Matter of Earth Lite, Inc., Bankruptcy No. 80-914 C.

• Decision Date: 09 March 1981
• Docket Number: Bankruptcy No. 80-914 C.
• Citation: 9 BR 440
• Parties: In the Matter of EARTH LITE, INC., Debtor. SUN BANK/SUNCOAST fka Sun Bank and Trust Company of St. Petersburg, Florida, Plaintiff, v. EARTH LITE, INC., Defendant.
• Court: U.S. Bankruptcy Court — Middle District of Florida

9 B.R. 440 (1981)

In the Matter of EARTH LITE, INC., Debtor SUN BANK/SUNCOAST fka Sun Bank and Trust Company of St. Petersburg, Florida, Plaintiff, v. EARTH LITE, INC., Defendant.

Bankruptcy No. 80-914 C.

United States Bankruptcy Court, M.D. Florida, Tampa Division.

March 9, 1981.

Jary Streitweiser, Tampa, Fla., for Sun Bank/Suncoast.

Don M. Stichter, Tampa, Fla., for Earth Lite, Inc.

ORDER ON MOTION TO ALLOW USE OF CASH COLLATERAL AND OTHER COLLATERAL

ALEXANDER L. PASKAY, Bankruptcy Judge.

This is a business reorganization case and the specific matter under consideration is presented for resolution both by the Debtor, Earth Lite, Inc. (Earth Lite) and by the Plaintiff, Sun Bank and Trust Company of St. Petersburg, Florida (Sun Bank). Sun Bank sought relief from the automatic stay imposed by § 362 of the Bankruptcy Code, but not satisfied with the 30-day time frame designed by Congress by § 362(e), Sun Bank moved on 24 hours notice, and sought an immediate hearing in order to get a preliminary injunction to prevent Earth Lite from using any of its collateral, i.e. the inventory and the monies received from the collection of accounts receivable. Earth Lite, faced with this challenge of its right to use its inventory and cash obtained from collection of accounts receivable, which challenge, of course, meant a kiss of death if successful, filed a Motion and sought leave to use cash collateral and other collateral pursuant to § 363.

The historical background of this controversy and the relationship of the parties is telling and is relevant to the matter under consideration. Earth Lite is engaged in processing glassware products, although in the conventional sense is not a manufacturer. It buys finished glassware of different shapes and sizes and decorates and dresses up the glass containers and then sells the finished product to gift shops and department stores. Prior to the commencement of the case, Earth Lite financed its operation, at least in part, through Sun Bank and received a loan from Sun Bank in the original amount of $350,000. This was a secured loan, collateralized by the inventory and the accounts receivable of Earth Lite. Earth Lite, filed its petition for an order for relief under Chapter 11 of the Bankruptcy Code on June 27, 1980. On the same date, Earth Lite was authorized to remain in possession and to operate its business under certain specific terms and conditions.

Shortly after the commencement of the case, Earth Lite and Sun Bank entered into a new agreement. According to the relevant terms of the agreement, Sun Bank agreed to lend to Earth Lite an additional $75,000 in exchange for some additional collateral, and for personal guarantees of insiders. The agreement called for periodic payments to be applied not only to interest, but also to principal. In addition, Earth Lite was required to pay attorney fees. The agreement called for the establishment of a "lock box" system designed to handle the collection of accounts receivable, to be supervised by an independent warehousing firm, Lawrence Warehouse, Inc. appointed by the parties to monitor the arrangement.

There is no question that the parties operated amicably under this arrangement until February of 1981 and Sun Bank received monthly not only the amount stipulated in the agreement, but also approximately $8,000, a reimbursement for attorney fees.

At the time of the commencement of this case, Earth Lite had on hand approximately $500,000 in inventory and approximately $90,000 in account receivables. The inventory valuation was based on a count taken as late as February 6, 1981, and although not based on cost, it included labor overhead, i.e. the cost of labor incurred by Earth Lite in connection with the process of turning the raw glassware into the finished saleable product. This overhead item, however, appears to be insignificant and would not require a significant readjustment of the values allocated to the inventory. Thus, since there is no evidence to the contrary in this record, the value of the inventory of Earth Lite as late as February 6, 1981 was far in excess of the debt owed to Sun Bank and secured by the inventory. Most importantly, this debt which has been reduced since the commencement of these proceedings from $425,000 to $288,000 is also secured by the accounts receivable of Earth Lite, and by additional collateral furnished by insiders to the Bank.

This additional collateral securing the personal guarantee of the insiders consist of a second mortgage on the principal residence of the president, a collateral assignment of a mortgage receivable, a mortgage lien on a condominium and on a cemetery lot. According to the schedules submitted by Earth Lite in connection with its Motion to Allow Use of Cash Collateral and Other Collateral the net equity of the insiders in these assets is in excess of $180,000,000.

There is no question that Earth Lite defaulted on the post-petition financing agreement in that it did not make the February payment to Sun Bank. It is equally clear that Earth Lite, as noted earlier, paid to Sun Bank more than $137,000 since the commencement of the proceeding.

Sun Bank seeks an immediate relief on the emergency basis because Earth Lite defaulted on the post-petition financing agreement and that the outlook of Earth Lite to survive, according to Sun Bank, is hopeless. Therefore, it should be entitled to sequester all funds currently in the special account which was set up to handle funds obtained through collection of receivables and is entitled to prevent Earth Lite to use these funds and its inventory immediately.

Of course, it does not take any imagination to conclude that if the relief sought by Sun Bank is granted, and Earth Lite is put out of business, the economic future and the life of Earth Lite as a functioning viable entity is doomed and Earth Lite would end up as just one more statistic in the great graveyard of ailing debtors who sought, but failed to obtain, rehabilitation under this Chapter.

The apprehension of a secured lender, especially one who has advanced additional funds after the commencement of a proceeding and who is already soured because of past unkept promises by the borrower is understandable. This is especially so if it appears that the economic health of the Debtor is shaky and steadily deteriorating. This reaction is not unusual and not surprisingly triggers the very type of litigation under consideration. This apprehension also tends to lead the...