In re Air Atlanta, Inc., Bankruptcy No. A87-02530-WHD.
| Decision Date | 02 June 1987 |
| Docket Number | Bankruptcy No. A87-02530-WHD. |
| Citation | 74 BR 426 |
| Parties | In re AIR ATLANTA, INC., Debtor. NATIONAL BANK OF GEORGIA, INC., Movant, v. AIR ATLANTA, INC., Respondent. |
| Court | U.S. Bankruptcy Court — Northern District of Georgia |
Richard G. Murphy, Thomas M. Byrne, Sutherland, Asbill & Brennan, Atlanta, Ga., for Nat. Bank of Georgia, Inc.
John C. Pennington, Norton, Pennington, Goetz, Cronkright & Prior, Atlanta, Ga., for Air Atlanta, Inc.
This case is before the Court on a motion to lift stay to permit setoff filed by National Bank of Georgia, Inc. ("NBG"). At the hearing on the matter on May 27, 1987, NBG presented documents and testimony showing that the total amount on deposit in seven (7) of the debtor's accounts maintained at NBG was $276,298.16 as of the date the debtor filed its Chapter 11 petition. The evidence also indicated that the principal balance owed NBG on one loan made to the debtor is $333,333.33.
The debtor argues that NBG is not entitled to set off the mutual debts of the parties because NBG violated the automatic stay by freezing the debtor's deposit accounts on the date the bankruptcy petition was filed and by "unlinking" the debtor's accounts and reversing the credit for checks drawn on the accounts, which checks had initially been posted.
The Court has previously addressed the administrative freeze of the debtor's accounts by NBG in the Order entered on the debtor's complaint demanding a turnover of the funds on deposit and asking that the bank be held in contempt for violation of the stay. The Court ruled that NBG's administrative freeze did not violate the stay. 74 B.R. 354.
This decision was mandated primarily by this Court's reasoning in In re Owens-Peterson, 39 B.R. 186 (Bankr.N.D. Ga.1984). The rationale of the Owens-Peterson holding that a freeze of bank accounts is not a violation of the automatic stay can be summarized as follows. First, a freeze is not a post-petition setoff prohibited by 11 U.S.C. § 362(a)(7) because there is no debit to the debtor's account and no application of the funds on deposit to the bank's claim. Second, 11 U.S.C. § 542(b) provides that any entity that owes a debt to the debtor shall pay such debt except to the extent that it is subject to setoff against a claim against the debtor. Third, a debtor's deposit account which is subject to setoff constitutes cash collateral under 11 U.S.C. § 363(a), which cannot, pursuant to § 363(c)(2), be used by the debtor without the bank's consent or the Court's approval. See also 4 Collier on Bankruptcy ¶ 553.156 (15th ed. 1987) (agreeing at p. 553-72 that the "freeze should not be considered a violation of the stay.")
The only statutory change which has occurred since the Owens-Peterson decision that could have an effect on the holding is an amendment to 11 U.S.C. § 362(a)(3) which added the language prohibiting any act "to exercise control" over property of the estate.
This Court agrees with the holding in In re Williams, 61 B.R. 567 (Bankr.N.D. Tex.1986), that the more specific provision of § 542(b), allowing a creditor to retain funds subject to setoff, should control over the more general restrictions of § 362(a)(7) (prohibiting setoffs) and § 362(a)(3) (). Furthermore, the Williams decision was supported on the policy that the burden should be on the debtor to obtain permission to use cash collateral, and that the bank should not have to turn over funds to the debtor and thereafter request the Court to prohibit the debtor from dissipating the funds. Williams, 61 B.R. at 576 (quoting In re Edgins, 36 B.R. 480 (Bankr.App.Panel 9th Cir.1984)). Finally, the Collier treatise has also concluded that the...
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