Opinion
6:24-bk-02247-GER
11-18-2024
In re GQ NCF-Clermont Cleaners, Inc., Debtor.
Chapter 11
Subchapter V
ORDER (1) DENYING CONFIRMATION OF SECOND AMENDED PLAN AND (2) SETTING STATUS CONFERENCE
GRACE E. ROBSON, UNITED STATES BANKRUPTCY JUDGE
THIS CASE came before the Court on November 13, 2024, at 1:30 p.m. (the "Hearing") to consider confirmation of the Second Amended Plan of Reorganization (the "Plan") (Doc. No. 111) filed by Debtor GQ NCF-Clermont Cleaners, Inc. ("Debtor"). International Cleaners, Corp. ("International Cleaners") objected to the Plan, arguing the plan was neither feasible nor filed in good faith.
Objection to Confirmation of Debtor's Second Amended Plan of Reorganization (the "Objection") (Doc. No. 130).
In order to confirm a plan, the Bankruptcy Code requires that a court find that confirmation "is not likely to be followed by the liquidation, or the need for further financial reorganization, of the debtor . . . unless such liquidation or reorganization is proposed in the plan." The burden is on Debtor to prove "a reasonable expectation of success" by a preponderance of the evidence.Speculative prospects for success or failure do not prove or disprove feasibility. "The analysis requires the court to determine whether the debtor can complete the things to be done after confirmation as a practical matter." Courts consider factors including the earning power of the business, its capital structure, and economic conditions. A debtor's past performance is another factor courts consider in determining feasibility of a plan. A debtor's testimony may also aid the court in deciding whether a plan is feasible. A guarantee of future success is not required.
The Bankruptcy Code refers to 11 U.S.C. §§ 101-1532.
In re Walden Palms Condo. Ass'n, 625 B.R. 543, 550 (Bankr. M.D. Fla. 2020) (citing In re Holley Garden Apartments, Ltd., 238 B.R. 488, 494 (Bankr. M.D. Fla. 1999)).
In re Aspen Vill. at Lost Mountain Assisted Living, LLC, 609 B.R. 555, 563 (Bankr. N.D.Ga. 2019) (first citing Wiersma v. Bank of the West, f/k/a United Cal. Bank (In re Wiersma), 227 Fed.Appx. 603, 605 (9th Cir. 2007); and then citing Fin. Sec. Assurance Inc. v. T-H New Orleans Ltd. P'ship (In re T-H New Orleans Ltd. P'ship), 116 F.3d 790, 801 (5th Cir. 1997)).
In re Drexel Burnham Lambert Grp., 138 B.R. 723, 762 (Bankr. S.D.N.Y. 1992).
In re Walden Palms Condo. Ass'n, 625 B.R. at 550 (citing In re Holley Garden Apartments, 238 B.R. at 494).
In re JVR Indus., Inc., 344 B.R. 679, 683 (Bankr. M.D. Fla. 2021) (citing In re Sovereign Oil Co., 128 B.R. 585, 586 (Bankr. M.D. Fla. 1991)).
Id. (first citing In re Sovereign Oil, 128 B.R. at 587; and then citing In re Malkus, Inc., No. 03-07711-GLP, 2004 WL 3202212, at *4 (Bankr. M.D. Fla. Nov. 15, 2004)).
Id. ("Testimony of the debtor is, of course, another source of evidence that can aid the court in deciding whether a plan is feasible.").
In re Drexel Burnham Lambert Grp., 138 B.R. at 762 (citing In re U.S. Truck Co., 47 B.R. 932, 944 (E.D. Mich. 1985)).
International Cleaners argues the Plan was not feasible on two grounds. First it argued Debtor would be prevented from operating at its current location for at least two years because the non-compete provision set forth in the franchise agreement between Debtor and International Cleaners would survive despite Debtor's rejection of the agreement. Second, it argued that even if Debtor were able to continue its dry cleaning operations from its current location, Debtor's actual cash flow does not support its Plan projections.
The Plan includes projections of annual revenue in amounts that are greater than the actual revenue generated by Debtor since the commencement of this case in May 2024 through the end of September 2024. Debtor's projections reflect that during the five-year plan period, Debtor would have a negative cash balance at the end of three out of the five years. Further, the Plan's projected expenses do not include payment of post-petition administrative claims for rent and royalties totaling approximately $34,000.00, which would bring Debtor's annual ending cash balance negative for the entire five-year duration of the Plan. Debtor's counsel argued that Debtor's projections were conservative and its actual revenues would exceed the projections. However, Debtor offered no evidence to support this position. Based on the testimony and documents admitted into evidence, as well as the monthly operating reports filed in this case, the Court finds that Debtor failed to demonstrate the Plan was feasible as required under 11 U.S.C. § 1129(a)(11). Therefore, the Plan cannot be confirmed under 11 U.S.C. § 1191(b).
Compare Plan at 14 (Doc. No. 111) with Monthly Operating Report for Small Business Under Chapter 11 (Doc. No. 59) (May 2024 MOR), Monthly Operating Report for Small Business Under Chapter 11 (Doc. No. 79) (June 2024 MOR), Monthly Operating Report for Small Business Under Chapter 11 (Doc. No. 93) (July 2024 MOR), Monthly Operating Report for Small Business Under Chapter 11 (Doc. No. 106) (Aug. 2024 MOR) and Monthly Operating Report for Small Business Under Chapter 11 (Doc. No. 119) (Sept. 2024 MOR).
Because the Court finds that Debtor failed to demonstrate the financial feasibility of its projections assuming Debtor would be able to continue to operate at its location as a dry cleaner, the Court does not need to determine whether the covenant not-to-compete provides additional grounds to find the Plan is not feasible.
Accordingly, it is ORDERED:
1. Confirmation of the Plan (Doc. No. 111) is DENIED.
2. The Court will conduct a status conference on December 12, 2024, at 2:30 p.m. at the George C. Young Federal Courthouse, 400 West Washington Street, Sixth Floor, Courtroom D, Orlando, Florida 32801.
Attorney Joel M. Aresty is directed to serve a copy of this Order on interested parties who do not receive service by CM/ECF and file a proof of service within 3 days of entry of the Order.