Source: https://www.scribd.com/document/24604397/Chapter-7-Petition
Timestamp: 2017-05-23 05:57:11
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Matched Legal Cases: ['§ 105', '§ 1334', '§ 1408', '§ 157', '§ 1112', 'art 2']

Chapter 7 Petition | Chapter 11 | Chapter 7
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IN THE UNITED STATES BANKRUPTCY COURT FOR THE NORTHERN DISTRICT OF ILLINOIS EASTERN DIVISION In re: CANOPY FINANCIAL, INC., Debtor. ) Chapter 11 ) ) Case No. 09-44943 ) ) Hon. Eugene R. Wedoff )
NOTICE OF MOTION TO: ATTACHED SERVICE LIST: PLEASE TAKE NOTICE that on December 30, 2009, at 10:00 a.m., or as soon thereafter as counsel may be heard, we shall appear before the Honorable Eugene R. Wedoff or any other judge sitting in his stead in Court Room 744 of the United States Bankruptcy Court for the Northern District of Illinois, located at 219 South Dearborn Street, Chicago, Illinois, and then and there present the attached Debtor’s Motion to Convert Case to a Chapter 7 Case, at which time and place you may appear if you see fit.
Respectfully submitted, CANOPY FINANCIAL, INC.
By: Vincent E. Lazar (6204916) Melissa M. Hinds (6288246) Landon S. Raiford (6297473) JENNER & BLOCK LLP 353 North Clark Street Chicago, IL 60654-3456 Telephone: 312-222-9350 Facsimile: 312-527-0484
/s/ Vincent E. Lazar One of its attorneys
Case 09-44943
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CERTIFICATE OF SERVICE I, Vincent E. Lazar, an attorney, hereby certify that on December 23, 2009, I caused a true and correct copy of Debtor’s Motion to Convert Case to a Chapter 7 Case and the related Notice of Motion to be served upon the parties on the attached Service List via facsimile to the parties listed on Exhibit 1, via overnight mail on the parties listed on Exhibit 2, and via this Court’s ECF system to the parties listed on Exhibit 3.
/s/ Vincent E. Lazar Vincent E. Lazar
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EXHIBIT 1 FACSIMILE SERVICE
United States Trustee 219 S. Dearborn St., Room 819 Chicago, IL 60604 Telephone: 312-886-5785 Facsimile: 312-886-5794 Manish S. Shah Assistant United States Attorney U.S. Department of Justice 219 S. Dearborn St., 5th Floor Chicago, IL 60604 Phone: 312-353-5300 Facsimile: 312-353-2067 Amy Stahl Cotter Securities and Exchange Comm’n 175 W. Jackson, Ste. 900 Chicago, IL 60604 Telephone: 312-886-8501 Facsimile: 312-353-7398 Venture Lending & Leasing VI, Inc. Venture Lending & Leasing V, Inc. c/o Edward J. Tredinnick Greene Radovsky Maloney Share & Hennigh LLP Fourt Embarcadero Center, Ste. 4000 San Francisco, CA 94111 Telephone: 415-777-4961 E-Mail: etredinnick@greenradovsky.com
Granite Global Ventures III LP GGV III Entrepreneurs Fund LP Robert M. Fishman John W. Guzzardo Mark L. Radtke Shaw Gussis Fishman Glantz Wolfson & Towbin LLC 321 N. Clark St., Ste. 800 Chicago, IL 60654 Telephone: 312-541-0151 Facsimile: 312-980-3888 E-Mail: rfishman@shawgussis.com jguzzardo@shawgussis.com mradtke@shawgussis.com Comerica Bank c/o Kurt M. Carlson Much Shelist Denenberg Ament & Rubenstein, PC 191 N. Wacker Dr., Ste. 1800 Chicago, IL 60606 Telephone: 312-521-2000 Facsimile: 312-521-2199 E-Mail: kcarlson&muchshelist.com Coventry Health Care, Inc. c/o Neal D. Colton Cozen O’Connor 1900 Market St. Philadelphia, PA 19103 Telephone: 215-665-2060 Facsimile: 215-701-2060 E-Mail: ncolton@cozen.com
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Integrated Data Storage c/o George R. Mesires Ungaretti & Harris 70 W. Madison St. Chicago, IL 60602 Telephone: 312-977-4151 Facsimile: 312-977-4405 E-Mail: grmesires@uhlaw.com Plans’ Holding Corp. c/o David A. Agay Kirkland & Ellis LLP 300 N. LaSalle St., 24th Floor Chicago, IL 60654 Telephone: 312-862-2342 Facsimile: 312-862-2200 david.agay@kirkland.com Sovereign Bank c/o William J. Factor Law Office of William J. Factor, Ltd. 1363 Shermer Rd. Northbrook, IL 60062 Telephone: 847-239-7248 Facsimile: 847-574-8233 E-Mail: wfactor@wfactorlaw.com Spectrum Equity Investors V, LP Spectrum V Investment Mgrs.’ Fund LP c/o Jeff J. Marwil Grayson T. Walter Proskauer Rose LLP 70 W. Madison St., Ste. 3800 Chicago, IL 60602 Telephone: 312-962-3550 Facsimile: 312-962-3551 E-Mail: jmarwil@proskauer.com gwalter@prokauer.com
Spectrum Equity Investors V, LP Spectrum V Investment Mgrs.’ Fund LP c/o Michael A. Firestein Proskauer Rose LLP 2049 Century Park East, 32nd Floor Los Angeles, CA 90067 Telephone: 310-557-2900 Facsimile: 310-557-2193 E-Mail: mfirestein@proskauer.com UMB Bank N.A. c/o Lisa A. Epps Spencer Fane Britt & Browne LLP 1000 Walnut St., Ste. 1400 Kansas City, MO 64106 Telephone: 816-474-8100 Facsimile: 816-474-3216 E-Mail: lepps@spencerfane.com Internal Revenue Service Centralized Insolvency Operations P.O. Box 21126 Philadelphia, PA 21126 Facsimile: 215-516-2015 Internal Revenue Service 230 S. Dearborn St. Room 2400, Stop 6604-CHI Chicago, IL 60604 Facsimile: 312-353-4998 Humana, Inc. ATTN: Ralph J. Wilson 500 W. Main St. Louisville, KY 40202 Facsimile: 502-580-3639 Payflex Holdings, Inc. ATTN: Rob Butler 10802 Farnam Dr. Omaha, NE 68154 Facsimile: 402-636-8760
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Consumer Health Technologies ATTN: Pradeep Goel 6750 N. Andrews Ave., Ste. 250 Ft. Lauderdale, FL 33309 Facsimile: 954-315-0903 Deccan I Servs. Pvt. Ltd. iEnergizer ATTN: Ashish Madan Plot No. 12C/1, South Phase Thiru-Vi-Ka Industrial Estate Grundy, Chennai - 600 032 INDIA Telephone: 044-22253611 E-Mail: ashishmadan@ienergizer.com U.S. Contact Address: 1120 Avenue of the Americas New York, NY 10036 Telephone: 212-626-6684 Facsimile: 212-626-6685 Dell Marketing LP ATTN: Kristen Carey 12234 N. IH 35, Building B Austin, TX 78753-1705 Telephone: 512-728-3500 Facsimile: 512-728-2958 Dewitt Stern Group ATTN: Jolyon F. Stern 420 Lexington Ave., Ste. 2700 New York, NY 10070 Telephone: 212-867-3550 Facsimile: 212-949-2293 Flexright a/k/a Workable Solutions ATTN: Terry McCorvie 7120 Lake Ellenor Driv. Orlando, FL 32809 Telephone: 866-587-3539 Facsimile: 866-865-3539 ISU Financial Services ATTN: Kaye Chavalas 201 California St., Ste. 200 Telephone: 800-782-9400 Facsimile: 415-248-3534
KPMG ATTN: Steven Carlin 757 Third Ave., 11th Floor New York, NY 10017 Telephone: 212-909-5636 Facsimile: 212-954-5283 E-Mail: sbcarlin@kpmg.com Qwest Communications ATTN: Richard Baer 1801 California Denver, CO 80202 Telephone: 303-992-1400 Facsimile: 303-896-8515 Shawnee Administrative Servs., LLC ATTN: Jamie Simmons 307 E. Washington St. Benton, IL 62812 Telephone: 618-439-9545 Facsimile: 618-435-4328 Statim LLC ATTN: Charles Deberry 820 W. Greenwood Ave., #100 Waukegan, IL 60087 Telephone: 847-782-9100 Facsimile: 847-782-9101 Thoughtworks ATTN: Trevor Mather 200 E. Randolph St., 25th Floor Chicago, IL 60601-6501 Telephone: 312-373-1000 Facsimile: 312-373-1001 Top Layer Security ATTN: Peter Rendall 1 Cabot Rd. Hudson, MA 01749 Telephone: 978-212-1500 Facsimile: 978-212-1600
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Martin Hancock 4735 Kelvington Dr. Indianapolis, IN 46254 Telephone: 317-549-5395 Facsimile: 866-235-2935 E-Mail: mh@mh-in.com
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EXHIBIT 2 OVERNIGHT UPS SERVICE Kelly Burgon 10091 S. 1330 W. South Jordan, UT 84095 Carol D’Angelo 3366 SE Snow Rd. Port Saint Lucie, FL 34984 William Duncan 276 Via Linda Vista Redondo Beach, CA 90277 Daniel Fitzsimmons 515 Fenelon Place Dubuque, IA 52001 Susan Patton 309 E. Main St. West Frankfort, IL 62896 Thomas Simpson 49070 N. Bonita Ridge Ave. Tucson, AZ 85750 Daniel Young 479 Eisenhower Dr. Louisville, CO 80027-1155
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EXHIBIT 3 VIA COURT’S ECF SYSTEM Kurt M. Carlson Colleen McManus Daniel Rubin Robert M. Fishman John Guzzardo Mark L. Radtke David A. Agay William J. Factor Grayson T. Walter kcarlson@muchshelist.com cmcmanus@muchshelist.com drubin@statmanharris.com rfishman@shawgussis.com jguzzardo@shawgussis.com mradtke@shawgussis.com dagay@kirkland.com wfactor@wfactorlaw.com gwalter@proskauer.com
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DEBTOR’S MOTION TO CONVERT CASE TO A CHAPTER 7 CASE Canopy Financial, Inc., the above captioned debtor and debtor-in-possession (“Canopy” or the “Debtor”), by and through its undersigned counsel, hereby moves (the “Motion”) for entry of an Order, pursuant to 11 U.S.C. §§ 105(a) and 1112(a), converting the Debtor’s chapter 11 case to one under chapter 7. In support of this Motion, the Debtor states as follows: Jurisdiction and Venue 1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334. Venue
is proper in this district pursuant to 28 U.S.C. §§ 1408 and 1409. This is a core proceeding pursuant to 28 U.S.C. § 157(b)(2). 2. The statutory predicates for the relief requested herein are sections 105(a) and
1112(a) of the Bankruptcy Code. Background 3. On November 25, 2009 (the “Petition Date”), the Debtor filed a voluntary petition Background regarding the Debtor’s
for relief under chapter 11 of the Bankruptcy Code.
bankruptcy filing is set forth in the Declaration of Dan Stevenson [Doc. No. 11] previously filed with the Court. 4. Canopy is a provider of health insurance-related banking and processing services.
In broad terms, Canopy’s customers place in custodial accounts monies deposited by the
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customers’ employees or their own customers in health savings accounts or flexible spending accounts. Using its software, Canopy then processes debits and transfers from those accounts as its customers’ employees and customers incur charges. Certain individuals also maintained health savings accounts directly with Canopy. 5. In November 2009, Canopy discovered that financial statements provided to its
investors and lenders were fraudulent, and, upon further investigation, uncovered other significant financial and accounting irregularities, including transfers of funds from Canopy’s operating accounts for non-business related expenses. As set forth in the Stevenson Declaration, upon this discovery, the Debtor’s board of directors formed a special committee of outside directors, and -- with assistance from Paul Hastings, its independent legal counsel and Alvarez and Marsal, its forensic accountants -- began conducting an investigation into these irregularities. The special committee also notified the relevant authorities, and the Debtor has been cooperating with their requests for information. 6. The two officers of the Debtor implicated in the fraud have been removed from
management. One of those officers has since been arrested and charged with wire fraud. 7. The Debtor initially believed that the financial and accounting irregularities
described above included a misappropriation of outside investor and Canopy’s own funds but did not impact any customers whose accounts were serviced by the Debtor. As a result of its continuing investigation, however, the Debtor determined shortly after the Petition Date that a substantial amount of health savings account (“HSA”) funds belonging to certain of the Debtor’s customers also were misappropriated. The custodial accounts in which the HSA funds of affected customers were supposed to be maintained have been frozen, and the affected HSA customers have been notified of the misappropriation. All other customer transactions are presently continuing to be processed in the ordinary course of business. 2
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On December 20, 2009 the Debtor filed a motion for the sale of substantial all of
its assets (the “Sale Motion”). This Court approved the sale procedures requested in the Sale Motion on December 23, 2009, and a sale approval hearing is scheduled for January 27, 2010. 9. As set forth in the Sale Motion, in light of the circumstances leading to the
commencement of this chapter 11 case, the Debtor does not believe that there is a realistic prospect of reorganizing its business. Moreover, the investigation and prosecution of claims and causes of action as a debtor-in-possession will be problematic in several respects, and the costs and expenses associated with a chapter 11 proceeding do not appear to be justified in this case. 10. The Debtor is in the process of finalizing, and intends to file before the hearing on
this motion, its Schedules and Statement of Financial Affairs. With the Court’s December 23, 2009 approval of sale procedures motion, the Debtor believes this bankruptcy case is at a stage where a trustee can take over the remaining administration of the case (including servicing existing customer accounts pending a sale), sell the assets as contemplated in the Sale Motion, and conduct an independent investigation into causes of action and pursue any litigation that is warranted. Accordingly, by this Motion the Debtor seeks the conversion of its chapter 11 bankruptcy case to a case under chapter 7 of the Bankruptcy Code. Basis for Relief 11. Pursuant to section 1112(a) of the Bankruptcy Code, the Debtor has a right to
convert this case to chapter 7. Section 1112(a) of the Bankruptcy Code provides: The debtor may convert a case under this chapter to a case under Chapter 7 of this title unless – (1) The debtor is not a debtor in possession;
(2) the case originally was commenced as an involuntary case under that chapter; or
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(3) the case was converted to a case under this chapter other than on the debtor's request. 11 U.S.C. § 1112. 12. Both the House and Senate Reports contain the following language explaining the
import of the section: “[s]ubsection (a) gives the debtor an absolute right to convert a voluntarily commenced case in which the debtor remains in possession to a liquidation case.” H.R. Rep. No. 95-595, at 405 (1977); S. Rep. No. 95-989, at 117 (1978) (emphasis added). Thus, where the statutory conditions are met, the “debtor has the absolute right to convert and . . . it is simply a ministerial act for [the Court] to enter an order on a debtor’s motion.” In re High Strength Steel, Inc., Case No. 99-4369 (MFW), tr. at 32 (Bankr. D. Del. March 16, 2000). Other courts have similarly recognized that section 1112(a) of the Bankruptcy Code gives the debtor an absolute right to convert. See, e.g., In re Texas Extrusion Corp., 844 F.2d 1142, 1161 (5th Cir. 1988) (conversion allowed one week prior to confirmation hearing); In re Schuler, 119 B.R. 191, 192 (Bankr. W.D. Mo. 1990); In re Marill Alarm Systems, Inc., 100 B.R. 606 (Bankr. S.D. Fla. 1989); In re Dieckhaus Stationers of King of Prussia, Inc., 73 B.R. 969, 970-71 (Bankr. E.D. Pa. 1987). 13. In Marrama v. Citizens Bank of Mass., 549 U.S. 365 (2007), the Supreme Court
held that notwithstanding the language of section 706(a) of the Bankruptcy Code, a chapter 7 debtor does not have an “absolute right” to convert to chapter 13. Id. at 372. The Court held that the debtor’s right to convert its case to one under chapter 13 was conditioned on its ability to qualify as a chapter 13 debtor, and that the debtor’s bad-faith conduct rendered it ineligible for chapter 13. Id. Even if the Marrama holding extends to chapter 11 cases and section 1112, here the Debtor is eligible for chapter 7 and has not engaged in conduct that would compel dismissal of its case under any chapter. Therefore, the Debtor’s request for conversion should be granted.
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In the present case, the Debtor voluntarily filed its chapter 11 petition and is
currently a debtor-in-possession. Therefore, no exception to section 1112(a) is applicable. In addition, the Debtor brings this Motion in good faith, as conversion is in the best interests of creditors and the Debtor’s estate. A reorganization of the Debtor’s business is simply not plausible, particularly in light of the misappropriation of customer funds discovered shortly after the Petition Date. There also is no improper tactical or other reason underlying the Debtor’s decision to convert; indeed, to the contrary, one of the primary reasons underlying the conversion is to permit a trustee to conduct an independent investigation into causes of action and pursue any litigation that is warranted. The decision to convert also was made following consultation with federal authorities investigating wrongdoing at the Debtor and the United States Trustee, thus further evidencing the Debtor’s good faith. 15. Prior to filing this Motion, the Debtor sought and obtained approval of sale
procedures for the sale of its assets. The Debtor believes it was important to commence the sale process prior to conversion so that the sale of the assets would not be delayed, and assuming the chapter 7 trustee determines to operate the business, conversion from chapter 11 to chapter 7 should not disrupt the sale process or prevent the continued servicing of existing customer accounts pending a sale. 16. The Debtor does not believe that in this case the chapter 11 process, which would
include the considerable expense associated with a creditors committee and confirmation of a plan, would provide material benefit to creditors. The same results can be achieved for less expense in a chapter 7 case. Therefore, the Debtor respectfully submits that it has a right to convert its chapter 7 case to a case under chapter 11, and that conversion is warranted and is in the best interest of the Debtor’s estate and its creditors.
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Notice 17. Notice of this Motion has been given to: (a) the Office of the United States
Trustee; (b) the Securities and Exchange Commission; (c) the Internal Revenue Service; (d) the United States Attorney Office for the Northern District of Illinois; (e) the Prepetition Lenders; (f) the Debtor’s 20 largest unsecured creditors as set forth in the amended list filed on December 7, 2009; and (g) all parties who have requested notice in this case. In light of the relief requested, the Debtor submits that no further notice is required. WHEREFORE, the Debtor respectfully requests that the Court enter an Order converting this case to one under chapter 7, and granting such other relief as may be just. Dated: December 23, 2009 Respectfully submitted, CANOPY FINANCIAL, INC.
Vincent E. Lazar__________ One of its attorneys
Vincent E. Lazar (6204916) Melissa M. Hinds (6288246) Landon S. Raiford (6297473) JENNER & BLOCK LLP 353 North Clark Street Chicago, IL 60654-3456 Telephone: 312-222-9350 Facsimile: 312-527-0484
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