Court Opinion

ID: 9686982
Source: CourtListenerOpinion
Date Created: 2023-08-24 16:13:08.907791+00
Date Added: 2024-06-11T18:18:23.501822
License: Public Domain

PERRIS, Bankruptcy Judge,
concurring.
Although I agree with the majority’s conclusion that the bankruptcy judge did not abuse his discretion when he converted the case, I write separately because I do not think that reaching this conclusion requires resolution of some of the issues discussed by the majority.14
As the majority points out, the bankruptcy court may convert a chapter 11 case to chapter 7 “for cause.” The facts in this case provided an ample basis upon which the court could find “cause” to convert. More than six years had elapsed between confirmation and the time the bankruptcy court decided the motion to convert. The plan of reorganization created a corporate liquidating entity, PLC, but left the bankruptcy court heavily involved in the selection of management and shareholders of that entity if the liquidation was not completed within five years after confirmation. The court had given permission for the board of directors members to serve four extensions and was facing a request for a further extension. PLC had continuously resisted providing financial information to investors and the United States Trustee regarding the liquidation, notwithstanding the fact that the investors were to be the beneficiaries of the liquidation and thus far the liquidation had produced a far smaller distribution than had been projected in correspondence soliciting votes on the plan.
PLC’s argument that the plan did not impose on it a duty to provide financial information to interested parties and that it did not have a fiduciary duty to investors and creditors misses the mark. The PLC directors had sought permission to extend their service. The court wanted to hear from interested parties regarding the request. The interested parties had a legitimate interest in being provided financial information so they could present meaningful arguments and evidence to the court on the requested extension. PLC was refusing to provide the information.
Under the circumstances, converting the case to chapter 7 so a neutral chapter 7 trustee could investigate why the liquidation had produced substantially less for investors than projected and could make a neutral and informed recommendation to the court regarding the request of the PLC directors for permission to continue to serve was not an abuse of discretion.15 I agree with the majority’s rejection of PLC’s argument that conversion is not in the best interests of the creditors, investors and the estate.

. In particular, I do not think that it is necessary to decide whether assets that have ceased to be property of a bankruptcy estate by virtue of confirmation of a chapter 11 plan once again become property of the estate upon conversion, whether PLC was a liquidating trust in corporate form, and whether the court had authority to order PLC to turn over assets to the chapter 7 trustee. The latter issue was never raised as an issue on appeal and, regardless of the conclusion reached on the other issues, there was ample cause for conversion.

. The bankruptcy court order extended the term of the PLC directors. This was a better result for all concerned than the possible alternative of both denying the motion to convert and denying permission to all the directors to extend their term. That potentially would have resulted in a liquidating entity with no directors or shareholders, because the confirmed plan prohibits a director from serving more than five years without court permission and provides that once a person ceases to serve as a director the person also effectively ceases to be a shareholder. There are no shareholders other than the directors. Plan, Articles 5.2 and 5.3.