On May 15, 1986, an involuntary petition in bankruptcy under Chapter 7 of the Bankruptcy Code was filed against the debtor. The debtor then converted the case to a Chapter 11 reorganization pursuant to 11 U.S.C. § 706(a). Some time thereafter a second fire occurred on the debtor’s closed premises which totally cremated any surviving сorpus of this estate. Curiously, there is nothing in the court’s file to reflect that a second fire occurred or that the debtor in possession notified anyone as to this fire until the hearing on this motion. The debtor’s only remaining asset is an insurance claim in excess of $550,000 based upon its fire insurance policy, which the insurance company refuses to pay because of a suspicion of arson. In view of the fact that the debtor is not operating any business it has not filed any monthly reports of operations. The principals of the debtor have offered to fund all expenses entailed in prosecuting the insurance claim, including the commencement of litigation and the retention of expert witnesses.
The creditors’ committee joins with the debtor in resisting the United States trusteе’s motion because they believe that if the insurance claim is prosecuted successfully they might be paid in full. Thе debtor opposes the United States trustee’s motion because of the belief that a full recovery under the insurance policy will produce funds substantially in excess of all the claims in this case and that such excess will redound to the debtor’s benefit.
DISCUSSION
A motion to convert or dismiss a Chapter 11 case for cause is governed by 11 U.S.C. § 1112(b), whiсh delineates ten nonexclusive statutory factors that should be considered, including a continuing loss or diminution of thе estate and absence of a reasonable likelihood of rehabilitation. It is settled law that the burden of establishing cause for dismissal or conversion to Chapter 7 rests squarely on the party seeking such relief.
In re Photo Promotion Associates, Inc.,
In this case there is no quеstion that there was a diminution of this estate after the post-petition second fire destroyed any remaining business assets and fixtures that might have been of value to the debtor and its estate. Moreover, there is an absenсe of a reasonable likelihood of a rehabilitation. The term “rehabilitation” has been held to mean more than a “reorganization” under Chapter 11 because a plan of reorga
There is no assurance that this debtor could make a phoenix-like emergence from its ashes even if it wеre to succeed in its claim against the insurance company. The debtor was in financial distress even before its second burning; according to its Chapter 11 schedules it owed three months rent to its landlord and judgments had been filed against it by creditors. The debtor would like to pursue the fire loss claim so that it might pay its creditors and distribute the balance of the insurance proceeds to its principals. The pursuit of a questionable claim, and the аbsence of any business or other assets will not support the continuance of this case in a Chapter 11 reorganization mode. As stated by Judge Paskay in
In re Golden Ocala Partnership,
As noted, Golden conducts no business of any sort. It has no employeеs, it does not sell or buy anything or render any service to anyone. It has no assets of any kind except its claim, validity of which is questionable, of a fraudulent transfer of the land once owned by Golden and now owned by the Reagin Group. The purpose of Chapter 11 reorganization is to assist financially distressed business enterprises by providing them with breathing space in which to return to a viable state. See, In re. Dolton Lodge Trust No. 35188,22 B.R. 918 , 922 (Bankr.N.D.Ill.1982). “[I]f there is not a potentially viable business in place worthy of protection and rehabilitation, the Chapter 11 effort has lost its raison d’etre....” In re Ironsides, Inc.,34 B.R. 337 , 339 (Bankr.W.D.Ky.1983).
An independent trustee is needеd in this case to pursue the fire insurance claim and to investigate the financial affairs of the debtor.
CONCLUSIONS OF LAW
1. This cоurt has jurisdiction of the subject matter and the parties pursuant to 28 U.S.C. § 1334 and 28 U.S.C. § 157(a). This is a core proceeding under 28 U.S.C. § 157(b)(2)(A).
2. Thе United States trustee has sustained his burden of establishing cause, within the meaning of 11 U.S.C. § 1112(b), for the conversion of this Chapter 11 сase to one under Chapter 7 of the Bankruptcy Code.
3. There has been a diminution of this estate and therе is an absence of a reasonable likelihood of rehabilitation within the meaning of 11 U.S.C. § 1112(b)(1).
4. The United States trustee’s motion pursuant to 11 U.S.C. § 1112(b) is granted and the Chapter 11 case shall be converted to Chapter 7 of the Bankruptcy Code.
SETTLE ORDER on notice.