In re Mcdonnell Horticulture, Inc., CASE NO. 12-09009-8-DMW

• Decision Date: 20 March 2015
• Docket Number: CASE NO. 12-09009-8-DMW
• Court: U.S. Bankruptcy Court — Eastern District of North Carolina
• Parties: IN RE: MCDONNELL HORTICULTURE, INC. DEBTOR.

IN RE: MCDONNELL HORTICULTURE, INC. DEBTOR.

CASE NO. 12-09009-8-DMW

UNITED STATES BANKRUPTCY COURT EASTERN DISTRICT OF NORTH CAROLINA RALEIGH DIVISION

March 20, 2015

CHAPTER 11

ORDER DENYING MOTION TO DISMISS AND ALLOWING MOTION FOR FINAL DECREE

This matter comes on to be heard upon (a) the Application for Final Decree filed by McDonnell Horticulture, Inc. ("Debtor"), and the response filed by the United States Bankruptcy Administrator ("BA"); and (b) the Motion of the Bankruptcy Administrator to Dismiss the Debtor's Case Pursuant to 11 U.S.C. § 1112(b), and the response filed by the Debtor. The court conducted a hearing in Raleigh, North Carolina on January 6, 2015. William P. Janvier, Esq. appeared for the Debtor, and Brian C. Behr, Esq. appeared on behalf of the BA. At the conclusion of the hearing, the court took the matter under advisement. Based upon the evidence presented and the arguments of counsel, the court makes the following findings of fact and conclusions of law:

1. This matter is a core proceeding pursuant to 28 U.S.C. § 157, and the court has jurisdiction pursuant to 28 U.S.C. §§ 151, 157, and 1334. The court has the authority to hear thismatter pursuant to the General Order of Reference entered August 3, 1984 by the United States District Court for the Eastern District of North Carolina.

2. The Debtor filed a petition for relief under Chapter 11 of the United States Bankruptcy Code on December 21, 2012.

3. On Schedule D filed with the court, the Debtor listed Carolina Farm Credit, ACA ("CFC") as a secured creditor with a first position lien on "[a]ll inventory, equipment, farm products, crops, fixtures, and accounts receivable" of the Debtor.

4. The court confirmed the Debtor's Chapter 11 Plan of Reorganization ("Plan") by an Order ("Confirmation Order") entered October 22, 2013. The Plan was attached as Exhibit A to the Confirmation Order.

5. Under the terms of the Plan, the Debtor was required to pay creditors "by continuing to operate [its plant] nursery and selling inventory." The Plan also stated that "Claddagh Land Company, LLC, an entity with common ownership, shall sell real estate [("Claddagh Property")] to pay certain jointly owned debts."

6. Section 7.2 of the Plan stated that CFC would have the right to require an auction if Claddagh Land Company, LLC failed to sell its property before November 20, 2014.¹

7. Article XVIII of the Plan, entitled "Execution of the Plan," identified what action the Debtor would take in the event it failed to make payments to creditors as they became due under the Plan. Pursuant to Section 18.3 ("Default Provision"), if the Debtor failed to make a payment, and it was "not excused, postponed, modified, or waived," the Debtor would be required to "hire an auctioneer to liquidate its property."

8. The Debtor was ultimately unable to make payments as required by the Plan. CFC, as the first priority lienholder on the Debtor's personal property, chose an auctioneer to liquidate the Debtor's property as contemplated by the Plan. All of the Debtor's personal property has now been liquidated in accordance with the Default Provision, with the proceeds being paid to CFC.

9. As a result of the default under the Plan, the Claddagh Property could have been sold at auction by Claddagh Land Company, LLC; however, the Plan also entitled CFC to pursue legal remedies under state law, such as foreclosure, under Article VII of the Plan. The Claddagh Property, sold pursuant to a foreclosure action on November 18, 2014, was transferred by two Trustee's Deeds recorded December 31, 2014 in the Moore County Registry.

10. The Debtor asserts that this case should be closed under 11 U.S.C. § 350. The BA argues that the Debtor cannot have the case closed because the Debtor has not substantially consummated the Plan and is in material default under the Plan, and asserts the case should be dismissed for cause under § 1112(b)(4)(N). Neither party is advocating conversion of this case to one under Chapter 7, and the court agrees that conversion is not practical.

11. The Debtor has Fully Administered the Estate and Achieved Substantial Consummation

a. Section 350. Section 350 states that "[a]fter an estate is fully administered . . . the court shall close the case." 11 U.S.C. § 350(a); see Fed. R. Bankr. P. 3022.

Factors that the court should consider in determining whether the estate has been fully administered include (1) whether the order confirming the plan has become final, (2) whether deposits required by the plan have been distributed, (3) whether the property proposed by the plan to be transferred has been transferred, (4) whether the debtor or the successor of the debtor under the plan has assumed the business or the management of the property dealt with by the plan, (5) whether payments under the plan havecommenced, and (6) whether all motions, contested matters, and adversary proceedings have been finally resolved.

Fed. R. Bankr. P. 3022 advisory committee's note.

b. The third, fourth and fifth factors identified in the Rule 3022 Advisory Committee's Note are very similar to the requirements for substantial consummation under 11 U.S.C. § 1101(2). Pursuant to § 1101(2), substantial consummation occurs upon the debtor actuating the

(A) transfer of all or substantially all of the property proposed by the plan to be transferred;

(B) assumption . . . of the business or of the management of all or substantially all of the property dealt with by the plan; and

(C) commencement of distribution under the plan.

11 U.S.C. § 1101(2).

c. Because the elements of substantial consummation are essentially encompassed in the standards for full administration of the estate, the court will address both concepts together.

d. As a preliminary matter, the Confirmation Order became final on November 6, 2013 (see Fed. R. Bankr. P. 8002(a)); the Plan did not require deposits (see Fed. R. Bankr. P. 3020); the Debtor assumed the business and continued its operations (until liquidation); and all motions, contested matters and adversary proceedings have been finally resolved, with the exception of those currently before the court.

e. Regarding the remaining two factors:

i. The Property Proposed by the Plan to be Transferred has been Conveyed. Although the Claddagh Property was not sold by private sale, the Claddagh Property was liquidated at foreclosure as contemplated by Section 7.2 of the Plan. Similarly, the Default Provision provided for the sale of the Debtor'spersonal property and, pursuant to that section of the Plan, the Debtor transferred all of the Property proposed by the Default Provision of the Plan to be transferred.²

ii. Payments Under the Plan have Commenced. Through continued operations prior to liquidation, the Debtor commenced distribution under the Plan. Under a substantial consummation analysis, courts in this District have held that distribution of payments under a plan needs to have commenced with respect to "all or substantially all" creditors. In re Dean Hardwoods, Inc., 431 B.R. 387, 393 (Bankr. E.D.N.C. 2010). In the Post Confirmation Report filed by the Debtor on July 31, 2014, the Debtor indicated compliance with the Plan payment terms regarding five of the six classes of creditors. Payments commenced to those five classes no later than December 1, 2013 according to the Report. Class 4, regarding which the Debtor reported noncompliance, was to be paid through any available proceeds from the voluntary foreclosure of the Claddagh Property. Even if Class 4 did not receive any proceeds from the sale of the Claddagh Property, the court finds that the Debtor had undertaken efforts to commence payments under the Plan by allowing for the foreclosure. That action, contemplated by the Plan, is sufficient to satisfy substantial consummation requirements.

f. At the hearing, the BA expressed the concern that closing the Debtor's case could have implications in other cases, specifically on the requirement that debtors must pay quarterly fees until achieving substantial consummation. According to the BA, if the Debtor is allowed to have its case

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