*3 MARLAR, RYAN, Before PERRIS and Bankruptcy Judges.
OPINION MARLAR, Bankruptcy Judge. OVERVIEW Appellant Liquidating Corpora- Pioneer (“PLC”) tion imple- was formed 1992 to investor inter- title to all the provided that Plan in the con- the confirmed ment auto- of the estate “shall ests and assets bankruptcy case. debtors’ solidated Corpora- Liquidating matically vest granted the bankruptcy court Date.” Joint Plan the Effective tion as of motion to convert Trustee’s States United at 23. 7,1 a motion that the case to by the investor claim- part, prompted, any owner- given were not The investors their distributions in PLC. The Joint ship voting ants’ dissatisfaction interest order, among oth- voluntary conversion for the transfer to date. The Plan called interests accountings file and all investors’ required PLC to PLC of things, er of trusts as well the notes and deeds receipts and disbursements. of its thereof, exchange for a any proceeds court abused contends PLC, to be satisfied from right payment the case for by converting its discretion *4 each inves- assets based on from PLC’s cause, independent and that PLC was net loss. tor’s answerable to which was not corporation by persuaded are not the court. We board of a seven-member PLC consisted and AFFIRM. arguments, directors, were whose members autho- of with years, longer for five or
rized serve were also approval. The directors FACTS PLC corporation. the new shareholders Plan A. The Joint compensate given authority was filed January six debtors CEO, directors, On employees, and and for relief under hun- voluntary petitions expended it had appeal, time of this Mortgage Enti- on salaries ll.2 Consolidated Pioneer of thousands of dollars dreds (“Debtor”) attorneys’ fees. the umbrella name for and ties was substantive- whose cases were the debtors “Liq- Plan PLC as the The Joint defined Debtor sold Prepetition, ly consolidated. oper- ... Corporation formed uidating *5 overwhelmingly The Joint Plan was ac- had been liquidated. PLC distributed investors, cepted by the and was confirmed more than million to the investors. $21.6 19, Post-confirmation, on June 1992. addition, In had been investors able to six debtors under were dissolved Califor- claim deductible losses of more than $100 nia law. million in 1992. PLC had also made the required general distribution unse- Activity B. Post-Confirmation creditors, cured final distribution The disclosure statement Joint Plan approved to that class was the bank- guarantee specific did not a amount of 30,1994. ruptcy court on September parties distribution to the investors. The Still, anticipated PLC a future income in interest that “the understood whole ba- largest from its potential pending, asset —a sis ... opinion of this is an an esti- estimated million dollar lawsuit $125 mate done of what could be this liqui- brought by Diego against PLC San Trust 5, dating entity.” Transcript May of Savings & Bank its successors in in- hearing on Disclosure Statement at 60. terest by merger, First Interstate Bank of payment method of to the investors (“the California Fargo and Wells Bank was by pro to be a rata distribution of the bank litigation”). pre- These claims arose proceeds liquidation from the of Debtors’ confirmation.3 assets that were not otherwise utilized or addition, expended implement the Joint In anticipated a PLC benefit to such as for operating reported those needed ex- the investors from losses in con- penses. distribution, assets, Following an initial disposition nection with the of its investors for who voted the Joint operating a federal net loss (“NOL”) were to payments receive as soon of carryover approximately as the $31.3 amount of eq- unrestricted available cash million its tax on federal income return for $1,000,000. ualed 30, year exceeded was fiscal June ending PLC 1996. PLC 1999, January pending post-confirmation of the Ninth Circuit PLC Court also had a Appeals summary judgment of reversed a malpractice against action its former attor- claims, enabling dismissal of certain of PLC's neys litigation stayed the bank that was PLC to prosecute conspiracy- continue to its during litigation the time bank was on negligence against to-defraud and claims appeal. bank. impacted to be if there’s perform going result in a tax that the NOL could alleged feeling goodwill.” more million. there’s lack of savings of than of—if $12.1 with court then denied the motion payments the nature of the made Due to 15, prejudice. Transcript September of assets, the years of over liquidation hearing at 81-82. existence, Plan’s the investors the Joint of cer- States Trustee made United 1997, On PLC a “Motion May filed provide financial requests tain the Tenure of the board of di- Extend Considering itself to be an information. rectors and the CEO” until the bank liti- express report- with no independent gation vigor- resolved. investors was unresponsive ing requirements, PLC ously the motion due to their opposed requests. such PLC maintained continued frustration the failure any disclosure of financial information accounting PLC to financial jeopardize position its the bank regarding information "status of monthly oper- PLC did not file litigation. liquidation. Transcript See of June it ating reports, pay quarterly nor did fees hearing. granted The court disbursements, it although pay did on board of extension. directors six-month States Trustee minimum the United requested On November President and per quarter. PLC’s $250 an additional extension of the tenure payments made the minimum based CEO board of directors and CEO. current it behalf reports financial filed on Simultaneously, “Ap- an investor filed an reorganized “former debtor.” Ex- plication Appointment of an for grounds aminer.” The asserted Discontent Festers C. appointment the examiner were the year after confirmation of the Within di- failure of PLC board of continued Plan, some of the investors had be- cooperate rectors with investors *6 skeptical. They had not seen a 35 come provide accounting, financial case status An return on their investments. percent information, the and information about the April 1993 PLC newsletter stated that anticipated on investor distribution the adjusted to return should downward claims. dollar, cents the with most about 15-20 on granted the extension of the in later being paid the distributions the of year, board of and CEO for one directors the years of Joint Plan. request appoint- also the granted but 13, 1993, a motion filed August On However, ment of the court an examiner. disgruntled of over on behalf 800 investors to stayed appointment of the examiner the requiring provide an order PLC to seeking give opportunity present plead- an to which report” financial “variance would financial ings regarding its disclosure of in the compare the actual results achieved The court noted and other information. effort liquidation projec- to that, there have been though even “should on hearing At a on motion tions. spent” report- more time detail or on 15, 1993, September of ing accounting aspects and at the time expressed its reluctance to interfere with confirmation, “techniques there were board of di- the “discretion” still devices” could be fashioned which and further stated that “Court rectors infor- accomplish of such the dissemination directing” the board of has no role 18, of 1997 Transcript mation. December provide requested infor- directors hearing at 112. expressed hope The court its that mation. “try response, to be its conditioned the board directors information forthright” requested information disclosure of providing more (a) investors, to entertain “recognize agreement the court’s seeking finan- ability to further motions additional reorganized debtor’s role and (b) information, 11, cial to vacate the or- At a hearing February continued the examiner. the court appointing der On Febru- found that PLC was creat- 13, 1998, ed ary purpose Joint Plan for the stay the court vacated the trust,” order, “acting as a and that holding the examiner that “the a fiduciary “PLC has relationship with the heavily offer of certain conditioned docu- investors” and a duty pro- “fundamental by [PLC] ments submitted was not suffi- vide adequate accounting of financial activ- fiduciary obligations cient to meet its ity.” Transcript February constituency Chapter investor of this hearing at 37. The court further found showing case and that no was made that PLC, longer had endured than any particular documents should not be trusts, most liquidating demonstrated un- disclosed.”4 delay reasonable in accomplishing the 8, 1998, On December PLC’s board of goals, Joint Plan in failing recognize again directors and CEO moved for duty adequate accountings. tenure, extension of their which the court at Id. 38-39. The court observed that a 15, 1999, granted January until and the trustee could review bring court sought parties’ input. PLC closure to the case. made another conditional offer to disclose information, financial which was unsatis- D. The Conversion Order
factory to the United Trustee States Therefore, the court ordered the case to the investors. be converted to chapter 7 based on its authority under 1142 and 23, 1998, On December the United well as Article 12 of the Joint Plan. The States Trustee filed a “Motion to Convert court extended the tenure of the board of or, Chapter Proceeding, Case to directors and CEO until Alternative, to Appointment Authorize trustee determined whether it should con- PosNConfirmation Creditors’ Committee ruling tinue. Its left to Proceeding Determine Course of questions trustee the of whether to contin- Chapter 11 opposed Case.” PLC the mo- ue prosecution litigation bank tion, and, newsletter, encouraged over and the way most efficient to administer sign opposition 600 investors to a form the NOLs. representation based on PLC’s *7 appointment chapter of a 7 trustee could The conversion order was entered on result a leak of confidential information 1, March required 1999. The order “The and a litigation. dismissal of the bank Entities, Consolidated Mortgage Pioneer including Pioneer Liquidating Corporation At a hearing respective continued on the (PLC)” to turn over all and rec- 15, 1999, motions January on the court re- trustee, chapter ords to the 7 to file vari- jurisdiction examined and reasserted its ous regarding post-confirma- schedules its fashion a remedy based on its construction obligations, tion debts and and to file an of the Joint Plan provisions. The court accounting post-confirmation of its receipts that, stated although corporate form was and timely disbursements. PLC appealed used, PLC was “akin to a the order. trust,” “it contemplated was never that the new entirely exists [inde- ISSUES pendent] fiduciary from the relationship it owes the investors and other creditors.” 1. bankruptcy Whether the court erred 15, Transcript January hearing 1999 at by finding that PLC owed a fiducia- ry duty to the investors such that its 66. taken, appeal 4. An was subsequently but was dismissed as moot when the case was con- being interlocutory, chapter and the matter became verted to 7.
375
364,
Co.,
Gypsum
333 U.S.
financial account- United States
provide
failure to
(1948).
525, 542,
395,
“cause”
convert
4. Whether Existed for Conversion A. Cause authority to re- bankruptcy court converted PLC, order, quire conversion it that PLC dem this case because found turn over under its control assets delay in accom unreasonable onstrated account chapter 7 and to trustee failed to plishing goals, post-confirmation receipts its duty ac adequate recognize and disbursements. chapter may A court convert countings. “cause,” to one under 7 for case STANDARD OF REVIEW “(3) delay by the unreasonable given A wide court is creditors”; prejudicial is debtor that to convert a 11 case to discretion (7) inability to substantial ..'. effectuate 7 for “cause.” In re Greenfield ... plan; of a confirmed consummation (9th Park, Storage 207 B.R. Drive (8) material default the debtor [or] 1997). The is Cir. BAP decision to convert plan. a confirmed U.S.C. respect abuse of In re reviewed for an discretion. n 1112(b). causes are enumerated Broadcasting, Klein/Ray 100 B.R. exhaustive, and be able “the court will (9th 1987). BAP A Cir. arise, they other factors as to consider ruling if its discretion it bases its abuses powers to reach an equitable use its the law or erroneous view of result cases.” individual appropriate the evi clearly erroneous assessment of 95-595, Cong., 95th 1st Sess. H.R. No. Beatty, re B.R. dence. (1977), reprinted 405-06 (9th 1994). BAP Cir. court must also U.S.C.C.A.N. interpre The bankruptcy court’s the best interests consider what Plan is re tation of the confirmed Joint estate. creditors novo, appli as a contract under viewed de 1112(b). California), (here, law cable state *8 record, the court considered the where Fiduciary Duty to the a i. PLC Owed evidence, its or other testimony extrinsic Investors clear error. interpretation is reviewed for court determined Motors, Auto. Hillis Inc. v. Hawaii See acting in akin to a capacity was a (9th that PLC Ass’n, 581, 997 588 Cir. Dealers’ F.2d and, trust, therefore, a it had Co., liquidating 1993); v. Ins. 758 Miller Title Safeco to the The Unit (9th fiduciary duty investors. Cir.1985). 364, is finding “A F.2d 367 maintained agreed Trustee ed States there is ‘clearly although erroneous’ when reorga to the it, successor that PLC support reviewing court evidence to debtor, liqui being in addition with the nized on the entire is left evidence however, that entity. argued, PLC dating and firm conviction that a mistake definite cor- independent v. Plan created an committed.” States the Joint has been United 376 fiduciary
poration specific no duties to ous as nature fiduciary to the of PLC’s estate, or the any report- the investors nor duties to the investors.
ing requirements. Plan a “liqui- Joint defines PLC as
In reorganization, dating corporation,” a typical the record reveals confirmed, once a is a plan reorganized corporation was formed as longer fiduciary debtor owes a duty no to primarily for tax advantages, including the the estate because the estate ceases to ability of the board of to carry directors Industries, Inc., re exist. T.S.P. 117 Nevertheless, over operating net losses. (Bankr.N.D.Ill.1990). 375, If, B.R. 377 on duties, responsibilities, and raison hand, plan the other creates a trust or solely d’etre were the implementation and a vehicle for the exclusive benefit of the completion liquidation plan, includ- creditors, then has a fiduciary the trust ing prosecution against of claims third duty to those for whose benefit it was parties. Smith, Holywell Corp. v. created. See 503 confirming The order Joint Plan ex- 53-54, 1021, 1025, U.S. 112 117 S.Ct. pressly provided PLC would exercise (1992) (trustee 196, 204 appointed L.Ed.2d investors, its powers on behalf of the pursuant 11 plan liquidate hold monies trust non-electing property, distribute debtor’s which (non-Class 4) investors. The Joint Plan trust, had been transferred to was a implicitly provided a similar trust arrange- under fiduciary and was required IRC ment for belonging electing monies returns).5 to file tax As an created investors who voted to their have claims benefit, for the investors’ PLC’s fiduciary treated 4 under Class of the Joint Plan. included, responsibilities implicitly, the ac Their money would be proceeds, held from countability origins. associated with its then distributed when the unrestricted Bank, See v. Cal. Werschkull United 85 available cash level reached or exceeded 981, 1001, Cal.App.3d Cal.Rptr. $1,000,000. (under (1978) law, California the bank fiduciary was a to the beneficiaries of a precisely These are the sort duties pension which it administered as trusts, undertaken liquidating trustee). are described follows: established, If a liquidating trust is argued that there is no ex normally the trust is funded with prop- press language trust in the Joint Plan. A erty which will be reduced to cash by corners, contract to be taken its four the liquidating trustee after so as confirma- give construed effect to every tion of a part, reorganization. interpreted internally to be consistent. liquidating given trustee will berg Brind erson-New the au- Joint Ven Erectors, Inc., thority to ture v. sell assets within F.2d reason- Pacific (9th time, Cir.1992), denied, able preserve cert. the assets U.S. interim, 1267, 122 (1993) L.Ed.2d and to the proceeds S.Ct. distribute law). (applying California Although debtor’s former creditors who are Joint Plan did not expressly require beneficiaries of the trust. provide reports financial The plan reorganization typically the inves will tors, alleged deficiency this provi that as the effective date of sions did not make the ambigu- plan, right, all title and interest of trust, express opinion grantor We no how PLC association taxable as cor- *9 be characterized under Internal Revenue poration, entity.” other or some taxable John Code, except depending to note that on the Howard, D. Liquidating The Taxation of facts, organization an can be treated aas trust Trusts, Escrows and Settlement Funds in regulations, under the tax and ‘‘[i]n different Cases, Chapter Bankruptcy 64 Am.Bankr. n situations, the IRS liquidating has ruled a 403, (1990). L.J. 413-14 trust, trust should be treated as a taxable debtor, impermissi reorganized in a to the vests in certain the debtor exist responsibility vacuum of pow- The trustee’s ble trustee. that would be unac restricted, include the Plan often under the Joint but ers are provi in- to property; under ceptable to sell certain power avoiding transfers inter fund the investors’ protected crease the sions which Perez, that are voidable 30 F.3d the debtor’s In re ests. See Code; operate to Bankruptcy (9th Cir.1994) may only (bankruptcy under court sued; to and be to sue property; with the complies approve claims made disputed contest and settle Code). acknowledged such sta has debtor; attorneys, employ against in case.6 PLC filed this pleadings tus in and to make agents; and accountants interest in Debtor’s to the succeeded bankruptcy pursuant distributions parties, third and against action causes of orders. prose fiduciary duties to the Debtor’s actions, litiga Howard, including the bank supra, at 404. such cute tion, See In re of the investors. on behalf Moreover, provi Plan the Joint (Bankr. Williams, B.R. 128-29 investigate PLC to required which sions N.D.Tex.1992) trustee suc (liquidating on behalf actions pursue and/or as a possession ceeded to the debtor debtors, and to disburse to estates of cause of action on fiduciary prosecute their entitlements and investors creditors estate). We ad bankruptcy behalf entitled the implicitly under Joint notion that the fundamental here to and accu adequate, ongoing, investors to its officers board of directors to deter order reporting rate financial interests of for the best working were of directors whether PLC’s board mine their own constituency, not for their fulfilling their duties. were CEO self-interests. not formulated Plan was The Joint entity, nor for-profit PLC as perpetuate contends PLC also board of directors give the PLC the investors’ denying order court’s 1993 assets, in- over unfettered control CEO report, financial variance for a motion salaries and ex- payment of their cluding wherein prejudice, to ad- they were entrusted penses, directors’ dis- the board of acknowledged Rather, was to their commission minister. dissemi- of information in the area cretion assets, and to consummate liquidate nation, subsequent the court’s precludes the inves- the benefit of Plan for Joint not forever bar That order did orders. and other creditors. tors merely It dealt with by PLC. accountings particular request at that discrete liquidat- its function as a In addition to aspect prejudice” The “with point time. trust, record and agree, we on this ing safe haven for perennial provide did not facts, the succes- that PLC was also these conduct. arrogant irresponsible and future debtor. reorganized to the sor-in-interest hearing on fact, at the the court noted had been dis- debtor entities Since the failure to that PLC’s that motion solved, entity to suc- was no other there its abili- might impact willingly information post- Debtor’s duties phantom ceed to Plan. At such a the Joint ty confirmation, presi- perform except for PLC. PLC’s would have the court point, operating reports filed and CEO dent in, step pursuant authority reorganized debtor.” of the “former behalf provisions. successor-in-interest If were not the Cir.1996) (PLC (9th aff'd, 91 F.3d opinion this case published 6. At least one reorganized debtor by plan "successor in as the to PLC as both the created has referred reorganized proofs and "the to the debtor was to examine interest” of its duties one claim). Mortgage, Pioneer In re Consolidated debtor." 1995), (9th BAP 223-24 Cir. 178 B.R. *10 addition, subsequent proceedings requiring production 1142. In tion for an order of later, years and orders which court asserted financial information. Several authority continuing over PLC arose from later mo- the investors’ dissatisfaction relief, requesting tions other substantive not be ignored. responded could PLC itself, ie., by made suggestions by motions PLC the court’s making unrea- for extension of the board of directors and sonable demands the court and at parties, the historical record such requesting CEO. looks other myopic eye, any with a and fails to acknowl- refuse to consider more investor edge litigation of many years type. motions of this so doing, PLC preceded particular displayed only paramount both and followed that sense of self- preservation arrogance, order. and circled wagons, extending good- rather than Therefore, hold that we to the extent the cooperation will and to those who were record, court reviewed evidence and the intended beneficiaries its work. It thus history, and the case its determination that appeared to the PLC had lost corporate was trust its focus regarding legitimate requests for clearly form not erroneous. information, considering them to be a tres- pass against its exclusive inter- Delay ii. Unreasonable and Failure Although ests. the court encouraged the to Account Were “Causes” for parties to discuss reasonable methods Conversion information, sharing the record indicates Prejudicial delay is for con cause simply adopted that PLC a “take it or 1112(b)(3). version under The court it” acceptance leave attitude toward of its delay found that in providing PLC’s ade proposal. quate financial information to the investors prejudicial was unreasonable caused On the issue undue delay, delay (b)(3) the Joint goals because were first contends that subsection di being met. record substantiates to delay formulating rected and confirm finding that PLC’s failure to account ing reorganization plan. argument This all report for disbursements was is unpersuasive. The Code does not limit impeding the delay” administration of the solely pre-confirmation “undue pre case. The case was disputes, converted and certainly PLC’s resistance to remaining serve the assets for providing the intend meaningful information at By case, ed converting stage easily beneficiaries. falls catego within this broad the court properly ry. also removed the re sponsibility implementing the Joint Similarly, PLC also contends that there PLC, Plan from whose board of directors delay could be no undue where substantial apparently CEO felt that supervision consummation place.7 had taken of their was an activities unwarranted im contention that the Joint Plan was sub-
position upon them. stantially by consummated is belied that, through asset, record reveals position the largest the bank years, patient court was extremely litigation, unliquidated. remains with PLC and expressed sensitive to its court did not make a specific autonomy needs for confidentiality. finding regarding substantial consumma- tion, The court denied investors’ first mo- it can but be inferred from the evi- by 7. "Substantial management consummation" is defined the business or of the or of all the Code as: substantially all dealt with (A) substantially transfer plan; of all or all of the property proposed by (C)commencement to be of distribution under transferred; plan. (B) assumption by the debtor 1101(2). successor to the debtor under the *11 in automati- assets would vest to effectuate estate that PLC was unable dence Plan consummation of the Joint the effective date of the con- cally upon substantial all of its perform that, on its failure to based if firmed PLC contends even plan. PLC did on behalf of the investors. duties exists,- there will be cause for conversion by producing prove offer to otherwise not administer once the case is no estate to Moreover, if the Joint financial records. converted, the confirmed Joint because fact, had, substantially con- in been Plan in PLC. property Plan vested all estate summated, have moved for PLC should question the of argument This raises Fed. a final decree. entry the an to administer whether there is estate that The record reflects R.Bankr.P. 3022. that conversion post-confirmation, such light of this it has never done so. not in the interest of the best omission, it difficult to divine is significant split the estate. Courts are creditors and allegedly substantial consummation how analysis in their this issue. record, an the facts and occurred. On chapter of a Upon the confirmation was not sub- implicit finding plan the effect of confirmation is deter- plan, clearly er- stantially consummated was 1141(b) (c): § & by mined roneous. (b) also contends in Except provided States Trustee as otherwise United delay in re- providing confirming or the order plan financial investors constituted
porting to it and the plan a vests all plan, the confirmation of respect with to the Joint a material default of the estate in the property that there could not Plan. PLC contends debtor. respect with to the have been a default (c) Except provided in subsections Plan Plan because neither the Joint (d)(3) (d)(2) except of this section ad it to compelled nor a court order provided as otherwise or A bankruptcy financial information. confirming plan, after con- the order to find cause under this has discretion dealt plan, property firmation of been payments subsection when have not and clear of all is free the confirmed Joint made under creditors, equity claims and interests of expressly whether or not the Joint holders, security general and of the contingency of default within covers in the debtor. partners Bankruptcy See 7 CollieR on provisions. (15th ed.1999). § The court’s 1112.04[5] § U.S.C. accounting for finding of PLC’s lack of pre-confir- opine courts Some disbursements, light receipts available for administra- mation estate is signif- to the investors that were payments trustee, while tion estimated, sup- icantly less than what PLC of other hold growing number courts based on a ma- ports cause conversion of the estate vests once terial default.8 (or by virtue of the entity), another debtor 1141(b)(2) vesting provision of automatic in the Best B. Was Conversion subsequent then plan provisions, Interests of the Estate does not revest that conversion Creditors 7 estate. Existed i. Post-confirmation Estate view are Representative of the former that title provided The Joint Plan Corp., 188 B.R. In re Calania investor and all of the interests However, the bank- cause for conversion. cause for dismissal or conversion 8. Another 1112(b) ruptcy cite this cause as nonpayment court's order did not under dispo- charges. grounds for conversion. Based on Both United States Trustee's fees or far, development of lack of alleged sition thus and the parties argue the of PLC’s non- merits below, panel de- nonpayment in the record reporting this issue of disbursements clines to reach this issue. greater amount than the minimum fee as (Bankr.M.D.Fla.1995) Smith, and In re 201 debtor’s case to chapter even *12 (D.Nev.1996), 267, aff'd, B.R. 274 141 F.3d though plan had already been con- decision), (9th Cir.1998) (unpublished 1179 table firmed, because the debtor had not com- denied, 1018, t. 525 U.S. cer plied with the plan provisions that would (1998).9 544, 142 S.Ct. L.Ed.2d 453 In Ca- have paid allowed the creditors to pur- be tania, chapter after a case was convert plan. suant to the chapter ed to 7 for failure to plan make payments, the issue arose toas whether The rejected District Court the debtor’s post-confirmation the debtor’s mail was argument plan that precluded confirmation property 7 estate. conversion because confirmation vested debtor,
The
estate’s
examined
1141(b)
§
conjunction
in
with other Code
reasoned that to hold otherwise would ren
sections,
348 and 1112. der the
provisions
Code
for conversion or
“property
Section 541 defines
of the es-
altering
1141(b)
vesting provision §
tate”
legal
equitable
as “all
interests of meaningless. Smith followed the reason
in property
debtor
the com-
of
Catania,
ing of
where the court concluded
541(a)
§
mencement
the case.”
(empha-
of
it would be “utterly pointless” for
added).
sis
provi-
Section 348 contains the
Congress
provisions
create the
regarding
sions
the effect of conversion.
1112(b)(7-9)
1141(b)
§if
meant
there
It states that the conversion does not ef-
would be no assets to administer. Cala
fect a change in the date of the commence-
nia,
Another factor in
favor of the
in this
bankrupt-
cy
court’s action
this case is the nature
based on the foregoing analysis,
panel
administered,
yet
i.e.,
the assets
to be
that
holds
there would
estate for the
and,
the bank litigation
possibly,
the mal-
7 trustee to
consisting
administer
practice
by
action initiated
Even
PLC.12
of the
assets held
for
the benefit
plan provided
However,
that PLC would have a
Brief at 30.
the same case law
seven
board
member
of directors who would
suggest
against pro-
that such claims
also be the sole shareholders of PLC. No
case,
fessionals
during
for their conduct
director could serve
years
more than five
in which the
part
recovered funds would be
permission
without
bankruptcy
of the
investors,
the assets for distribution to the
Plan,
court.
Joint
Art. 5.3.
If a director
would be
of the
7 estate.
ceased
capacity,
to serve in that
the director
Furniture,
58;
See D D&
239 B.R. at
see also
effectively ceased to be a shareholder.
Inc.,
Computer Systems,
In re Atlantic
Art. 5.2. The
respect
is silent with
(Bankr.S.D.N.Y.1994) (discuss-
B.R.
what
to
would occur if the bankruptcy court
ing
"related to”
bankruptcy
of the
grant permission
declined to
of the
court over an action
affected the
debtor’s
directors to extend their term as members of
estate, i.e., recovery of funds for the benefit of
the board of directors.
estate,
versus
funds collected
a debtor
that would
not be turned over
12. PLC
malpractice
contends that the
action
it,
trustee).
"personal”
part
and was not a
pre-confirmation bankruptcy
Opening
estate.
that,
argued
alleged remaining
also
as the
creditors and investors.13
asset,
major
the court’s order for such
additionally
bankrupt-
We
hold
not in the best interests of
disclosure was
necessary jurisdiction to
cy court had the
arguments
These
are with-
the investors.
for
preserve
the assets
convert the case
There
reasonable
out merit.
are several
unpaid
classes of creditors.
U.S.C.
confidentiality
ways
protect
167(b)(l)(2).
1334(b);
§
information, as
out
pointed
PLC’s financial
by the United States Trustee and the
Loss of
ii. The NOLs and Possible
court,
the panel agrees.
with which
PLC’s
Confidentiality
Argu-
Further
alternatives, and
refusal to consider these
against
ments
Conversion
terms, were un-
its insistence on dictated
are other rea-
argues
there
and a clear
of its duties
reasonable
breach
convert,
example,
possi-
sons not
to the PLC creditors/investors.
confidentiality,
and of
ble loss
the NOLs
could,
correctly
deter
presumably,
jeopardize
expressed
reasons for
mined
litigation.
bank
Sitting
were
as a
nondisclosure
frivolous.
right
carry
A debtor’s
for
ap
equity,
court of
carry
ward or
back an NOL is a tax attrib
duty
protect
propriately exercised
part
ute of the debtor that is
of the bank
the estate
for the benefit of the
estate, pursuant
to the Internal
ruptcy
in a manner consistent with the
creditors
Feiler,
1398(g)(1).
In re
Revenue Code
Bankruptcy
Cooper Prop
In re
Code. See
*15
(9th
1999).
BAP
230 B.R.
168
Cir.
Trust, Inc.,
61 B.R.
Liquidating
erties
normally
This
property interest
(Bankr.W.D.Tenn.1986); § 105.
537
the
7 trustee.
11
pass
chapter
to
U.S.C.
541(a).
it,
that
not
PLC contends
since
Bankruptcy
Did Not Ex-
Court
C.
Debtor,
entitlements,
the
owns the NOL
Authority by Ordering
ceed its
intact
the board of directors must remain
Accounting and Turn
to Make an
a
to
potential
because the NOL is
benefit
Chapter 7 Trustee
Assets to the
Over
the
only
the investors and creditors
can
jurisdictional
extent that future taxable income
a
PLC raises
issue
Thus,
it.
that
against
offset
PLC contends
court im
alleges
bankruptcy
and
that the
the
pass
million
would not
if it were the
properly
NOL
treated PLC as
$31
bankruptcy
court
chapter
chapter
estate. The
7 case.
debtor in the converted
the board of di
left the continuation of
the
Consequently, PLC contends
open
investigation
jurisdiction
rectors’ tenure
and
bankruptcy court exceeded
chapter
authority by ordering
recommendation
the
trustee.
PLC to dis
and/or
final
on that
issue was
regarding
As the
decision
information
its assets or
close
postponed, we hold that the issue
the
7 trustee.
its assets over to a
turn
us.
premature
NOLs is
and is
before
obfuscation,
Notwithstanding
PLC’s
in this case. Al-
is not what occurred
PLC maintains that the disclosure
in
court included
though
bankruptcy
the
the
of its financial information and
access
provision requiring
in the conversion order
to such information
the defendants
entities, including
that all of the Debtor
litigation
put
litigation
the bank
will
PLC,
chapter 7 trustee all
turn over to the
posture
great
and
at
risk. PLC
strategy
PLC,
trustee to
up
left it
to the
argues
chapter 7 trustee
but
13. PLC also
necessary
PLC was
to the contin-
standing
pursue
litigation.
determine if
will not have
the
However,
litigation. Clearly, chap-
bank
the
uation of the
we have held that PLC is
suc-
turn,
power to administer
reorganized
ter 7 trustee has the
debtor.
In
cessor to
estate, including
prosecu-
property of an
chapter 7 trustee will succeed to the estate's
704;
existing litigation. 11 U.S.C.
third-party
claims.
In addi-
tion
interest in
tion,
bankruptcy
Fed.R.Bankr.P. 6009.
court did not terminate
of their “records
the es-
order required
conversion
PLC to
control,”
1019(4)
comply
custody
tate under its
Order
with Fed.R.Bankr.P.
(5).
3.a.,
provides
That rule
that “the
in
Converting
Chapter
debtor
para.
Case
possession” or the
serving
“trustee”
at the
bankruptcy
that does not mean that
time of
shall timely
conversion
turn over
made PLC
debtor. The
estate,
records and
of the
and file
court converted the cases of Consolidated
various schedules. The rule is intended to
Entities,
Mortgage
Pioneer
are
which
apply
the person
entity
or
who was
consolidated debtors.
previously
charge
of the estate
expressly provided
The Joint Plan
Bankruptcy
superceded case. NoRton
Law
bankruptcy
jurisdic-
court would retain
2D,
Comment,
Editor’s
at 67-
ANDPractice
tion
all disputes arising
over
in connection
(1999-2000 ed.).
Rule 1019 is derived
Plan, with the Joint
the actions
from former Bankruptcy Rule
of the board of
directors
the share-
trustee, receiver,
“any
referred to
or debt-
Motors,
holders of PLC. See Hillis
in possession previously
acting
addition,
F.2d at 589.
the court had
BanKruptcy
chapter case.” 9 Collier
jurisdiction
liquidation
(15th
core
over the
ed.1999).
§ 1019.RH
It would be
PLC,
disbursement of the estate
pursuant
illogical
assets
to exclude
who
only
was the
assets,
general
charge
adminis-
estate
from
contributing
required
tration
this
information.
estate.
1334(b).
157(b)(1),
In summary, while recognizing that the
contemplated
Joint Plan
legal
a different
clearly
juris
had
form accomplish
goals
the similar
of a
accounting by
diction to order an
trust,
the court nevertheless
during
pendency
plan’s
imple
asserted
over
in order
Furthermore,
mentation.
gives
Code
accomplish the Joint Plan’s intended re-
court authority to “direct
debtor,
sults. PLC was not the
but it
necessary
debtor and
other
party”
reorganized
succeeded to the
debtor’s as-
*16
any
to perform
necessary
act
to consum
sets and
It
Labilities.
became the owner
plan,
order,
mate the
“to issue
of property that was held in trust for the
process or judgment
necessary
that is
or
benefit of creditors of the estate. Conver-
appropriate
carry
out
provisions”
the
sion of the case was possible because as-
105(a), 1142(b).
the Code. 11 U.S.C.
sets still remained to be administered.
bankruptcy
authority
court’s
under
court properly asserted its
1142(b)
post-confirmation
extends to
ac
express, equitable,
authority
and inherent
necessary
tivities
complete performance
over PLC and the remaining
prop-
estate
under
plan
and close the case. The
erty in
square
order to
the unanticipated
bankruptcy court believed that
chapter
results of
intransigence
PLC’s
with the
7 trustee could better fulfill
plan goals
provisions.
Code and Joint Plan
regarding the unadministered assets. See
105(a).
§ 1142 and
legal
We find no
incon-
Industries,
NTG
(chapter
request for a further extension. PLC had
continuously providing resisted financial
information to and the investors United particular,
14. In it I do not think that court order extended the term of the PLC directors. This was better necessary to decide whether assets that have possible result for all concerned than the al- ceased to be of a estate denying ternative of both the motion to con- virtue of confirmation of a denying permission vert and to all the di- again once become of the estate potentially rectors to extend their term. That conversion, liquidat- whether PLC was a have resulted in a form, ing corporate trust in and whether the shareholders, with no because directors or authority court had to order PLC to turn over plan prohibits the confirmed a director from assets to the 7 trustee. The latter serving years five more than without appeal issue was never raised as issue permission provides person that once a and, regardless of the conclusion reached on person serve as a also ceases to director issues, ample the other there was cause for effectively ceases to be a shareholder. There conversion. directors. are no shareholders other than the 5.2 and Articles 5.3. notes promissory fractionalized interests fulfill implement and ate in a manner to trust security agreements or deeds of and (1) Plan,” were: of the which purposes n 2,800 At the approximately investors. to, liquidate all of take title and the investors were bankruptcy, time of the alleged and the inves- of the debtors assets concerning fragmented, disputes (2) and arose interests; resolve claims dis- tor (3) expected their returns. to creditors and and to disburse putes; entitlements under investors their Creditors’ The Debtor the Official 2,11. Plan at Joint Plan. Joint Reorgani- filed a Plan of Committee Joint includ- powers duties and PLC’s broad (“Joint Plan”). Amended, zation, One ed, things, management among other reorganization was purposes compro- properties, of all estate disposition among fragment- to resolve differences claims, objec- of and of examination mise all by treating and Debtor ed investors claims, employment of proofs tion to by operating inde- equally investors charged: further professionals. PLC fac- conflicting investor pendently of (e) necessary actions pursue To all Thus, created under the tions. PLC was to collect indebtedness appropriate all the estate Plan to take title to Joint claims, against claims assets ‡ % # %
Notes
[*] Article 5 of the Joint parties. third indicated, Corp; Financial were Naiman 2. The debtors all references 1. Unless otherwise Naimco-Clairemont, Inc.; Inc.; Bankruptcy "chapter” are to the Naimpro, Naimco, Inc.; or "Code” . 101-1330, Code, Corp., while refer- Investment Alvarado to the Federal to "Fed.R.Bankr.P.” are Inc.; ences Corp. and Frontier Service Procedure, Bankruptcy which make Rules of applicable Federal Rules of Civil Pro- certain (“Fed.R.Civ.P.”). cedure (n) all investigate pursue required place proceeds or ter- also on ac- To and/or non-electing on behalf of the Es- minate actions count of investors into an in- appropri- tates the Debtors where terest-bearing account. trust ate and cost-effective. expressly Article of the Joint Plan (o) To disburse to Creditors and Inves- provided retention for the court’s of broad tors their entitlements under (G), jurisdiction, including, paragraph Plan. court would retain Joint Plan at 23-30. controversies, “all over suits Plan, soliciting In disputes may arise in connection sent correspondence investors interpretation, enforcement or projected a on their return claims of 35 consummation of this with- including, addition, cents on the dollar. limitation, out the actions the Board of stated that unconditional transfer of Directors and the shareholders of the Liq- gave assets to investors the best uidating Corporation.” chance to claim million in tax over $100 confirmation, At the time of plan Debt- immediately deductible losses ors’ approximately assets were valued at vesting ownership solely of PLC years million. Within the first five $80 board of directors. Plan, virtually the Joint all existing assets