In re House Nursery, Ltd.

• Decision Date: 09 February 2016
• Docket Number: Case No. 13-60690
• Parties: IN RE: HOUSE NURSERY, LTD. xx-xxx2747 P. O. Box 110, Brownsboro, TX 75756 Confirmed Liquidating Debtor
• Court: United States Bankruptcy Courts. Fifth Circuit. U.S. Bankruptcy Court — Eastern District of Texas

IN RE: HOUSE NURSERY, LTD. xx-xxx2747 P. O. Box 110, Brownsboro, TX 75756 Confirmed Liquidating Debtor

Case No. 13-60690

UNITED STATES BANKRUPTCY COURT FOR THE EASTERN DISTRICT OF TEXAS TYLER DIVISION

February 9, 2016

Chapter 11

MEMORANDUM OF DECISION¹

This matter is before the Court to consider the Motion to Enforce Plan Provisions filed by the confirmed liquidating Debtor, House Nursery, Ltd. ("Debtor") and the objection filed thereto by Regions Bank, a secured creditor (the "Bank"). The Motion seeks a declaration and enforcement of certain terms of the Chapter 11 plan of reorganization that was confirmed in this Court by an order entered on May 27, 2014, which the Debtor asserts imposes a duty upon Regions Bank to foreclose upon certain properties and, more significantly, requires the Bank to apply credits to the debts owed by the Debtor to the Bank in amounts designated in the confirmed Plan. At the conclusion of the hearing, the Court granted the parties leave to file supplementary arguments and authorities regarding the proper interpretation of the Confirmation Order, and thereafter took the matter under advisement. This Memorandum disposes of all issues pendingbefore the Court.²

Factual and Procedural Background³

The Debtor, House Nursery, Ltd., is a limited partnership which operated a wholesale and retail plant nursery business in Henderson, Smith, and Kaufman counties. On August 30, 2013, it filed a voluntary petition for relief under Chapter 12 of the Bankruptcy Code which was subsequently converted to Chapter 11 on October 18, 2013. Regions Bank has been the primary secured creditor of the Estate, secured by certain crops and crop-related collateral, as well as by a first lien upon certain tracts of real property located in Kaufman County and Smith County, respectively.

At an early stage of the Chapter 11 proceeding, the Debtor concluded that a reorganization of its business affairs as an operating entity was not feasible, and it began to pursue the orderly liquidation of its assets. On December 20, 2013, the Debtor, as plan proponent, filed its original plan of liquidation which provided for "the orderly liquidation of the Debtor's assets and the distribution of the net proceeds to holders of Allowed Claims in accordance with the priority scheme established by the BankruptcyCode, as authorized by Section 1123(b)(4) of the Bankruptcy Code and other applicable law."⁴ The original plan generally contemplated that the Debtor would be given prescribed periods of time within which it would take particular steps to liquidate the collateral held by the Bank in order for the Debtor to realize what it believed to be a significant amount of equity for the benefit of priority and general unsecured creditors, while simultaneously generating funds to pay 100% of the allowed secured claim of the Bank.⁵

The Bank quickly responded to the proposed liquidation scheme. In its own words, the Bank contended to the Court that

[T]he Plan is not fair and equitable because it places significant risk on Regions, notwithstanding the Debtor's assertion that it will (eventually) pay Regions's claim in full. Specifically, the Plan proposes to liquidate Regions's collateral for an undisclosed amount, free and clear of liens and without any mechanism for Regions (or some other unbiased third party) to monitor and object to the sale methodology as it progresses. This unspecified and unmonitored process also leaves Regions (and the Court) unable to determine whether Regions ultimately will be paid the value of its claim, as required under section 1129(b)(2)(A) of the Bankruptcy Code. Moreover, the Plan is not feasible because it is unclear whether the selloff will be completed within a reasonable period of time. Over the course of the selloff, the Debtor proposes to retain all funds (with the exception of minimal monthly interest payments) until the Distribution Date, which is an unspecified date in the future that the Debtor chooses to distribute funds. This is a recipe for inefficiency and has great potential for Regions to lose its right to collect on the value of the collateral as the Debtor spends sale proceeds on unspecified liquidation expenses until such time that it determines to make a distribution.⁶

As frequently happens in Chapter 11 cases, this initial conflict began a significant period of negotiations between the Debtor and the Bank regarding modifications to the proposed sale mechanisms, the results of which were reflected in the subsequent amendments to the plan proposal filed with the Court. The Debtor's First Amended Plan as proposed specified that interim distributions would be made to the Bank as the collateral was sold,⁷ it outlined a significantly expanded process for the sale of the collateralized inventory,⁸ and expected completion dates for particular categories of collateral were proposed.⁹ Those negotiated changes were carried forward into the proposed Second Amended Plan in which the proposed dates for conclusion of the respective sales periods were also altered¹⁰ and a required monthly payment to the Bank from the sale of inventory after the effective date of the plan was added.¹¹

After the Debtor's Second Amended Plan was filed, the accompanying AmendedDisclosure Statement was approved and the Court set a hearing to consider confirmation of the Second Amended Plan for May 6, 2014.¹² Ongoing plan negotiations were occurring between the Debtor and the Bank up to the eve of the scheduled confirmation hearing. The parties agreed that the plan objection deadline would be extended for the Bank in an attempt to reach a final agreement on the final terms of the plan.¹³ Last minute agreements were reached and the final written terms were tendered to the Court on the day prior to the confirmation hearing.¹⁴ Among the last-minute plan modifications to which the Debtor and the Bank agreed were changes to the process for the liquidation of the real property tracts which were subject to the Bank's lien. The changes to ¶ 7.1 were outlined in blue in the written amendments and read as follows:

7.1 Sale of Real Property: The Real Property, to the extent not already sold or subject to an Order Approving Sale at the time of confirmation of the Plan, will be marketed for sale through a realtor licensed in the State of Texas, and will be sold to the Person making the highest cash offer, subject to ten (10) days' prior notice to the Post-Confirmation Service List and approval of the Bankruptcy Court. A Claimholder having a Secured Claim may submit a bid for the Real Property and may bid the amount of its Allowed Secured Claim. It is contemplated that in marketing and selling the real property owned by Debtor, qualified purchasers may wish to buy, in addition to real property, certain inventory equipment and other personal property such as greenhouses or other miscellaneous assets. Debtor, in consultation with its professionals, will duly consider all offers with the intent of maximizing the return to the estate and its creditors. Debtor expects that sales of real property sufficient to pay any remaining claims will be completed by February 28, 2015July 31, 2015. The Plan provides, in part, for Debtor to sell real property, a portion of which is pledged to Regions as collateral. In the event that any parcel of real property upon which Regions has a first lien has not sold as of February 28, 2015, or subject to a court approved sales agreement which has not yet closed as of February 28, 2015, or at such earlier time that Debtor notifies Regions in writing that continued sales efforts are not economically beneficial or in the best interest of the estate, Regions or its designee may foreclose on the following pledged properties in the following agreed minimum amounts, provided that the balance owed Regions on its allowed claim has not otherwise been paid prior to foreclosure:

(i)$978,000 for that certain tract identified as the Tyler 30.322 acres as described on Exhibit "A" to this Order;

(ii)$300,000 for that certain tract identified as the Kaufman 19.21 acres as described on Exhibit "B" to this Order;

(iii)$300,000 for that certain tract identified as the Kaufman 4.87 acres as described on Exhibit "C" to this Order.¹⁵

The Court approved the proposed modifications under Fed. R. Bankr. P. 3019(a) without necessity of further disclosure and directed that further modifications be made to limit the scope of the Court's post-confirmation supervisory functions regarding the proposed sales of property. As so modified, the proposed plan was orally confirmed, but the Court required the Debtor to incorporate all of the last-minute changes into a "clean" copy to be denominated as a "Third Amended Plan" and filed for Court review prior to the entry of any confirmation order. The Third Amended Plan was filed on May 22, 2014.¹⁶As set forth in the Third Amended Plan, paragraph 7.1 reads as follows:

7.1 Sale of Real Property: The Real Property, to the extent not already sold or subject to an Order Approving Sale at the time of confirmation of the Plan, will be marketed for sale through a realtor licensed in the State of Texas, and will be sold to the Person making the highest cash offer, subject to ten (10) days' prior notice to the Post-Confirmation Service List and approval of the Bankruptcy Court. A Claimholder having a Secured Claim may submit a bid for the Real Property and may bid the amount of its Allowed Secured Claim. It is contemplated that in marketing and selling the real property owned by Debtor, qualified purchasers may wish to buy, in addition to real property, certain inventory equipment and other personal property such as greenhouses or other miscellaneous assets. Debtor, in consultation with its professionals, will duly consider all offers with the intent of maximizing the return to the estate and its creditors. Debtor expects that sales of real property sufficient to pay any remaining claims will be completed by

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