In re Amarex, Inc.
| Decision Date | 29 May 1987 |
| Docket Number | Bankruptcy No. BK-82-2335-A,84-718.,Adv. No. 84-564 |
| Citation | 74 BR 378 |
| Parties | In re AMAREX, INC., Debtor. (Two Cases) AMAREX, INC., et al., Plaintiffs, v. MARATHON OIL COMPANY, et al., Defendants. AMAREX, INC., et al., Plaintiffs, v. AZTEC SPECIALTY LEASING CO., et al., Defendants. |
| Court | U.S. Bankruptcy Court — Western District of Oklahoma |
Robin Phelan and Judith Elkin, of Haynes & Boone, Dallas, Tex., for debtor-plaintiff.
Warren D. Majors and Philip O. Watts of Spradling, Alpern, Friot & Gum, Oklahoma City, Okl., for Marathon Oil Co.
Ray G. Moss and Frank Polk of Daugherty, Bradford, Fowler & Moss, Oklahoma City, Okl., for Aztec Specialty Leasing Co.
DECISION
Various motions raise legal issues affecting these consolidated complaints seeking recovery of allegedly preferential transfers.
The first issue is the question whether a successor to the reorganized debtor may maintain the complaints and recover preferential transfers under 11 U.S.C.A. § 547 (1979 & Supp.1986).
In 1985 the Amarex plan of reorganization was confirmed. Pursuant to it Amarex was merged into Temex Energy, Inc. a wholly owned subsidiary of Templeton Energy, Inc. Under the plan Temex acquired all assets of Amarex and a subsequent order in aid of consummation provides "Temex is vested with the properties and rights of Amarex and survives as a wholly owned subsidiary of Templeton. . . ." That order merely restates the corporate law effect of the merger.
The confirmed plan provides the holders of unsecured claims against Amarex receive common stock of Templeton in satisfaction of their claims. As a result the Amarex creditors received approximately 40% of Templeton's outstanding shares.
Prior to confirmation Amarex brought some 250 complaints seeking to recover about $30 million as preferential transfers. The defendants now contend the plaintiffs as successors by merger are not proper parties plaintiff and move to dismiss. They argue the right to recover a preferential transfer is personal to the debtor in possession or trustee and may not be maintained by a successor.
The issue turns on 11 U.S.C.A. § 1123 (1979) which provides:
Recently reported decisions dealing directly with the issue have taken different views. They are Robison v. First Financial Capital Management Corp. (In re Sweetwater), 55 B.R. 724 (D. Utah 1985); Tennessee Wheel & Rubber Co. v. Captron Corporate Air Fleet (In re Tennessee Wheel & Rubber Company), 64 B.R. 721 (Bankr.M.D.Tenn.1986) aff'd mem., Tennessee Wheel & Rubber Co. v. American Express Travel Related Services Co., 75 B.R. 1 (M.D.Tenn.1987); Xonics, Inc. v. E & F King & Co. (In re Xonics, Inc.), 63 B.R. 785 (Bankr.N.D.Ill.1986); Duvoisin v. East Tennessee Equity, Ltd. (In re Southern Industrial Banking Corp.), 59 B.R. 638 (Bankr.E.D.Tenn.1986); and United Capital Corp. v. Sapolin Paints, Inc. (In re Sapolin Paints, Inc.), 11 B.R. 930 (Bankr. E.D.N.Y.1981).
As Judge Bare points out in Southern Industrial, § 1123(b)(3)(B) serves the useful function of allowing confirmation of a plan before possible claims against others have been fully investigated and pursued. To say confirmation must await a final decision of all possible preference complaints would either inordinately delay confirmation, with all the attendant expense, or result in a windfall in favor of those who received preferential transfers.
In a major case, such as this one, the time spent investigating, preparing, trying and appealing preference complaints could take many years. This case forms its own best example. The bankruptcy petition was filed in 1982, the complaints were brought in 1984 and the plan confirmed in 1985. The claimholders received reorganization values under the plan, and other distributions will be made soon. Depending on final resolution of other legal issues, these proceedings could possibly be tried in the winter of 1987-88, appeals to the district and circuit courts could realistically require 3 years. Thus, it is not beyond probability the judgments would not be final until 1991.
If reorganization were required to await such a lengthy period one of two results would likely obtain. Either the creditors would be required to wait an additional 5 or 6 years to receive a distribution, which would likely be substantially less, if anything, due to continuing costs of administration, or the debtor in possession would choose to forego preference claims in order to seek plan confirmation. Both results would be intolerable. The first would result in mindless delay which Congress obviously sought to avoid and the second would condone windfalls to some creditors and a disproportionate distribution of the estate. Both these results are contrary to the very purpose of the Bankruptcy Code which strives to achieve the maximum distribution in the minimum time with all creditors of the same class sharing ratably. Katchen v. Landy, 382 U.S. 323, 328-29, 86 S.Ct. 467, 471-73, 15 L.Ed.2d 391 (1966); Sampsell v. Imperial Paper & Color Corp., 313 U.S. 215, 219, 61 S.Ct. 904, 907, 85 L.Ed. 1293 (1941).
Another basic principle of American law would also be violated if a successor is unable to maintain the claims. Almost 100 of the original 250 complaints have been settled. If the defendants thought delay would frustrate the reorganization goals they would, to say the least, not be encouraged to engage in settlements. Their incentive would be to delay the adversary proceeding in order to delay the bankruptcy case to the point a debtor in possession surrenders in order to get about the business of reorganization.
Plaintiffs make another argument which needs to be considered. The disclosure statement and plan clearly told the creditors these preference claims would pass to Temex upon confirmation. That plan binds Amarex, Temex, all creditors and "vests all of the property of the estate in the debtor." 11 U.S.C.A. § 1141 (1979 & Supp.1986). The claims thus vested in reorganized Amarex at the moment of confirmation and it then merged into Temex. If the creditors objected to this portion of the reorganization scheme the time for them to have raised the matter was at the confirmation hearing. Once that order was entered it had all the finality of a judgment and the parties are entitled to rely upon it as a res judicata. See 5 Collier on Bankruptcy ¶ 1141.011 (15th ed. 1985).
Preference claims are for the benefit of the creditors and had they wished them prosecuted in some other fashion the time to be heard was at confirmation. Defendants argue that since the creditors now own only 40% of Templeton, other parties benefit from a recovery contrary to the statement in § 550(a) that such recoveries be "for the benefit of the estate." 11 U.S.C.A. § 550(a) (1979 & Supp.1986). The answer is the final plan in any major case is the product of negotiation and values are exchanged in that process. If the creditors gave up some interest in the claims they received something in exchange, such as additional shares of Templeton stock. See Unsecured Noteholders' Committee v. First National Bank and Trust Co. of Oklahoma City (In re Amarex, Inc.), 36 B.R. 59, 62 (Bankr.W.D.Okla.1984). Thus, the mere fact Templeton has other shareholders, unrelated to Amarex, does not mean the Amarex creditors are not receiving full value for any preference recovery. The estate was paid for the claims in the form of bargained for shares of Templeton stock. It ceased to exist upon confirmation and all its property, including these claims, passed to the debtor which merged into Temex.
Section 1123(b) is a permissive subsection, providing the plan could have designated a specific representative to prosecute the claims and distribute any recovery other than to Temex. That, however, is not to say the estate, viz, the creditors, may not seek to realize those values in the form of Templeton stock. The fact is Templeton paid a valuable consideration for the properties of the Amarex estate, including these claims. In return it received a binding confirmation order having all the finality of a judgment. To now seek to deprive it of what it bargained for and received would be an unconscionable deprivation of vested rights. If creditors or other interested parties wished to object to that result the time to be heard was at confirmation.
We thus conclude the Plaintiffs are proper parties to maintain the complaints.
The next issue we must consider is the impact of the 1984 Amendment to § 547(c)(2). The Bankruptcy Amendments and Federal Judgeship Act of 1984 (BAFJA), Pub.L. No. 98-353, 98 Stat. 333, eliminated the "45 day rule" of § 547(c)(2) and replaced it with "the ordinary course of business." That section previously stated a trustee could not avoid a transfer to the extent it was a "payment of a debt incurred in the ordinary course of business or financial affairs of the debtor and the transferee . . . made not later than 45 days after such debt was incurred" if "made in the ordinary course of business or financial affairs . . . according to ordinary business terms." 11 U.S.C.A. § 547(c)(2) (1979). As amended the section precludes the trustee from avoiding a transfer of a "payment of a debt incurred by the debtor in the ordinary course of business or financial affairs of the debtor and the transferee . . . made in the ordinary course of business or financial affairs . . . according to ordinary business terms." 11 U.S.C.A. § 547(c)(2) (Supp. 1986).
The 1984 Amendments became effective October 8, 1984 pursuant to § 553(a) of the BAFJA. The Amarex, Inc. bankruptcy commenced December 2, 1982 and these adversary proceedings were all filed subsequent to October 8, 1984. Thus, the question becomes whether the 1984 Amendments are applicable to these...
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