Matter of Global Intern. Airways Corp.

• Citation: 76 BR 700
• Decision Date: 25 February 1987
• Docket Number: Adv. No. 87-0034-2-3-11.,Bankruptcy No. 83-02765-2-3-11
• Court: United States Bankruptcy Courts. Eighth Circuit. U.S. Bankruptcy Court — Western District of Missouri
• Parties: In the Matter of GLOBAL INTERNATIONAL AIRWAYS CORPORATION, Debtor. GLOBAL INTERNATIONAL AIRWAYS CORPORATION, By and Through its UNSECURED CREDITORS COMMITTEE, Plaintiffs, v. Farhad AZIMA, Global International Airways Corporation, and Middle East Leasing Corp., Defendants.

76 B.R. 700 (1987)

In the Matter of GLOBAL INTERNATIONAL AIRWAYS CORPORATION, Debtor.

GLOBAL INTERNATIONAL AIRWAYS CORPORATION, By and Through its UNSECURED CREDITORS COMMITTEE, Plaintiffs, v. Farhad AZIMA, Global International Airways Corporation, and Middle East Leasing Corp., Defendants.

Bankruptcy No. 83-02765-2-3-11, Adv. No. 87-0034-2-3-11.

United States Bankruptcy Court, W.D. Missouri, W.D.

February 25, 1987.

Ronald S. Weiss, Berman, DeLeve, Kuchan & Chapman, Kansas City, Mo., for plaintiffs.

Howard D. Lay, Dysart, Taylor, Penner & Lay, Daniel J. Flanigan, McDowell, Rice & Smith, Kansas City, Mo., for defendants.

MEMORANDUM OF FINDINGS OF FACT, CONCLUSIONS OF LAW SUPPORTING ISSUANCE OF PRELIMINARY INJUNCTION

DENNIS J. STEWART, Chief Judge.

The within adversary action came on before the court for hearing on February 19, 1987, on the issue of whether a preliminary injunction should be issued restraining and enjoining the defendants from transferring or otherwise disposing of some of their property pending the determination of the action which, in pertinent part, seeks turnover to the debtor's bankruptcy estate of the value of certain allegedly unlawful postpetition transfers. Previously, on January 30, 1987, this court had issued its temporary restraining order against the defendants to the following effect:

"(I)t is ordered that Farhad Azima, Global International Airways Corporation, and Middle East Leasing Corporation, their agents, employees, and all persons holding property for any of them or acting in concert with any of them, are prohibited from transferring, disposing of, or encumbering any of the property listed below except in accordance with further order of this Court:

(a) All assets acquired from the debtor-in-possession or Global International Airways Corporation, other than its FAA Certificate, its corporate stock, and its office furniture and equipment; the property not to be transferred or disposed of includes all jet engines acquired from the debtor-in-possession or Global International Airways Corporation, and all spare parts which were or are stored at 301 E. 51st St., Kansas City, Missouri; a Boeing 707. No. 20179, N8440; and any ownership interest of whatsoever nature or form which Farhad Azima has in 301 Leasing or Aviation Leasing Group, which respectively owns the former Global Office Building which were leased to Global . . . "

At the time of the issuance of that temporary restraining order, counsel for the defendants expressly waived the ordinary 10-day limitation on its effect in favor of holding the hearing on the issue of the granting or denying of a preliminary injunction. The court accordingly set the hearing on that issue for February 17, 1987. On the eve of that scheduled hearing, however, the defendants posed a challenge to the propriety of representation of the plaintiff by Paul Sinclair, Esquire, on the grounds that his representation of another creditor made it impossible for him to represent the debtor, or its unsecured creditors' committee, without involving a conflict of interest. Because of this challenge, in order to resolve it before commencing on with the case, the court reset the hearing on February 19, 1987. At the inception of the hearing of February 19, 1987, for the reasons which are further stated in the following marginal note, the court ruled that the challenge to Mr. Sinclair's representation of the plaintiff should be denied.¹

Subsequently, on February 19, 1987, and the following date, February 20, 1987, the hearing on the preliminary injunction issue was held. The evidence which was then adduced warrants the following findings of relevant fact.

The debtor's petition for relief under chapter 11 of the Bankruptcy Code was filed on October 20, 1983. For a period of nearly two years thereafter, the debtor was left in possession without proposing any viable plan of reorganization. At length, in late 1985, a third amended plan was submitted to the court and creditors. To summarize its contents briefly in portions which are now material, it provided for the sale of certain assets of the debtor to an "investor," the defendant Farhad Azima for a purchase price of about $1,218,000. Which of the assets were to be transferred to Mr. Azima for this purchase price is the matter of principal controversy in this action. Certain other assets of the debtor corporation were to be liquidated for the benefit of creditors. This included chiefly causes of action for the recovery of alleged preferential transfers to the creditors of the debtor. In the disclosure statement which the debtor submitted in conjunction with this proposed plan, the value of these causes of action was vastly overstated, particularly in view of the recoveries which have taken place and the potential recoveries which now exist.² The disclosure statement, further, adverted to an existing agreement between the creditors' committee and Mr. Azima under which certain assets were to be purchased by Mr. Azima for the aforesaid $1,218,000.³ The reference in the disclosure statement was as follows:

"Subject to confirmation of the Plan, Global has agreed to sell all of its stock, its tangible assets and its FAA Certificate to the Investor (Farhad Azima) for the sum of . . . $1,218,000 . . . pursuant to the Agreement of Intent for Plan of Reorganization attached hereto and incorporated herein by reference as Appendix A."

As observed above, Appendix A included a description of the general assets of the debtor corporation.⁴ Further, according to the evidence which has been adduced in the hearing of this case, the schedules contained a fair and accurate description of the assets of the debtor at the time of the filing of the petition for relief. The Appendix A in which the property to be purchased by Mr. Azima was said to be described with particularity, however, was not attached to the disclosure statement, nor to the proposed third amended plan of reorganization. Nor was it in any manner disclosed, according to the evidence now before the court, in the course of the confirmation procedures which followed. Despite the absence of any definite description of the assets which were to be sold to the "investor," Mr. Azima, the court, in the person of former bankruptcy judge Joel Pelofsky, in an order entered on September 11, 1985—apparently without any hearing such as was required by the governing procedural rules⁵—finding it to be sufficient. Subsequently, a hearing on the issue of confirmation was held on October 30, 1985. Prior to the commencement of that hearing, the creditor United States of America submitted written objections to confirmation. In those objections, it contended that the proposed plan of reorganization violated the "absolute priority rule" in that the stockholders of the debtor corporation, Mr. Azima and Mansour Rasnavad, would retain an interest in the debtor without paying the other creditors 100% of their outstanding claims.⁶ The United States further objected to the effect that the disclosure attendant to the proposed plan did not sufficiently describe the property to be sold to Mr. Azima nor reveal its value.⁷

In the confirmation hearing which was consequently held, the proponent of the plan maintained that there was no violation of the absolute priority rule; that Mr. Azima and Mr. Rasnavad were retaining no interest in the debtor because their stockholdings were being cancelled pursuant to the plan; and that stock in a new corporation —also named Global International Airways Corporation—was being issued. It was part and parcel of this argument that the "new" corporation was paying into the chapter 11 estate the value of the property which it was taking out of the estate by reason of a sale to the "investor," Mr. Azima. In support of this proposition, the proponents of the plan contended to the court that the value of all of the tangible assets of Global International Airways Corporation were "less . . . than the amount being offered by the investor in this case and contemplated by the plan."⁸ Counsel for the unsecured creditors' committee, Ronald Weiss, spoke to this contention as follows:

"Your Honor, the only comment the committee has at this point is Mr. Lewandowski alluded to the fact that pursuant to this Court\'s order we retained the services of Avmark, Ltd., a nationally recognized brokerage and appraisal service for aircraft in Miami, Florida. They prepared an extremely detailed appraisal of the aircraft, and the amount that they estimated, the valuation of the aircraft, is slightly less than the proposal under the plan. . . ." (Emphasis added.)

Thereafter, the court heard evidence on the issue of the valuation of the assets of the debtor. An appraiser named Ray Adams, on behalf of the proponents of the plan, testified that the aircraft alone had a value of $1,263,000. He stated that, otherwise, the debtor had some "parts inventory, rotable and expendable parts, and furniture, fixtures and equipment . . . (which) are not material to the value of the assets of the company. The aircraft are the most substantial assets that the company has."

After the conclusion of the confirmation hearing, Judge Pelofsky, on November 13, 1985, issued a "memorandum opinion and order" confirming the proposed plan of reorganization (and liquidation). In the course of that "memorandum opinion and order," with respect to the property which was to be granted to Mr. Azima, Judge Pelofsky relevantly stated as follows:

"The plan does not contemplate that debtor will continue to be in business. Rather the airplanes and the FAA certificate are to be sold to an investor for $1,218,000 . . ." (Emphasis added.)

* * * * * * "Here the investor must purchase the shell of the corporation which holds the certificate. He is also purchasing the airplanes. In essence, the investor will have the old Global, without any assets other than the certificate and the airplanes." (Emphasis added.)

With respect...