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Holding: The bankruptcy court held that cause did not exist to deny debtor's motion to voluntarily convert his case from Chapter 7 to Chapter 11 and "neither prong of § 1112(b)(4)(A) ha[d] been satisfied." The party objecting to conversion argued that there was a continuing loss under the first prong of 11 U.S.C. § 1112(b)(4)(A). The court found that the first prong was not satisfied because there was insufficient evidence showing the collateral was actually "declining in value outside the accrual of interest and attorneys' fees" under the notes. The objecting party also argued that the debtor had little chance to rehabilitate. However, the court found that at least two of the debtor's properties were making money to contribute to a plan. Thus, the court held that it could not deny the debtor's motion to convert based on 11 U.S.C. § 1112(b)(4)(A) grounds. As to the objecting party's claim that cause existed to convert based on the debtor's failure to file tax returns, the court found that the only returns debtor failed to file were pre- petition returns. The court stated that prepetition returns are "relevant but not determinative" and held that cause did not exist to deny debtor's voluntary conversion because debtor had showed that his prepetition returns were either ready to be filed or at least being prepared by an accountant.
iii. Proudfoot Consulting Co. v. Gordon (In re Gordon), 465 B.R. 683 (Bankr. N.D. Ga. 2012)
Issue: Whether the debtor's chapter 7 case could be involuntarily converted to chapter 11.
Holding: The court held that section 706(b) may be applied to non-consumer debtors and that the simple act of conversion alone would not violate the 13th amendment or the Anti-Peonage Act. The court found as follows: "Congress amended 11 U.S.C. § 707(b) by requiring consent of the individual debtor to convert to Chapter 13 or Chapter 11 in the event the court found a chapter 7 petition to be a substantial abuse, but only if the debtor's debts are primarily consumer debts. Despite the judicial history of individuals in Chapter 11 and amendments made to the Bankruptcy Code relating to individuals in Chapter 11, Congress did not add any limitation on the ability of the court to convert a Chapter 7 case of an individual with primarily non-consumer debts to one under Chapter 11."
i. In re Mense, 509 B.R. 269 (Bankr. C.D. Cal. 2014).
Issue: Whether judgment creditor was entitled to dismiss Chapter 11 cases or for relief from stay under "for cause."
Holdings: (1) Chapter 11 case filed by limited liability company (LLC) that had previously ceased doing business and liquidated its assets and that had no employees, no cash flow, and no sources of income, purely to circumvent requirements for posting an appeal bond following entry of adverse state court judgment against it, was not filed in "good faith" and was subject to being
©2014 William L. Norton III
