In Re Manshul Construction Corp.
DECISION ON MOTION OBJECTING TO CLAIMS
Allan Schulman and Nancy Schulman (“the Schulmans”) move
1
pursuant to 11 U.S.C.
FACTS
The Schulmans own 100% of the Debtors’ stock. On July 31, 1996, while the Sehul-mans were managing Manshul, the Debtors filed voluntary pеtitions for relief under Chapter 11 of the Code. When the Debtors filed their petitions, their schedules showed no equity in the estate and neither of the Schulmans was listed as a creditor. There are more than 200 outstanding claims against the Debtors.
On December 5, 1996, I converted these cases to Chapter 7 and the Trustee was appointed. The Trustee then elected to pursue various claims against the Schulmans on behalf of the estate.
Presently, the Schulmans are defendants in an Adversary Proceeding, commenced by the Trustee, to recover certain alleged fraudulent conveyances. By this motion, the Schulmans seek to establish that certain creditors do not hold allowable general unsecured claims that quаlify to invest the Trustee with causes of action for fraudulent conveyances under § 544(b) of the Code.
STANDING
“Standing is limited to parties in interest.”
In re Hutter,
As Debtors
The Schulmans make what is essentially an “alter ego” argument. They assert that because Allan Schulman owns 100% of the Debtors’ capital stock, they are, for purposes of this motion, the Debtors. I find this argument unpersuasive.
Merely owning all of the Debtors’ stock does not make the Schulmans the Debtors’ alter ego. The Debtors are distinct corporate entities. A bare assertion that they are the Debtors cannot carry the day for the Schulmans. Furthermore, the Debtors did not file this motion. The moving papers specifically state that Allan and Nancy Schul-man bring this motion to object to certain claims.
However, even if I were to find that the Schulmans are the Debtors, they still lack standing to object to claims in the main bankruptcy cаse. It is the Trustee, not the Debtors, who is charged with the duty of administering this case. That duty includes objecting to claims.
There is a split of authority concerning whether Chapter 7 debtors are рarties in interest with standing to object to creditors’ claims. In a Chapter 11 case, the Code specifically includes the debtor as a party in interest. See 11 U.S.C. §§ 1109(b) & 1121(c). Significantly, Chapter 7 does not mirror that language.
The majority holds that “[a] debtor lacks standing to object to a claim against the estate because he has no interest in the distribution to creditors оf assets of the estate.”
In re Kressner,
A debtor’s standing is limited because an assignment of its causes of action to the Trustee рromotes orderly collection of assets.
See In re Gribben,
The general rule that a Chapter 7 debtor lacks standing to object to clаims is not without exceptions. Some courts have held that a Chapter 7 debtor has standing to object to a claim if disallowance of the claim would produce a surplus for the debtor or where there is no trustee who could properly object to the claim.
In re Marcus,
The general rule does not stand without dissent.
See Mulligan v. Sobiech,
As Equity Holders
There was no equity in the Debtors when, while under the Schulmans’ control, they filed their bankruptcy petitions. The Schulmans do not claim that there will be a surplus here, which might make them a party in interest with standing to object to claims.
As Creditors
The Schulmans are not creditors. They did not file a proof of claim nor did they schedule themselves as creditors in the Debtors’ bankruptcy cases. However, even if they were creditors, there is no clear consensus on whether a creditor has standing to object to claims of other creditors in a Chapter 7 case. As a majority rule, “courts ... have limited the right of a general creditor to object to а claim of another creditor ... in order to promote a more orderly administration of the estate.”
In re The Charter Co.,
[i]f every creditor were entitled to challenge the claim of another creditor ... an orderly administrаtion could degrade to chaos. A creditor may always request the trustee to object to a particular claim. If a trustee refuses to do so without justifying the failure to act, the creditor may pursue the objection.
In the Matter of Sinclair’s Suncoast Seafood, Inc.,
As Adversary Litigants
The Sehulmans are not the Debtors or creditors and, on these grounds, lack standing to object to certain creditors’ claims in the main bankruptcy case. In essence, the Sehulmans’ only ground for standing is as defendants in the Adversary Proceeding. Indeed, in their own motion papers, the Sehulmans assert that the purpose of their objеction to certain claims is to establish that the creditors named in the Adversary Proceeding do not hold allowable general unsecured claims that would invest the Trustee with causes of action in the Adversary Proceeding. That question will be resolved in the Adversary Proceeding, not as a motion in the main bankruptcy case.
See In re FBN Food Servs., Inc.,
The Sehulmans have no interest in this estate beyond their interest as defendants in an adversary proceeding. To permit them to sustain this mоtion would lead to the illogical result of catapulting them to standing above the Debtors and their estates’ creditors.
DECISION
The Sehulmans’ motion for an Order expunging certain claims is denied for lack of standing. The parties are directed to settle an order consistent with this decision.
Notes
. I have jurisdiction over this proceeding pursuant to 28 U.S.C. § 1334(b) and the "Standing Order of Referral of Cases to Bankruptcy Judges” of the United States District Court for the Southern District of New York, dated July 10, 1984 (Ward, Acting C.J.). This is a core matter under 28 U.S.C. § 157(b)(2)(A).