In re Stapleton

• Decision Date: 14 November 1985
• Docket Number: Civ. A. No. CV384-29.,Bankruptcy No. 382-00067,Adv. No. 383-0027
• Citation: 55 BR 716
• Parties: In re Willard H. STAPLETON, Annette W. Stapleton, Debtors. Willard H. STAPLETON, Annette W. Stapleton, Appellants, v. ARCHER DANIELS MIDLAND COMPANY, Amoco Oil Company, Gold Kist, Inc., and Borg-Warner Acceptance Corporation, Appellees.
• Court: U.S. District Court — Southern District of Georgia

55 B.R. 716 (1985)

In re Willard H. STAPLETON, Annette W. Stapleton, Debtors Willard H. STAPLETON, Annette W. Stapleton, Appellants, v. ARCHER DANIELS MIDLAND COMPANY, Amoco Oil Company, Gold Kist, Inc., and Borg-Warner Acceptance Corporation, Appellees.

Bankruptcy No. 382-00067, Adv. No. 383-0027, Civ. A. No. CV384-29.

United States District Court, S.D. Georgia, Dublin Division.

November 14, 1985.

Thomas P. Stamps, Atlanta, Ga., for debtors.

John C. Weitnauer, Grant T. Stein, Atlanta, Ga., Ronald Richards, Borg Warner Acceptance Corp., Tifton, Ga., Lewis R. Hassett, Annette D. Kerlin, Atlanta, Ga., for appellees.

ORDER

BOWEN, District Judge.

Before the court is an appeal from an order of the bankruptcy judge for the Southern District of Georgia, entered February 8, 1984, in which he sustained the appellees' ("creditors") objections to the appellants' ("debtors") reorganization plan and dismissed the debtors' Chapter 11 petition. Two questions are presented to this Court on appeal: (a) whether the bankruptcy judge erred in sustaining the creditors' objections to the debtors' second reorganization plan; and, (b) whether the bankruptcy judge erred, under the facts of this case, in dismissing the debtor's Chapter 11 petition.

JURISDICTION

This court has jurisdiction over this appeal pursuant to 28 U.S.C. § 158, which provides in pertinent part:

(a) The district courts of the United States shall have jurisdiction to hear appeals from final judgments, orders, and decrees, and, with leave of the court, from interlocutory orders and decrees, of bankruptcy judges entered in cases and proceedings referred to the bankruptcy judges under section 157 of this title. An appeal under this subsection shall be taken only to the district court for the judicial district in which the bankruptcy judge is serving.

STANDARD OF REVIEW

The standard of review to be applied by this court when reviewing the decisions of the bankruptcy judge is set forth in the Bankruptcy Rules:

On appeal the district court . . . may affirm, modify, or reverse a bankruptcy court\'s judgment, order, or decree or remand with instructions for further proceedings. Findings of fact shall not be set aside unless clearly erroneous, and due regard shall be given to the opportunity of the bankruptcy court to judge the credibility of the witnesses. Bankr. Rule 8013, 11 U.S.C.A.

The appropriate standard of review of facts is the "familiar clearly erroneous test." In re Morrissey v. Arnold, 717 F.2d 100, 104 (3d Cir.1983). The Court, however, will apply a de novo standard of review to the legal questions raised in the bankruptcy judge's order.

FACTS

The debtors filed their petition for reorganization under Chapter 11 of the Bankruptcy Code, 11 U.S.C. §§ 1101-1174 on June 28, 1982. During the subsequent nineteen months, the debtors filed two different plans for reorganization. Debtors filed their first plan ("First Plan") of reorganization on November 22, 1982. The debtors' First Plan allowed for payments to unsecured creditors of one percent of their allowed claims within six months of the effective date of confirmation, with no interest. This First Plan was not confirmed at the February 4, 1983, confirmation hearing.

The debtors' second reorganization plan ("Second Plan") was filed on September 12, 1983. This Plan provided that the claims of all non-priority unsecured creditors¹ shall be settled and satisfied in full by payment of a percentage, if any, of their allowed unsecured claims determined as follows:

(1) At or before confirmation, the Court will determine what portion of Debtor\'s unencumbered assets is non-exempt and the value thereof.

(2) An amount equal to such value shall be paid to creditors, pro-rata, in 3 equal annual installments beginning June 1, 1984.

(Second Plan at Art. IV, ¶ 4.2). The Second Plan also provided that Borg Warner Acceptance Company's claim

shall be settled and satisfied as hereinafter stated. Debtor may make full or partial pre-payments on any such claim without penalty.

. . . . .

Borg Warner Acceptance Company — shall be settled and satisfied in full by

(1) Payment of the allowed amount of such claim (hereinafter the "Borg Warner Indebtedness"), not to exceed the valuation placed upon claimant\'s collateral by this Court, in 14 successive semiannual installments of principal and accrued interest beginning thirty (30) days after the Effective Date and continuing until all principal and interest is paid in full;

(2) Interest shall accrue on the Borg Warner Indebtedness from the Effective Date until paid in full at the non-default rate of interest provided for in the original contract between Debtor and claimant; and

(3) To secure payment of the Borg Warner Indebtedness, claimant shall retain its existing security interest in the personal property owned by Debtor on the date of filing of this Chapter 11 case and described in the Court\'s Order of August 12, 1983, but shall have no other lien or security interest in any other property of Debtor, now existing or hereafter acquired.

(Second Plan at Art. IV, ¶ 4.1(I)). After notice, a confirmation hearing was held on the Second Plan on November 3, 1983.

Creditors' objections to the confirmation of the debtors' Second Plan were two-fold: 1) The debtors' reorganization was not feasible; and (2) The second reorganization plan was not "fair and equitable" as required by the provisions of Section 1129(b)(2)(B) of the Bankruptcy Code.² These objections were based on the fact that, from July, 1982, through November, 1983, the debtors continued to operate their farming business, resulting in a net positive cash flow of $23,643.26 for the sixteen months. Annualized, this level of income would amount to $17,732.44, which the bankruptcy judge correctly found to be inadequate even to service the secured debt under the Second Plan. Furthermore, no dividend would be paid to unsecured creditors under the debtors' Second Plan.

DISCUSSION

A plan for reorganization under Chapter 11 must comply with all of the requirements of Chapter 11 to pass muster for confirmation. 11 U.S.C. § 1129(a)(1). This is so regardless of whether any objections to the confirmations are filed. In re Toy and Sports Warehouse, Inc., 37 B.R. 141, 149 (Bkrtcy.S.D.N.Y.1984). Section 1129 provides that:

(a) The court shall confirm a plan only if all of the following requirements are met:

(1) The plan complies with the applicable provisions of this title.

(2) The proponent of the plan complies with the applicable provisions of this title.

(3) The plan has been proposed in good faith and not by any means forbidden by law.

(4) Any payment . . . to be made . . . by the debtor . . . for services or for costs and expenses in or in connection with the case, or in connection with the plan and incident to the case, has been approved by, or is subject to the approval of, the court as reasonable;

. . . . .

(7) With respect to of each impaired class of claims or interests —

(A) each holder of a claim or interest of such class —

(i) has accepted the plan; or

(ii) will receive or retain under the plan on account of such claim or interest property of a value, as of the effective date of the plan, that is not less than the amount that such holder would so receive or retain if the debtor were liquidated under chapter 7 of this title on such date; or

(B) if section 1111(b)(2) of this title applies to the claims of such class, each holder of a claim of such class will receive or retain under the plan on account of such claim property of a value, as of the effective date of the plan, that is not less than the value of such holder\'s interest in the estate\'s interest in the property that secures such claims.

(8) With respect to each class of claims or interest —

(A) such class has accepted the plan; or

(B) such class is not impaired under the plan.

(9) Except to the extent that the holder of a particular claim has agreed to a different treatment of such claim, the plan provides that —

(A) with respect to a claim of a kind specified in section 507(a)(1) or 507(a)(2) of this title, on the effective date of the plan, the holder of such claim will receive on account of such claim cash equal to the allowed amount of such claim;

(B) with respect to a class of claims of a kind specified in section 507(a)(3), 507(a)(4), or 507(a)(5) of this title, each holder of a claim of such class will receive —

(i) if such class has accepted the plan, deferred cash payments of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or

(ii) if such class has not accepted the plan, cash on the effective date of the plan equal to the allowed amount of such claim; and

(C) with respect to a claim of a kind specified in section 507(a)(6) of this title, the holder of such claim will receive on account of such claim deferred cash payments, over a period not exceeding six years after the date of assessment of such claim, of a value, as of the effective date of the plan, equal to the allowed amount of such claim.

(10) If a class of claims is impaired under the plan, at least one class of claims that is impaired under the plan has accepted the plan, determined without including any acceptance of the plan by any insider.

(11) Confirmation of the plan is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor or any successor to the debtor under the plan, unless such liquidation or reorganization is proposed in the plan. emphasis added

The bankruptcy judge found that the debtors had proven a net positive cash flow of only $17,732.44 annually, which the judge deduced was "far short of what the debtors would need to serve approximately one-half million dollars in secured debt" under the second reorganization plan. Thus, the judge concluded that this Second Plan was not a feasible solution to the debtors' debt payment obligations. This conclusion was correct. There was no...