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The court also relied on the following factors: "(1) the adequacy of the capital structure; (2) the earning power of the business; (3) economic conditions; (4) the ability of management; (5) the probability of the continuation of the same management; (6) any other related matter . . . ." Addressing these factors and the creditor's objections, the court found that the debtor's source for the capital infusion was a legitimate company capable of making such contribution. Additionally, that company guaranteed the plan payments, and the court conditioned plan confirmation on the $200,000 infusion. The court also found, among others, debtor's projections of future performance to be "reliable and . . . well-grounded and adequately based on Debtor's historical financial performance."
i. Irving Tanning Co. v. Maine Superintendent of Insurance, 496 B.R. 644 (B.A.P. 1st Cir. 2013)
Issue: What is the scope of preemption in 11 U.S.C. § 1123(a)(5).
Holding: The court held that that the scope of preemption in 11 U.S.C. § 1123(a)(5) is broad, but the preemptive scope contains at least three limitations: 1) Section 1123(a)(5)'s preemptive effect applies only the means of plan implementation that are necessary and not any means that are "superfluous and unnecessary;" 2) Section 1123(a)(5)'s preemptive effect does not apply to applicable nonbankruptcy laws "concerned with protecting public health, safety, and welfare;" and 3) 1123(a)(5)'s preemptive effect does not apply to applicable nonbankruptcy laws "defining and protecting the property rights of third parties." The debtors argued that, though their means of plan implementation violated certain state laws, Section 1123(a)(5) demands plan implementation by adequate means "notwithstanding any otherwise applicable nonbankruptcy law." Such language, the debtors argued, signifies Congress's intent for any adequate means for plan implementation to "automatically supersede and effectively neutralize any otherwise applicable law." Addressing this preemption argument, the court agreed with the First Circuit's holding in In re Federal-Mogul Global, Inc. Section 1123(a) "preempts any nonbankrutpcy law that, but for the preemption, would prevent a proponent from employing such adequate means of implementation as the proponent incorporates into its plan." However, the court added the three limitations in the holding above because Congress surely did not intend to give plan proponents total freedom to implement a plan as it sees fit. The court found and the debtors conceded that the debtors' means of plan implementation violated state law in three ways: i) it violated state property and self-insurance laws by using self-insurance funds that belonged to other entities, at least presently (debtors had a future interest in excess funds), to distribute to creditors; ii) it violated state self-insurance law by "discharg[ing] the liability of third parties and their property for debt of the Debtors;" and iii) it violated state self-insurance laws by "accelerat[ing] the deadline to file workers' compensation claims against those third parties." The court found that each of the preemptive limitations of Section 1123(a)(5) applied to these violations of state law. By using property that did not belong to the debtors for distribution, the plan used unnecessary
©2014 William L. Norton III
