In re Larmar Estates, Inc., Bankruptcy No. 880 01917
Decision Date | 17 November 1980 |
Docket Number | Bankruptcy No. 880 01917,880 01918. |
Citation | 6 BR 933 |
Parties | In re LARMAR ESTATES, INC., Debtor. In re MEDAF HOLDING CORP., Debtor. |
Court | U.S. Bankruptcy Court — Eastern District of New York |
Pliskin, Rubano & Baum, Flushing, N.Y., for debtors by Charles F. Rubano, Flushing, N.Y.
Ira L. Hyams, P.C., Jericho, N.Y., for FDIC by Howard J. Herman, Jericho, N.Y., of counsel.
Larmar Estates, Inc. and Medaf Holding Corp., (the "debtors") have moved this Court for orders pursuant to 11 U.S.C. section 1121(d),1 extending the debtors' exclusive time to file Chapter 11 plans. The Federal Deposit Insurance Corporation (the "FDIC"), a major creditor of the debtors, has opposed the debtors' motions and has moved this Court for orders dismissing the debtors' Chapter 11 cases. For the reasons set forth below, the Court denies the debtors' motions, and grants the FDIC's motions to the extent that it will convert the debtors' Chapter 11 cases to cases under Chapter 7.
On April 18, 1980, the debtors filed petitions for reorganization under Chapter 11 of the Bankruptcy Code. The president of each of the debtors is Irving Rubin ("Rubin"). Each of the debtors possesses only a single asset. Larmar holds a second mortgage on an apartment house located in Lawrence, New York. The debtor, in its petition, valued the mortgage at $1,300,000.00. Medaf's only asset is a $500,000.00 debt owed to it by Caprimar Estates ("Caprimar"). Caprimar appears to be a shell corporation formed by Rubin. Caprimar's precise relationship to Medaf and Larmar is unclear.
The debtors' Chapter 11 cases have been pending in this Court for seven months. There is no evidence that these debtors are any closer now to promulgating plans than they were when they filed their petitions. Indeed, in paragraph 4 of the debtors' affirmations in support of their motions, the debtors' counsel stated that: "It is impossible at this time, or even within the next four months, to determine what the debtors' actual position is and should be with regard to its responsibility to its creditors." The FDIC urges this Court to dismiss the debtors' cases so that it may pursue its State court remedies against the debtors.
11 U.S.C. section 1112(b) empowers the bankruptcy court to convert a Chapter 11 case to a case under Chapter 7, or in the alternative to dismiss the Chapter 11 case. Section 1112(b) provides that:
Id. The Court's determination under section 1112(b) can be made only: "on request of a party in interest"; "after notice and hearing"; and "for cause". See 5 Collier on Bankruptcy ¶ 1112.032, p. 1112-10 (15th ed. 1979); Trost, Business Reorganizations Under Chapter 11 of the New Bankruptcy Code, 34 Bus.Law. 1309, 1316 n. 65 (1979). The motions made by the FDIC, which, except for Rubin, is the single largest creditor of each of the debtors; and the hearing held on the motion, satisfy the first two requirements of section 1112(b). Thus, it remains for the Court to determine whether cause has been shown for dismissing the debtors' Chapter 11 cases or converting the debtors' Chapter 11 cases to cases under Chapter 7.
The debtors have enjoyed the protection of Chapter 11 for seven months. There has been absolutely no movement toward the confirmation of a plan in these cases. Indeed, at the hearing on the motions the debtors' counsel, with admirable candor, advised the Court that:
In illustrating the debtors' current financial and operating condition, the FDIC has referred the Court to Rubin's testimony given at the section 341(a) Meeting of Creditors held in the Medaf Chapter 11 case.
As president of Larmar, Rubin testified that:
It is clear that the debtors have been unable to effectuate plans of reorganization. Accordingly, the Court finds that cause has been shown for dismissing or converting the debtors' Chapter 11 cases. See 11 U.S.C section 1112(b)(2). Cf. In re Webcor, Inc., 392 F.2d 893 (7th Cir.) cert. denied sub. nom. Silver, Inc. v. Webcor, Inc., 393 U.S. 837, 89 S.Ct. 113, 21 L.Ed.2d 107 (1968) ( )
Moreover, the Court finds that Medaf's failure to maintain books and records constitutes cause for dismissing or converting the Medaf Chapter 11 case.
In determining what constitutes cause for dismissing or converting a Chapter 11 case, the Court is not limited to those grounds enumerated in section 1112(b).2 The Legislative history makes this abundantly clear. House Report No. 95-595, 95th Cong., 1st Sess. 405-06 (1977) reprintd in 1978 U.S.Code Cong. and Ad.News, pp. 5787, 5963, 6362; see generally 5 Collier on Bankruptcy, ¶ 1112.032 (15th ed. 1979).
While a debtor may not be expected to keep a "perfect" set of books and records, it should keep an adequate set of books and records to reflect its business transactions. This circuit has stated in a different context that:
In re Underhill, 82 F.2d 258, 259-60 (2d Cir.) cert. denied sub. nom. Underhill v. Lent, 299 U.S. 546, 57 S.Ct. 9, 81 L.Ed. 402 (1936) (emphasis supplied). (Bankrupt's failure to keep adequate records of business transactions involving unusual sums of money constituted grounds for barring his discharge.)
It is true that in discussing the concept of adequate information in connection with the disclosure statement required by 11 U.S.C. section 1125, the House report stated that:
House Report No. 95-595, 95th Cong., 1st Sess. (1977) 226. (emphasis...
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