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debtor's guarantors could potentially halt the debtor's reorganization, unusual circumstances exist for extending the stay.
v. In re PM Cross, LLC, 486 B.R. 586 (Bankr. D.N.H. 2013)
Issue: Whether debtor's confirmation of a Chapter 11 plan less than two years prior to the debtor's current case in itself prevented the automatic stay from becoming effective in the current case. Whether debtor's second successive Chapter 11, where it only had one unsecured creditor with a claim dwarfed by a single secured creditor who was in the process of foreclosing on the petition date, could be dismissed for "bad faith."
Holding: The court held that the mere fact that the debtor filed a Chapter 11 and confirmed a plan within two years of its current Chapter 11 did not prevent the automatic stay from arising in the current case because the debtor was a single-asset debtor, which is not a "small business debtor" under 11 U.S.C. § 101(51D). The court also held that the debtor's current Chapter 11 case was a "true bad faith filing" because all eight factors set forth in In re C-TC 9th Avenue Partnership, 113 F.3d 1304, 1311 (2d Cir. 1997) for bad faith were present. The court found: 1) the debtor only had one asset, 2) the debtor only had one unsecured creditor with an insignificant claim relative to debtor's only secured creditor, 3) debtor's property was in foreclosure at filing, 4) the disputes were essentially two-party disputes, 5) the debtor filed on the eve of foreclosure, 6) the debtor had little, if any income, 7) the debtor could not pay debts as they came due, and 8) the debtor had no employees. Based on the above, the court dismissed the case for bad faith.
i. Zucker v. FDIC (In re BankUnited Financial Corp.), 727 F.3d 1100 (11th Cir. 2013)
Issue: Whether certain tax refunds of the debtor, a bank holding company, were property of the debtor's estate under a tax sharing agreement.
Holding: The court held that under Delaware law and the tax sharing agreement, the tax refunds were not property of the estate and instead belonged to the subsidiary bank. The Eleventh Circuit reversed the bankruptcy court's ruling that that tax refunds were property of the debtor. The court reasoned that despite ambiguity in the tax sharing agreement, the intent of the parties was not to create a debtor-creditor relationship between the debtor, which received the refund directly from the IRS, and the subsidiary bank, which was to distribute the refund to all members of the consolidated group. Instead of a debtor-creditor relationship, which would have made the tax refunds property of the debtor holding company, the tax refunds were simply refunds that were to be forwarded from the debtor to the subsidiary bank for distribution in accordance with the tax sharing agreement.
©2014 William L. Norton III
