In re Pecht, Bankruptcy No. 84-00895-R.

• Decision Date: 10 January 1986
• Docket Number: Bankruptcy No. 84-00895-R.
• Citation: 57 BR 137
• Court: U.S. Bankruptcy Court — Eastern District of Virginia
• Parties: In re Ronald L. PECHT, t/a Pecht's Firewood, a proprietorship, Debtor.

57 B.R. 137 (1986)

In re Ronald L. PECHT, t/a Pecht's Firewood, a proprietorship, Debtor.

Bankruptcy No. 84-00895-R.

United States Bankruptcy Court, E.D. Virginia, Richmond Division.

January 10, 1986.

James R. Sheeran, Richmond, Va., for debtor.

MEMORANDUM OPINION

BLACKWELL N. SHELLEY, Bankruptcy Judge.

This matter again comes before the Court on a hearing pursuant to 11 U.S.C. § 1125(b) to approve an amended disclosure statement of the debtor, Ronald L. Pecht. There was a previous hearing on September 20, 1985 to approve a disclosure statement, which statement this Court declined to approve by its Memorandum Opinion and Order of October 8, 1985, 53 B.R. 768. The issues before the Court are (1) whether the change in the debtor's plan and disclosure statement were so insignificant that any further order of this Court on the particular issue would be barred by the doctrine of res judicata and (2) if not, should the alteration in the debtor's disclosure and plan be such that this Court could make a finding contrary to that of its prior opinion and order.

STATEMENT OF THE CASE

The debtor, Ronald L. Pecht ("Pecht"), after the Court's order of October 8, 1985, to which no timely appeal or motion to vacate was filed, did file a first modified plan and first amended disclosure statement together with a memorandum in support of approval of the first amended disclosure statement.

This Court in its prior opinion made a finding that the plan could not be confirmed because the debtor retained an interest in the property of the debtor in possession while providing for no payment or dividend to both the unsecured creditors in class six and the creditors in classes three and four to the extent they were unsecured. The failure to provide is deemed a negative vote of that class. 11 U.S.C. § 1126(g). This Court made the determination that due to the non-acceptance by a class the plan could not be confirmed because the debtor would be retaining its proprietary interest in the business in violation of § 1129(b)(2)(B)(ii). The first disclosure statement in the paragraph titled Description of Plan of Reorganization contains the following:

Pecht\'s primary asset lies in its ability to generate income from operations.

Accordingly, the Plan provides that the (sic) Pecht will continue operations, and that future income generated from operations will be applied to the payment of claims against Pecht, which will be satisfied in accordance with the terms of the Plan. (Emphasis added.)

The disclosure also contains a paragraph entitled Means of Execution which states as follows, "Pecht will retain all his property and continue to operate his firewood business alone."

The amended disclosure plan in its paragraph entitled Description of Plan of Reorganization contains the following language:

Pecht\'s strength is his ability, as an individual, to generate earnings from the services he has performed after the commencement of this case and which he will continue to perform. These earnings are not property of his bankruptcy estate because he is an individual, and not a partnership or corporation. 11 U.S.C. § 541(a)(6).

Accordingly, the Plan will be funded by the means hereinafter described, and Pecht\'s earnings from services performed and to be performed post-petition will be contributed to the estate for application to the payment of claims against the estate, which will be satisfied in accordance with the terms of the Plan.

The total contribution Pecht will make from his future earnings is not less than $57,347.65. The total contribution can only be estimated because the unpaid unsecured priority claim of the IRS bears compounded interest after confirmation at a variable rate. The above amount assumes an 11% rate of daily compounded interest, the current rate, will be in effect throughout the life of the Plan. A table analyzing the payment of the IRS\' unsecured priority claim in relation to Pecht\'s Plan is contained in Appendix Three.

Of the total contribution, $17,326.56 will be applied to debts that remain secured by property Pecht owned at the time his petition was filed. The balance, an estimated $40,021.09, will be applied to the payment of unsecured claims in their order of priority. To the extent of this latter amount, Pecht will be giving new value to his bankruptcy estate.

According to the terms of the Plan, Pecht\'s payments to his various creditors under its terms either on or within the first month after confirmation will be $8,865.08. As indicated above, as of September 27, 1985, he had set aside from his post petition earnings the sum of $7,459.90 for that purpose. (Emphasis added.)

The paragraph titled Means of Execution contains the following:

Pecht will fund this plan of reorganization with earnings he has generated and will in the future generate from services performed and to be performed after the commencement of the case. Pecht will contribute to the estate the sum of $57,347.65 from his earnings for services performed and to be performed post-petition will (sic) for application to the payment of claims against the estate, which will be satisfied in accordance with the terms of the Plan.

In consideration of the contributions of new income to the plan, Pecht will retain all the property of the estate that has not been otherwise claimed exempt under applicable bankruptcy and nonbankruptcy law.

The debtor has argued that the amended disclosure statement provides for an infusion of capital which had not been provided for in the original disclosure statement. That argument is specious. It is the mere nature of the sole proprietorship that you have what you have, i.e., the debtor's interest in the sole proprietorship is absolute, and the debtor's contribution under the first plan is the same as his contribution under the second plan, only stated with greater specificity. This Court can find no material difference between the two plans or disclosure statements. Having previously ruled that the first plan was nonconfirmable as a matter of law, it appears that the doctrine of res judicata precludes further consideration of the disclosure statement presently before the Court.

Pecht has argued that consideration of the merits of his plan of reorganization at a hearing on approval of his disclosure statement under 11 U.S.C. § 1125(b) is impermissable as a violation of due process. This issue was fully discussed in the Court's prior opinion, and, again, Pecht chose not to appeal or seek a vacation of that order.

Section 1125(b) of the Code gives the Court the authority to decline approval of a disclosure statement if it does not give "adequate information" to the entities that will have to vote on the plan. If, on the face of the plan, the plan could not be confirmed, then the Court will not subject the estate to the expense of soliciting votes and seeking confirmation. Not only would allowing a nonconfirmable plan to accompany a disclosure statement, and be summarized therein, constitute inadequate information, it would be misleading and it would be a needless expense to the estate.

If the Court can determine from a reading of the plan that it does not comply with § 1129 of the Bankruptcy Code, then it is incumbent upon the Court to decline approval of the disclosure statement and...