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* In re Lloyd E. Mitchell, Inc., 373 B.R. 416 (Bankr. D. Md. Aug. 2007) (Alquist, J.)
Bankruptcy court approved voting procedures which allowed potential claimants to cast ballots without filing proofs of claims in the bankruptcy case. The debtor asked the court to approve voting procedures which proposed to estimate potential asbestos claims at one dollar per ballot and to allow each claim solely for the purpose of casting a ballot. Because the plan proposed to send all claims to state court for later litigation, the court held that there was no need for the asbestos claimants to file formal proofs of their potential claims. The court further held that potential claimants who had been exposed to asbestos but had not yet manifested injury could cast ballots under the procedures because, said the court, "A claim arises upon exposure, not manifestation." The court finally held that the ballots did not necessarily write out the two-thirds in amount, one-half in number requirement of section 1126(c),45 instead opting to take a wait-and-see approach.
* In re S. Beach Securities, 376 B.R. 881 (Bankr. N.D. Ill. Nov. 2007) (Goldgar, J.)
Plan was not confirmable because the only class was impaired and was comprised of an insider. The chapter 11 debtor was a corporate shell with no business operations, no real employees, and no revenue. Its single asset was a net operating loss (NOL) -- a tax attribute
-- which the debtor, through its plan, sought to "monetize" by transferring it to its single, solitary creditor (a related company). The U.S. Trustee objected to confirmation on several grounds, two of which the court sustained.
First, no impaired class had accepted the plan, as required by section 1129(a)(10).46 In this case, there was only one class consisting of one creditor who, not so incidentally, voted to accept the plan. Without concluding that the creditor was an insider, as a matter of fact or law, the court held that, for the purposes of section 1129(a)(10), such a conclusion was unnecessary. Said the court, it was irrelevant whether the facts proved that the creditor was an insider. All that mattered was what the debtor could prove. In this case, the debtor failed to carry its burden of proving that the sole creditor was not an insider, or a "person in control" of the debtor. Without an accepting impaired class of non-insiders, the plan failed to satisfy section 1129(a)(10), and the court denied confirmation.
As a second ground for denial, the primary purpose of the plan, according to the court, was to avoid taxes in violation of section 1129(d).47 Specifically, the debtor was a shell company with no employees, no business to resuscitate, and "no going concern to keep going."
45 The concern seemed to be that a victim with a serious injury (and thus a potentially larger claim) would be accorded the same voting weight as a victim with no present manifestation of an injury.
46 That provision says that if the plan crams down a class' claims, there must be at least one impaired class, not counting insider classes, which accepts the plan.
47
Judge Goldgar first discussed how the U.S. Trustee has standing to object on this ground. See infra Part IV.D.
