In re Southern Indus. Banking Corp., Bankruptcy No. 3-83-00372
| Decision Date | 26 March 1986 |
| Docket Number | Bankruptcy No. 3-83-00372,Adv. No. 3-85-0949. |
| Citation | 59 BR 638 |
| Parties | In re SOUTHERN INDUSTRIAL BANKING CORPORATION d/b/a Daveco, Debtor. Thomas E. DUVOISIN, Trustee, Plaintiff, v. EAST TENNESSEE EQUITY, LTD., Theodore A. Erck and James E. Steiner, Defendants. |
| Court | U.S. Bankruptcy Court — Eastern District of Tennessee |
Dearborn & Ewing, James R. Kelley, Cyrus L. Booker, Ann Vix, Nashville, Tenn., for plaintiff.
Tipton, Eshbaugh & Simpson, Joseph M. Tipton, Knoxville, Tenn., for defendants East Tennessee Equity, Ltd. and Theodore A. Erck.
Plaintiff, in his capacity as the Trustee of the Liquidation Trust established pursuant to the Modified Plan of Reorganization of Southern Industrial Banking Corporation, has sued defendants to recover alleged fraudulent conveyances under 11 U.S.C.A. § 548(a) (West 1979).
Defendants East Tennessee Equity, Ltd. and Theodore A. Erck have moved to dismiss this action, asserting (1) that plaintiff "is not a proper party to prosecute an action under Title 11 U.S.C. § 548 and has no standing to maintain this action" and (2) that "the asset or value sought by the filing of this adversary proceeding will not be distributed so as to result in equality of distribution among the creditors of Southern Industrial Banking Corporation." Motion to Dismiss of East Tennessee Equity, Ltd. and Theodore A. Erck (filed August 9, 1985).1
On March 10, 1983, Southern Industrial Banking Corporation filed a petition for reorganization under chapter 11 of the Bankruptcy Code. SIBC operated as a debtor in possession only until April 19, 1983, when this court appointed Irwin A. Deutscher as trustee.
On October 28, 1983, Irwin A. Deutscher, Trustee, filed the Modified Plan of Reorganization. On November 28, 1983, the court entered Order No. 79, confirming the Modified Plan, conditioned upon the occurrence of certain contingencies (e.g. the securing of FDIC insurance coverage). On January 20, 1984, this court entered Order No. 94, making confirmation of the Modified Plan effective January 20, 1984.
The Modified Plan called for SIBC to be merged into a federally insured successor-in-interest. Under the Modified Plan, upon confirmation, certain assets of SIBC were to be delivered to the Creditors' Liquidation Trust to be realized upon by plaintiff as Liquidating Trustee. Specifically, "these assets consist of approximately $26 million of commercial loans, any claim based on preferential transfers and fraudulent conveyances of property of S.I.B.C., and any claim of S.I.B.C. that arose before March 10, 1983." Trustee's Amended Disclosure Statement, Part VI (filed October 28, 1983). (Upon confirmation, under the Modified Plan the successor-in-interest retained those assets of SIBC which were not conveyed to the Creditors' Liquidation Trust under the Liquidation Trust Agreement.) Id., Part V.
Plaintiff, as Liquidating Trustee, was granted the right and power to bring suit to enforce the various claims comprising the Liquidation Assets. All proceeds from recoveries of preferences and fraudulent conveyances (net of reasonable and necessary expenses) were to be paid to, and retained by, the successor in interest. Proceeds from recoveries based on Liquidation Trust assets other than preference and fraudulent transfer claims were to be applied (1) to fund the so-called Reserve Fund,2 (2) then, to the extent available, to be paid to holders of Contingent Interest Certificates,3 and (3) to any extent further available, to be paid half to the Contingent Interest Certificate holders (on a pro rata basis) and half to the successor-in-interest. Trustee's Amended Disclosure Statement, Part VIII. G.
Under the Modified Plan, creditors in Class 1 (administrative expenses), Class 2 (secured claims), Class 3 (passbook claims not exceeding $999.00), and Class 4(a) () were unimpaired. The remaining general unsecured claims, impaired under the plan, were classified as follows:
Class 4(b)(i): 93% of general unsecured claims greater than $999.00 but not greater than $5001.00 (excluding Class 3 claims)
Class 4(b)(ii): 7% of general unsecured claims greater than $999.00 but not greater than $5001.00 (excluding Class 3 claims)
Class 4(c)(i): 27.30% of general unsecured claims exceeding $5001.00
Class 4(c)(ii): 72.70% of general unsecured claims exceeding $5001.00
Modified Plan of Reorganization, Article III.
Creditors with general unsecured claims of more than $999.00 and not more than $5001.00 received a distribution consisting of a federally insured certificate of deposit for the 93% portion of their claim classified as Class 4(b)(i) and "Warrants" to purchase common stock (for $1.00 per share) in the successor-in-interest for the 7% portion of their claim classified as Class 4(b)(ii). Creditors with general unsecured claims exceeding $5001.00 received a distribution consisting of a federally insured certificate of deposit for the 27.30% of their claim classified as Class 4(c)(i) and shares of preferred stock in the successor-in-interest, plus a Contingent Interest Certificate,4 and Warrants to purchase common stock, for the 72.70% of their claim classified as Class 4(c)(ii). Modified Plan of Reorganization, Article IV.
Thus, under the Modified Plan, each general, unsecured creditor whose claim was impaired under the plan received, as a portion of his or her distribution, rights to stock ownership in the successor-in-interest to the debtor.
Defendants' Motion to Dismiss is without merit and will accordingly be denied.
In Centennial Industries, Inc. v. NCR Corporation (In re Centennial Industries), 12 B.R. 99 (Bankr.S.D.N.Y.1981) defendants in a preference action, sued under provisions of the former Bankruptcy Act, asserted a defense similar to that propounded by defendants in the instant proceeding. In Centennial the court had confirmed a plan of arrangement providing for payments of a specific percentage to unsecured creditors over a five-year period. After confirmation, the reorganized debtor objected to the defendant's claim and sought recovery of preferential payments under the statutory provision making claims of preference recipients non-allowable until their surrender of any preferential payment received by them.
Asserting that the purpose of the statute was to increase the amount distributed to unsecured creditors, the defendant argued—since the dollar amount to be received by unsecured creditors had been fixed by the plan and would not be increased by recovery of the preference—that a post-confirmation recovery of the preference from the defendant would not further the purpose of the statute. The court disagreed, observing:
This Court holds that as long as the unsecured creditors receive some benefit from the recovery of the preference, even if it is not an increase in the amount the creditors will receive, 57(g) will apply. In this case any recovery by Centennial will increase the likelihood of the creditors receiving their future payments. Therefore, a recovery under 57(g) is permitted. . . . In Centennial\'s case the plan calls for payments over five years and this Court therefore has reason to protect further the rights of the creditors to insure that there are sufficient assets for the debtor to meet his obligations. While it is true that the Court had found the plan feasible when it was confirmed, a finding of feasibility is far short of a guarantee of the consummation of the plan. The recovery of this preference will be additional security for the fulfillment of the debtor\'s plan.
This court finds such reasoning equally applicable to the case at bar. As noted, all those general, unsecured creditors whose claims were impaired under the Modified Plan received as part and parcel of their distribution either actual shares of stock or certain rights to purchase shares of stock in the successor-in-interest. Clearly, to the extent that plaintiff's recovery of fraudulent transfers and preferences operates to increase the assets and financial health of the successor-in-interest, it also operates to proportionally increase the value of those ownership rights in the successor-in-interest which constitute a portion of the unsecured creditors' distribution under the plan.5 This court must reject the contention that the value sought to be recovered from defendants "will not be distributed so as to result in equality of distribution among the creditors" of SIBC.
This court also rejects the contention that plaintiff has no standing to pursue a § 548 action against defendants. Section 1123(b) expressly provides:
11 U.S.C.A. § 1123(b) (West 1979).
The Bankruptcy Code defines "claim" as a "right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured, or unsecured. . . ." 11 U.S.C.A. § 101(4)(A) (West 1979). Section 550 provides that to the extent a transfer is avoided under § 547 or § 548 "the trustee may recover, for the benefit of the estate, the property transferred, or, if the court so orders, the value of such property." 11 U.S.C.A. § 550(a) (West 1979) (emphasis supplied). Section 541 provides that property of the estate includes "any interest in property that the trustee recovers under section . . . 550 . . . of this title." 11 U.S.C.A. § 541(a)(3) (West 1979).
Under the former Bankruptcy Act, the statutory predecessor to § 1123(b) was 11 U.S.C.A. § 616(13) (West 1970) (repealed 1978). The legislative history of...
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