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dismissed or converted on "for cause" theory, especially given evidence of continuing dissipation of account funds that were its sole remaining asset to pay costs of appeal, costs of Chapter 11 case, and personal expenses of its member. When a debtor files for Chapter 11 in order to circumvent the requirements for posting an appeal bond following entry of adverse judgment, court's determination of whether case should be dismissed as lacking in the requisite "good faith" generally hinges on the following factors: (1) whether debtor was a viable business which would suffer severe disruption if enforcement of judgment was not stayed, and whether petition was filed to preserve its status as going concern and to protect its employees; (2) whether debtor had financial problems on petition date other than adverse judgment; (3) whether debtor has relatively few unsecured creditors other than holder of adverse judgment; (4) whether debtor has sufficient assets to post an appeal bond; (5) whether debtor acted in good faith to exhaust all efforts to obtain bond; (6) whether debtor intends to pursue an effective reorganization within a reasonable period of time; and (7) whether assets of estate are being diminished by combined ongoing expenses of debtor, of Chapter 11 proceedings, and of prosecution of appeal.
(2) Individual debtor's bankruptcy case was also lacking in requisite "good faith".
(3)Dismissal, rather than conversion, of Chapter 11 cases was in best interests of creditors and estate.
ii. In re Charles Street African Methodist Episcopal Church of Boston, 501 B.R. 1 (Bankr. D. Mass. 2013)
Issue: Creditor, which had extended two prepetition mortgage loans to Chapter 11 debtor, a religious corporation that operated a local church in Massachusetts, moved to dismiss petition based on debtor's purported ineligibility to be Chapter 11 debtor.
Holdings: The District Court, Gorton, J., held that determining the existence of a nominee trust under Massachusetts law is a fact-intensive inquiry which may consider: (1) whether trust acts as agent for its principal's convenience, (2) whether trust does any "business," (3) whether beneficiaries have exclusive power to direct trustee, (4) whether trust can be terminated at any time without permission of trustee, and (5) whether trust was created merely to preserve assets. In this case, status of debtor, a non-profit religious corporation that operated a local church in Massachusetts, as a corporation under Massachusetts law rendered it an eligible debtor. It was undisputed that debtor, by act of the Massachusetts legislature, was a corporation possessing all of the privileges to which private corporations were entitled, and debtor's policies and conduct, including its activities in raising funds through contributions from its membership, employing and paying religious and administrative staff, providing pastoral care and religious education, engaging in a variety of charitable activities, and instigating certain loans on its own, confirmed that it was not merely a "shell" to hold property for the larger church of which it was a member, nor a nominee trust ineligible for Chapter 11 relief. Because the Bankruptcy Code recognizes the need for a "breathing spell" as a proper purpose to file a Chapter 11 petition, merely evincing a debtor's desire to "frustrate creditors" does not alone demonstrate "bad faith" sufficient for dismissal of the petition.
©2014 William L. Norton III
