In a subchapter V case, after denial of confirmation of Debtor’s plan of reorganization and while a creditor’s motion to convert or dismiss the bankruptcy case was under advisement, Debtor filed another plan and a motion to establish confirmation procedures. In the alternative, Debtor asked the Court to approve a structured dismissal. First, the Court observed that Debtor had the right to file preconfirmation plan modifications and treated its preconfirmation amended plans as plan modifications. Second, the Court rejected Debtor’s contention that subchapter V imposes no time limit after denial of confirmation to file a new plan. Third, the Court observed that although a subchapter V debtor may need an extension of time under the stricter standard set forth in § 1189(b) to file another plan following denial of confirmation, the Court did not need to decide the issue. Instead, the Court applied the more liberal standard adopted by courts in chapter 12 cases for granting additional time to file another plan following denial of confirmation and ruled that Debtor would not be given time to file another plan. The Court explained that Debtor had a full and fair opportunity to seek confirmation of its plan, the case had been pending for almost two years, the parties had incurred enormous legal fees, and the new plan was basically an attempt to correct evidentiary gaps in the confirmation hearing already held. Fourth, the Court found that “cause” existed to convert or dismiss the chapter 11 case. Fifth, the Court denied Debtor’s request that the Court approve a structured dismissal because it was not feasible. Debtor intended to continue operating the business, but Debtor’s secured creditor could foreclose its lien on any accounts receivable that Debtor generated. The Court found that Debtor could not protect the receivables by granting a purchase money lien. Finally, the Court found that it was in the best interests of creditors and the estate to convert the case to chapter 7 instead of dismissing the case. The Court relied in making that decision on the secured creditor’s agreement to a chapter 7 carve-out.

The Court considered whether to confirm Debtor’s third plan of reorganization pursuant to § 1191(b), which governs non-consensual subchapter V plans. Under the plan, to defeat a creditor’s § 1111(b) election, Debtor proposed surrendering and replacing all or substantially all of the creditor’s collateral, which included the equipment and vehicles Debtor used to operate its business and most of its cash and accounts receivable. The Court found that Debtor failed to show it would have the financial ability to replace surrendered assets necessary for it to maintain its operations. Therefore, the Court denied plan confirmation for failure to meet the feasibility requirements of § 1129(a)(11) and § 1191(c)(3), made applicable by § 1191(b). 

Debtor sought relief under Rule 59(e) from the Court’s order dismissing debtor’s chapter 11 case. The Court dismissed debtor’s case for “cause” under § 1111(b), concluding that debtor’s plan impermissibly modified the secured creditor’s claim, which was secured solely by debtor’s principle residence, in violation of § 1123(b)(5)’s anti-modification prohibition. Although some case law supports debtor’s position, the Court already considered those cases in ruling on the motion to dismiss or convert, and determined as a matter of law that debtor was required to pay all pre-confirmation arrears in full by the plan effective date in order to satisfy the anti-modification prohibition of § 1123(b)(5). Debtor’s alleged errors in the court’s findings of fact would not have changed the result; debtor’s arguments regarding “indubitable equivalent” are not relevant to whether debtor’s plan was facially unconfirmable under § 1123(b)(5); and debtor’s remaining arguments did not meet the standard for Rule 59(e) relief.

Debtor and guarantors filed a motion for temporary restraining order (“TRO”) requesting the Court to enjoin collection efforts against non-debtor guarantors until the final hearing on confirmation of Debtor’s chapter 11 plan. The plan contained a temporary injunction that would enjoin the creditor’s collection efforts against non-debtor third-party guarantors while Debtor made plan payments. The Court held a final evidentiary hearing on short notice and treated the request for TRO as a motion for preliminary injunction. After determining that it has authority to approve a temporary plan injunction, the Court reviewed the various tests courts apply to determine whether to approve such an injunction and then applied a modified traditional injunction standard. The Court concluded that it would not approve the proposed temporary plan injunction and therefore would not grant a preconfirmation injunction as a bridge to the plan injunction. The Court found that Debtor’s proposed plan would satisfy at most about one-third of the guaranteed obligation, the creditor’s sole recourse to recover the balance is to enforce the unsecured third-party guaranty, and there is a reasonable likelihood of irreparable harm to the creditor if the Court granted the requested injunctive relief. The Court ruled that the injunction should not issue even if it meant that Debtor would be unable to confirm a plan.