ORDER ON MOTION TO DISMISS
THIS IS а Chapter 11 case filed on July 25, 1988. The matter under consideration is a Motion to Dismiss the Chapter 11 case based on the alleged bad faith of North Redington Beach Associates, Ltd. (Debtor). The Motion is filed pursuant to § 1112(b) of the Bankruptcy Cоde which authorizes a dismissal for “cause” and cause now has been construed to include the bad faith of the Debtor to seek relief under this Chapter.
See In re Victory Construction Company,
The Motion is filed by City Federal Savings Bank (City Federal), a secured creditor of the Debtor and is based on the following facts which are without dispute:
The Debtor, a limited partnership, is the owner and operator of a hotel facility under a Hilton franchise located at North Redington Beach, Florida. The hotel, whiсh is newly constructed, has been in operation only a year, is encumberred by a first mortgage in favor of City Federal securing an indebtedness in the approximate amount of $9.9 million; a second mortgage in favor of Glen Johnson, Inc. (Glеn Johnson) securing an indebtedness of $317,000; and a third mortgage in favor of G.B.R. Investment Group, Inc. securing an indebtedness of $200,000, for a total secured indebtedness of $10.2 million. It is conceded by the Debtor that the value of the property is not more thаn $8.3 million, thus substantially less than the total secured indebtedness. Under the first mortgage, the Debtor is required to make a monthly payment of $85,000. It is without dispute that this mortgage has been in default for seven months prior to the commencement of this Chapter 11 and no payment has been made since the Chapter 11 was filed and still is in default. It appears that the holder of the second mortgage, Glen Johnson, filed a foreclosure action in the Circuit Court in and for Pinellas County and obtained a Summary Final Judgment on June 24, 1988. The property was scheduled to be sold at foreclosure sale on July 25, 1988 but the sale was not held because the Debtor filed its Petition for Relief in this Court ten minutes prior to the commencement of the forеclosure sale.
It further appears that City Federal also instituted a foreclosure action in the Circuit Court for Pinellas County. On April 15, 1988, the Circuit Court entered a default against the Debtor for its failure to file any responsive pleadings as required by law and on May 20, 1988, appointed a receiver for the facility who was in charge of the hotel operation until August 5, 1988 at which time the receiver apparently voluntarily surrendered the control and possession of the premises to the Debtor. As indicated earlier, the Debtor is a limited partnership and it appears that there is currently pending a suit by the general partner, North Redington Beach Associates, Ltd. against the limited partners. This suit involves a claim for a dissolution of the partnership and a counterclaim by the limited partners who allege fraud and violation of the Blue Sky Laws of the State of Florida.
It is without dispute that all three secured creditors are undersecured; that the property is incapable of generating enough income to support the three mortgages and, according to its own projection, with the exception of the month of March, 1989, will not be able to producе enough money to meet the monthly obligations on the first mortgage in the amount of $85,500. The projection indicates at least a $40,000 shortfall in the oncoming year.
Based on these undisputed facts, it is the contention of City Federal that there is “cause” to dismiss this Chapter 11 case under the applicable legal principles
citing In re Krilich,
In opposing the Motion of City Federal, it is the contention of thе Debtor that its financial woes are attributable basically to two factors: one, the destruction of its beach by Hurricane Elena; and two, the failure of the limited partners to make their capital contributions to the partnership, an issue which is now involved in state court litigation. Concerning the first, it is the contention of the Debtor that since the beach has been rebuilt the business actually exceeded its projections and second, if it prevails against the limited partners it will have sufficient capital to meet any shortfalls. Moreover, the Debtor contends that, unlike Little Creek Development which involved an undeveloped real property of an entity which had no employees, no income, no cash flоw, and no available source of income to sustain a plan of reorganization, this is an ongoing hotel operation with more than eighty employees; it is a brand new facility operating under a Hilton franchise; and while it is true that its сurrent debt structure is top heavy and cannot be supported by the income generated from the operation, it could possibly be reorganized and restructured under the applicable provisions of 1129(b) of the Bankruptcy Code if given the chance.
Prior to the enactment of the Bankruptcy Reform Act of 1978, Pub.L. 95-958, the Bankruptcy Act of 1898 contained Chapter XII entitled “Real Property Arrangement”.' This chapter was specifically designed to deal with finanсially distressed debtors, generally with one single asset. Under the statutory scheme, these debtors were able to propose an arrangement which had for its primary purpose the alteration or modification of the rights of crеditors or of any class of them, holding debts secured by real property or a chattel real of which the debtor was the legal or equitable owner. § 406(1) of Chapter XII, Bankruptcy Act of 1898.
In re Helmwood Apartments, 2
BCD 1151 (Bkrtcy.N.D.Ga.1976);
In re Perimeter Park Investment Associates, Ltd.,
The Bankruptcy Reform Act of 1978, Pub.L. 95-598, by enacting Chaрter 11, fused the previous relief chapters, Chapter X, Chapter XI and Chapter XII into one single relief chapter. Thus, prior to 1979, a debtor with a single asset consisting of real estate who had financial difficulties and were not ablе to meet mortgage payment obligations had a remedy prior to the enactment of the Code if the fact that the debtor at this timé has one single asset consisting of encumbered real property would compel a finding that the petition for relief under Chapter 11 was filed in bad faith and, therefore, requires a dismissal would be without remedy, especially if the debtor is a corporation. Based on the foregoing, it is evident that the Debtor with one single real estаte holding like the Debtor involved in this particular case should not be precluded to avail itself to the rehabilitative provisions of Chapter 11 unless other factors discussed by the cases dealing with the question of bad faith are prеsent.
In re Victory Construction Company, supra; In the Matter of Little Creek Development Co., supra; In re Landmark Capital Company, supra; In re Krilich, supra.
This Court is not unaware of the recent decision of the Eleventh Circuit in
In re Phoenix Piccadilly, Ltd.,
Basеd on the foregoing, this Court is satisfied that in light of the fact that this Chapter 11 was filed on July 25, 1988, that the 120 day exclusive period to file a plan of reorganization will not expire until No *170 vember 25, 1988, the fact that this Debtor is currently operating, the Motion tо Dismiss for bad faith filing is not well taken and the Debtor should at least be given an opportunity to propose a plan of reorganization within the exclusive period and attempt to obtain confirmation of its plan if it is able to do so.
Accordingly, it is
ORDERED, ADJUDGED AND DECREED that the Motion to Dismiss by City Federal Savings Bank be, and the same is hereby, denied.