In re O'Neal

• Decision Date: 12 April 2013
• Docket Number: No. 1:11–bk–72792M.,1:11–bk–72792M.
• Citation: 490 B.R. 837
• Parties: In re Ernest Gregory O'NEAL and Nancy Mapes O'Neal, Debtors.
• Court: U.S. Bankruptcy Court — Western District of Arkansas

490 B.R. 837

In re Ernest Gregory O'NEAL and Nancy Mapes O'Neal, Debtors.

No. 1:11–bk–72792M.

United States Bankruptcy Court,

W.D. Arkansas,

El Dorado Division.

April 12, 2013.

Stephen L. Gershner, Davidson Law Firm, Little Rock, AR, for Debtors.

ORDER

JAMES G. MIXON, Bankruptcy Judge.

On June 15, 2011, Ernest O'Neal and Nancy O'Neal (Debtors) filed a voluntary petition for relief under the provisions of Chapter 12 of the United States Bankruptcy Code. On June 28, 2011, the case was converted to a case under Chapter 11 on the Debtors' motion.

The Debtors filed a second amended Chapter 11 plan of reorganization on May 1, 2012. An objection to confirmation was filed by Arkansas Development Finance Authority (ADFA). A hearing on confirmation was conducted in Little Rock, Arkansas, on September 13, 2012. After the confirmation hearing, the matter was taken under advisement. Briefs have been filed by the Debtors and ADFA.

The proceeding before the Court is a core proceeding pursuant to 28 U.S.C. § 157(b)(2)(L) and the Court has jurisdiction to enter a final judgment in this case.

I.BACKGROUND

The Debtors, husband and wife, reside in Ashley County, Arkansas, and conduct a large farming operation. In 2012, the Debtors farmed a total of 1,700 acres consisting of 1,250 acres of cotton, 400 acres of corn and 79 acres of soybeans. (Debtors' Ex. 7; Tr. at 23 & 51.) The Debtors farming operation is performed by the Debtors individually and two entities created by them. The Debtors individually own 615 acres of farm land in Ashley County, Arkansas, and a personal residence in Wilmot, Arkansas. The Debtors own 100% of the stock in Earnest O'Neal, Inc., which in turn owns 208 acres of farm land in Ashley County, Arkansas, and all of the farming equipment and machinery used in the Debtors' farming operation. (Tr. at 23.) The Debtors created O'Neal Farm Partnership (the Debtors are equal partners), which is used to conduct the farming operation. The partnership owns no property except crops when they exist. The balance of the 1,700 acre farming operation is conducted by the partnership on rented land. (Tr. at 24.)

The Debtors and Earnest O'Neal, Inc., together own 823 acres of farm land which the Debtors value at $2,700.00 per acre for a total value of $2,235,600.00. The Debtors value the farm land owned by them individually at $1,660,050.00 and value the farm equipment owned by Earnest O'Neal, Inc., at $452,075.00. (Tr. at 27.) The Debtors value their personal residence at $60,000.00. (Tr. at 116.)

The Debtors' second plan of reorganization creates seven classes of creditors and one class of interest holders.

Class I

ADMINISTRATIVE CLAIMS

This class consists of creditors holding administrative claims. The plan does not state the name of any Class I creditor or the amount of any claim. This class is to be paid in full upon confirmation if the claim is pre-confirmation; post-confirmation claims are to be paid upon Court approval. The class is designated as unimpaired.

Class II

PRIORITY TAX CLAIMS

This class consists of creditors holding priority tax claims. The plan states that no allowable Class II claims exist although it states that the Internal Revenue Service has filed a claim for $5,100.00 for 2008 income taxes which the Debtors dispute. The plan further provides that if any claims are filed and allowed they will be paid in five equal installments with interest beginning one year from the date of confirmation. The class is designated as impaired

Class III

UNITED STATES FARM SERVICE AGENCY

This class consists of the claim of Farm Service Agency (FSA) in the sum of $160,000.00. The plan treats this class as a secured claim to be paid according to the terms of a note dated July 28, 2009. The note was not introduced into evidence, although an addendum to the note was introduced which referred to the original note. (Debtors' Ex. 8.) The addendum is dated April 23, 2010, and reflects the debt to be $155,960.00 and calls for installment payments in annual amounts of $11,225.00, with a final installment due July 28, 2025. Interest is computed at 3.75% per annum on the unpaid principal balance. The plan provides that the claim will be paid “in accordance with contract terms.” The amount scheduled on the petition is $152,298.00. The class is designated as unimpaired.

Class IV

DELTA TRUST & BANK

This class consists of the claim of Delta Trust & Bank (Delta). The treatment of this claim is convoluted and at times contradictory. The claim in this class is treated as secured.

The plan states that Delta is owed a total of approximately $2,058,000.00 secured in part by land owned by the Debtors individually, rents from the Debtors' farm land, the Debtors' stock in Earnest O'Neal, Inc., and life insurance policies. Treatment of this class provides: “This creditor shall be paid the value of its collateral or $1,661,800.00.... This claim shall be paid at the contract rate of 6.75% per annum in three annual [sic] installments of $183,056.71 beginning March 27, 2013 and the same day of each year thereafter until paid.” ¹ The balance of the $2,058,000.00 claim ($396,200.00) and the balance of an unpaid crop production loan from 2009 ($179,652.00) is treated as unsecured, notwithstanding that the balance of the claims are fully secured by assets of Earnest O'Neal, Inc., and the life insurance policies valued at $28,408.00.² The plan states that it shall not affect the obligation of non debtor entities to comply with original contract terms with Delta. The plan also states, “[a]lthough the Debtors are confident that in the absence of a default the loan will be renewed by DTB [Delta] at the expiration [sic] renewal of the loan and interest rate shall be subject to negotiation.”

CLASS V

DELTA TRUST & BANK

This class consists of the claim of Delta in the sum of $42,245.00 secured by a mortgage on the Debtors personal residence in Wilmot, Arkansas. The plan states that the note matures February 15, 2013, and that “the loan will be extended until through [sic] the life of the plan subject to annual interest adjustments and shall be paid at in [sic] accordance with current contract terms.” The plan then states, “[e]xcept as modified herein, the loan documents ... remain in full force and effect.” The class is stated to be impaired.

Class VI

UNSECURED CLAIMS

This class consists of allowed unsecured claims. The plan proposes to pay this class pro rata from farming operations. The first payment will be made on or before January 31, 2013, and, thereafter, on January 31st of each year over the life of the plan. No amount of payment is stated in the plan and no creditors are named as unsecured creditors in this class. The plan also does not state whether or not the class is impaired.

Class VII

EQUITY SECURITY HOLDERS

This class consists of the Debtors individually and provides that all property of the estate shall vest in them upon confirmation of the plan. The plan does not state whether the class is impaired or unimpaired.

MEANS OF EXECUTION

The plan proposes to pay creditors from income generated by the combined farming operations of the Debtors and their two wholly owned entities, Earnest O'Neal, Inc. and O'Neal Farm Partnership. The plan length is stated to be for five years. The farming operation will be conducted by the farm partnership by leasing farm equipment owned by Earnest O'Neal, Inc. for a lease payment sufficient to pay all indebtedness owed by the corporation to creditors holding security interests in the farming equipment. The farming partnership will also lease 280 acres of farmland owned by the corporation for $44,300.00 per year and lease the Debtors' 618 acres of farm land for $94,300.00. The plan also states that:

profits (income) of OFP (Ernest O'Neal Farm Partnership) will first pay its claims and the profits (income) of EOI (Ernest O'Neal, Inc.) will first pay its obligations in the ordinary courts [sic]. The remaining profits will be used to pay the O'Neals [sic] living expenses, and to fund the plan. Pre petition secured claims will be paid first, thereafter, holders of administrative expense claims and priority and unsecured creditors shall be paid in accordance with the priorities of the bankruptcy code. Ernest O'Neal is 63 years old and Nancy O'Neal is 61. If the O'Neals draw social security before completion of the plan it will be applied toward their living expenses and will increase disposable income.

The plan further provides that the farming operation will be financed through periodic production loans over the life of the plan. The production lender will be Delta and the collateral for the production loans will be all of the assets of the Debtors, O'Neal Farms, Inc., and Ernest O'Neal Farm Partnership. The Debtors' production loan will also be subject to a 90% guaranty by the FSA. The Debtors anticipate that Delta will continue to provide production financing.

THE BALLOTS

The summary of the voting by creditors resulted in the following:

+-----------------------------------------------------------------------------+
                ¦    ¦Class IV¦Delta                ¦$1,661,800.00¦Accepts                    ¦
                +----+--------+---------------------+-------------+---------------------------¦
                ¦    ¦Class VI¦Delta                ¦$ 42,425.00  ¦Accepts                    ¦
                +----+--------+---------------------+-------------+---------------------------¦
                ¦    ¦Class   ¦Delta                ¦$ 575,852.00 ¦Accepts                    ¦
                ¦    ¦VII     ¦                     ¦             ¦                           ¦
                +----+--------+---------------------+-------------+---------------------------¦
                ¦    ¦        ¦Deere & Company      ¦$ 260,693.18 ¦Accepts                    ¦
                +----+--------+---------------------+-------------+---------------------------¦
                ¦    ¦        ¦Agro Distribution,   ¦$ 358,232.90 ¦Accepts                    ¦
                ¦    ¦        ¦LLC                  ¦             ¦                           ¦

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