OPINION
Vernon Lee Finney appeals a district court order affirming the denial of his motion to convert his Chapter 7 bankruptcy case to Chapter 11. We affirm, with some modification of the district court’s order remanding to the bankruptcy court.
*44 I
Finney filed his Chapter 7 petition in January 1991. Alexander P. Smith was appointed Trustee. Finney was uncooperative during the Chapter 7 proceedings. For example, court orders were required to ensure his compliance with certain of the Trustee’s requests. J.A. 5-6 (docket entry nоs. 12, 20). Finney also made undisclosed post-petition transfers of real estate with what the bankruptcy court found to be the “intent to hinder, delay and defraud his creditors.” J.A. 84.
After the Trustee successfully recovered the transferred properties, Finney moved to dismiss his case. The bankruptcy court denied the motion, J.A. 73, and granted a creditor’s complaint to deny Finney’s discharge due to the bad-faith transfers. J.A. 83. Fin-ney then sought to convert his case to Chapter 11 under 11 U.S.C.A. § 706(a) (1979 & Supp.1992). The bankruptcy court denied that motion as well, “оn equitable grounds” and “for good cause shown.” J.A. 91. A hearing was held on each of these motions. J.A. 5-7 (docket entry no. 13, docket entry 10/17/91); J.A. 83.
Finney appealed the denial of his § 706(a) motion, and challenged the finding that he had made the real estate transfers in bad faith. The district court found no clear error in the latter finding.
Finney v. Smith,
II
Finney сharges error solely in the district court’s conclusion of law, which we review
de novo. In re Green,
The Bankruptcy Code allows a debtor to convert from Chapter 7 to Chapter 11,12, or 13 at аny time, provided the ease has not been converted previously to Chapter 7. 11 U.S.C. § 706(a). “Any waiver of the right to convert a case under this subsection is unenforceable.” Id.
The Code also provides that “on request of a party in interest or the United States trustee, and after notice and a hearing, the court may convert a [Chapter 11] case ... to a [Chapter 7] case"... or may dismiss a [Chapter 11] case, whichever is in the best interest, of, creditors and the estate, for cause____” 11 U.S.C. § 1112(b). Finally, 11 U.S.C. § 105(a) provides that
[t]he court may issue any order, process or judgment that is necessary or appropriate to carry out the provisions of this title. No provision of this title providing fоr the raising of an issue by a party in interest shall be construed to preclude the court from, sua sponte, taking any action or making any determination necessary or аppropriate to enforce or implement court orders or rules, or to prevent an abuse of process.
The district court inferred that the bankruptcy сourt relied upon its § 105(a) equitable powers in denying Finney’s motion to convert his case, due to his misconduct during the Chapter 7 proceedings. The district court also recоgnized, however, that this circuit requires cautious exercise of § 105(a) authority.
Official Comm. of Equity Sec. Holders v. Mabey,
Adopting the majority approach, the district court concluded that subjective bad faith, standing alone, is insufficient to abrogate the unqualified § 706(a) right of сonversion.
After recognizing Finney’s right to convert his case from Chapter 7, howеver, the district court observed that he had no subsequent right to
remain
in Chapter 11. To the contrary, § 1112(b) allows a bankruptcy court to dismiss a Chapter 11 petition upon finding that Chapter 11 status was sought in subjective bad faith and that it is objectively futile.
Carolin,
Reading these statutes
in pari materia,
the district court reasoned that the bankruptcy court could deny Finney’s § 706(a) motion upon finding a
sua sponte
§ 1112(b) reconversion to be warranted under § 105(a) and
Carolin.
With respect to whether § 105(a) was properly invoked here, the district court held that since a conversion creates no break in a bankruptcy case, Finney’s prior misсonduct was “relevant to the [bankruptcy] court’s
sua sponte
reconversion.”
We agree. Finney’s recalcitrance and fraud during the Chapter 7 proceedings, J.A. 84, and his resort to the § 706(a) motion only after his discharge was denied, are reasonably read as constituting abuse of process sufficient to trigger § 105(a).
See Carolin,
The district сourt recognized that § 1112(b) requires notice and hearing before involuntary conversion to Chapter 7, and the consequent risk of a due process violation in denying a § 706(a) motion on the ground that immediate,
sua sponte
reconversion to Chapter 7 is justified under §§ 105(a) and 1112(b).
It is uncontested that Finney participated in several noticed hearings in which the issue of his miscоnduct was of central importance.
See
J.A. 5-7 (docket entry nos. 13, 20, 24). Thus, the district court correctly found the bankruptcy court to have satisfied the first requirement for § 1112(b) reconversion under
Carolin
when, after such a hearing, it concluded that Finney had acted in bad faith — that is, with the “intent to hinder, delay and defraud his creditors.” J.A. 84. Finney does not challenge the district court’s determination that this finding was without clear error.
The district court noted, however, that the bankruptcy court had made no findings on the question whether Chapter 11 reorganization wоuld be objectively futile in the instant case. Consequently, the court remanded for factfinding on that issue. The court also noted Finney’s relatively simple (and grim) debt-to-asset schedule.
At this point in the proceedings, of course, Finney has received ample notice that the issue of the objective futility of Chapter 11 status in his casе is dispositive to the determination of his § 706(a) motion. We do not believe, however, that this record shows him to have had an adequate opportunity to address that specific question before the bankruptcy court.
Moreover, neither of the cases cited by the district court support the proposition that a bankruptcy cоurt may head off a § 706(a) motion through a
sua sponte
§ 1112(b) reconversion without any hearing on a key underlying issue. Instead, as in the majority of cases, debtors received at least a day’s nоtice of impending involuntary conversion or reconversion, along with an opportunity to respond (although not necessarily an independent hearing focusing solely on the conversion or reconversion
per se). In re Sullivan Cent. Plaza I, Ltd.,
AFFIRMED AS MODIFIED.
Notes
We agree with the district court that the issue of Trustee Smith's reappointment in Chapter 11 is not ripe for review. Such an appointment is to be made by the United States Trustee at the behest of the bankruptcy court, and not on appeal. 11 U.S.C. § 1104(c);
In re Plaza de Diego Shopping Center, Inc.,