In re Microwave Products of America, Inc., Bankruptcy No. 88-27990-D.

• Decision Date: 28 April 1989
• Docket Number: Bankruptcy No. 88-27990-D.
• Citation: 100 BR 376
• Court: U.S. Bankruptcy Court — Western District of Tennessee
• Parties: In re MICROWAVE PRODUCTS OF AMERICA, INC. Debtor.

100 B.R. 376 (1989)

In re MICROWAVE PRODUCTS OF AMERICA, INC. Debtor.

Bankruptcy No. 88-27990-D.

United States Bankruptcy Court, W.D. Tennessee, W.D.

April 28, 1989.

Brent Whittlesey, Jones, Day, Reavis & Poague, Los Angeles, Cal., for Microwave Holdings, Inc.

Harris Quinn, Heiskell, Donelson, Bearman, Adams, Williams, and Kirsch, Memphis, Tenn., for Microwave Products.

Robert A. Greenfield, Stutman, Treister & Glatt, Los Angeles, Cal., for Litton Industries.

Jack Kolod and Summitt, Rovins & Seldsman, New York City, for Moulinex.

Jack Marlow, Memphis, Tenn., for American Universal Ins. Co.

John Ryder, Memphis, Tenn., for FIBC.

David Cocke, Memphis, Tenn., for Litton Industries.

Michael Coury, Memphis, Tenn., for Unsecured Creditors Committee.

Jennie Latta, Memphis, Tenn., Attorney for Magnetek, Inc.

Henry Shelton, Memphis, Tenn., Attorney for Western Industries.

William Carson, Memphis, Tenn., for Midwest Coast Transport.

Julie Chinn, Memphis, Tenn., Asst. U.S. Trustee.

Gary Vanasek, Memphis, Tenn., U.S. Atty.

MEMORANDUM OF OPINION AND ORDER DENYING APPROVAL OF DISCLOSURE STATEMENT FILED BY MICROWAVE HOLDINGS, INC.

BERNICE BOUIE DONALD, Bankruptcy Judge.

This core proceeding came on for hearing on April 12, 1989, on Microwave Holding, Inc.'s (hereinafter "MHI") motion for approval of disclosure statement. Objections were filed by several major secured creditors in the case, Litton Industries, American Universal Insurance Corporation, First Interstate Bank of California, the unsecured creditors committee, and the U.S. Trustee.

11 U.S.C. § 1125 governs requirements for disclosure statements in Chapter 11 cases under the Bankruptcy Code. 11 U.S.C. § 1125(b) provides that:

§ 1125. Postpetition disclosure and solicitation.

(b) An acceptance or rejection of a plan may not be solicited after the commencement of the case under this title from a holder of a claim or interest with respect to such claim or interest, unless, at the time of or before such solicitation, there is transmitted to such holder the plan or a summary of the plan, and a written disclosure statement approved, after notice and a hearing, by the court as containing adequate information. The court may approve a disclosure statement without a valuation of the debtor or an appraisal of the debtor\'s assets.

While the Code does not precisely define "adequate disclosure", the disclosure statement must contain enough information to comport with the purpose of requiring a disclosure statement. 11 U.S.C. § 1125(a)(1) defines "adequate information" as:

§ 1125. Postpetition disclosure and solicitation.

(a) In this section—

(1) "adequate information" means information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor\'s books and records, that would enable a hypothetical reasonable investor typical of holders of claims or interests of the relevant class to make an informed judgment about the plan, but adequate information need not include such information about any other possible or proposed plan.

The "investor typical of holders of claims or interests of the relevant class", referred to in the definition under 11 U.S.C. § 1125(a)(1) is defined in 11 U.S.C. § 1125(a)(2) as meaning an investor having (A) a claim or interest in the relevant class, (B) such a relationship with the debtor as the holders of other claims or interests of such class generally have, and (C) such ability to obtain such information from sources other than the required disclosure as holders of claims or interests in such class generally have.

The purpose of the disclosure provisions of Chapter 11 is to provide holders of claims and interests with "adequate information" prior to the acceptance or rejection of a reorganization plan, in order for them to be able to make an informed judgment as to the feasibility of the plan.

Section 1125 of the Code permits the Court to construe the adequacy of disclosure statements on a case by case basis. In re A.C. Williams Co., 25 B.R. 173 (Bankr.N.D.Ohio 1982).

While the Code does not define adequate disclosure, case law has given rise to certain criteria to aid the Courts in evaluating the sufficiency or the adequacy of disclosure statements. In re Metrocraft Pub. Services, Inc., 39 B.R. 567 (Bankr.N.D.Ga. 1984); and In re Stanley Hotel, Inc., 13 B.R. 926 (Bankr.D.C.Colo.1981).

In re Stanley Hotel, Inc., 13 B.R. at 926, sets forth broad parameters holding that the information to be provided in the disclosure statement should be comprised of "all factors presently known to the plan proponent" that bear upon the success or failure of the proposals contained in the plan. (Emphasis Added). While the Court in The William F. Gable Co., 10 B.R. 248 (Bankr. N.D.W.Va.1981) held that the disclosure statement must contain information that is material, important, and necessary for creditors and shareholders to properly evaluate a plan and make a reasonable informed decision on the plan. Therefore, a disclosure statement which was characterized as being essentially a summary of the plan was held to be clearly inadequate to meet the requirement of Section 1125. In re Adana Mortg. Bankers, Inc., 14 B.R. 29 (Bankr.N.D.Ga.1981). The Court in In re Metrocraft Pub. Services, Inc., 39 B.R. 567 (Bankr.N.D.Ga.1984) sets forth a list of criteria for evaluating the adequacy of disclosure statements:

(1) The events that lead to the filing of a bankruptcy or the bankruptcy petition;

(2) A description of the available assets and their value;

(3) The anticipated future of the company;

(4) The source of the information stated in the disclosure statement;

(5) A disclaimer;

(6) The present condition of the debtor while in Chapter 11;

(7) The scheduled claims as allowed or estimated by category;

(8) The estimated return to parties under a Chapter 7 liquidation;

(9) The accounting method utilized to produce financial information, and to identify the accountants and the identity of the accountants and others responsible for such information;

(10) The future management of the company, including qualifications and compensation;

(11) A summary of the Chapter 11 plan;

(12) The estimated administrative expenses, including professional fees and priority claims;

(13) The collectibility of accounts receivable and counter claims;

(14) Financial information, data, evaluations or projections relevant to the decision to accept or reject the plan;

(15) Information relevant to the risks posed to creditors under the plan;

(16) The actual or projected realizable value from recovery of preferential or otherwise voidable claims;

(17)

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