Opinion
Case No. 94-11024/JHW.
September 24, 2010
LETTER OPINION
Dear Mr. Ford:
By this motion, Omega Consulting, as assignee of Blair Acquisition Corporation, moves to withdraw funds from the Court Registry on behalf of Omega Consulting. For the reasons expressed below, I must deny the request.
The Bankruptcy Code provides guidelines for the handling of unclaimed property in section 347 of Title 11. Section 347(a) applies to Chapters 7, 12 and 13 and provides for the deposit of unclaimed funds into the Court Registry. Section 347(b) applies to Chapters 9 and 11 and provides for the return of unclaimed property to the debtor, or to "the entity acquiring the assets of the debtor under the plan." H.R. Rep. No. 595, 95th Cong., 1st Sess. 337 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 48 (1978). In certain circumstances, unclaimed funds in a Chapter 11 case may also be deposited into the Court Registry.
Once funds are deposited into the Court Registry, withdrawal is governed by 28 U.S.C. §§ 2041 and 2042. Under Section 2042, the claimant must be "entitled" to the property and must establish its entitlement. In re Premium Sales Corp., No.: 93-12253-BKC-AJC, 2008 WL 4200103, *3 (Bankr. S.D.Fla. Sep. 9, 2008); In re Bradford Production. Inc., 375 B.R. 356, 358-59 (Bankr. E.D.Mich. 2007). Because Omega Consulting, as assignee of Blair Acquisition Corporation, has failed to establish entitlement to recover from the Court Registry as the rightful "claimant" in this case, the motion must be denied.
Section 2041 provides:
All moneys paid into any court of the United States, or received by the officers thereof, in any case pending or adjudicated in such court, shall be forthwith deposited with the Treasurer of the United States or a designated depositary, in the name and to the credit of such court.
This section shall not prevent the delivery of any such money to the rightful owners upon security, according to agreement of parties, under the direction of the court.
28 U.S.C. § 2041.
Section 2042 provides:
No money deposited under section 2041 of this title shall be withdrawn except by order of court.
In every case in which the right to withdraw money deposited in court under section 2041 has been adjudicated or is not in dispute and such money has remained so deposited for at least five years unclaimed by the person entitled thereto, such court shall cause such money to be deposited in the Treasury in the name and to the credit of the United States. Any claimant entitled to any such money may, on petition to the court and upon notice to the United States attorney and full proof of the right thereto, obtain an order directing payment to him.
28 U.S.C. § 2042.
According to the moving papers, Omega Consulting, the movant, is the assignee of Blair Acquisition Corporation, f/k/a Advent Electronics, Inc, successor by merger to GRS Acquisition Corporation, "the successor-in-interest to Debtor, GRS Electronics." Motion at 2. In a supplemental submission, the movant submitted the "Single Transaction Assignment to Recover Cash Asset" from Blair Acquisition Corp. to Omega Consulting, which supports the opportunity of Omega Consulting to pursue the application on behalf of Blair Acquisition Corporation, f/k/a Advent Electronics, Inc. as the assignee. Accepting that Advent Electronics, Inc. is the successor by merger to GSR Acquisition Corporation, the problem is that the record of the debtor's Chapter 11 case does not support the statement that GRS Acquisition Corporation is the successor in interest to the debtor, GRS Electronics, Inc. See, e.g., In re Applications for Unclaimed Funds Submitted in Cases Listed on Exhibit "A", 341 B.R. 65, 74 (Bankr. N.D.Ga. 2005) ("The Court notes that a representation in an application or in a supporting document such as a power of attorney that one company is the `successor in interest' to another company does not satisfy the requirements outlined" in section 2042). In fact, the record shows otherwise.
In the debtor's First Amended Disclosure Statement, GRS Acquisition Corporation is described as an affiliate of Advent Electronics. First Amended D.S. at 7.
The debtor, GRS Electronics, Inc., d/b/a General Radio Supply, Inc., filed a voluntary petition under Chapter 11 of the Bankruptcy Code on March 10, 1994. Prior to bankruptcy, the debtor had operated as a wholesale distributor of electrical and electronic parts and components for over 50 years before experiencing financial difficulties in the late 1980's. See First Amended D.S. at 3. Some time around this point, GRS merged with Elwal Corporation, a real estate holding company that owned the buildings in which the debtor was operating. Id. at 3-4. In the early 1990's, GRS courted various suitors in hopes of merging its business operations with a prospective purchaser. When a merger was not forthcoming, GRS began to downsize and sell off its inventory and assets. The inventory, equipment and contract rights associated with its Wisconsin Division were sold to Advacom Acquisition Corporation, but it was not enough to forestall bankruptcy. Id. at 5. After filing for bankruptcy in 1994, the debtor determined that it could no longer afford to operate and it received approval from the bankruptcy court to sell all of its assets, with certain exclusions, to GRS Acquisition Corporation, an affiliate of Advent Electronics. Id. at 7. The sale was exclusive of accounts receivable to be collected by the debtor, certain causes of action retained by the debtor, and the debtor's real estate. Id. at 9. The sale of assets to GRS Acquisition Corporation was approved by order entered July 26, 1994.
Pursuant to the sale, the debtor was also required to change its name and proposed to use "GRS Holding Corporation."
Thereafter, the debtor proposed a Chapter 11 plan which would be funded through the collection of accounts receivable and the collection of rents from the real estate that the debtor continued to own, as well as through contributions from its principal, Walter A. Beringer, Jr. The plan provided for payments to creditors over a period of five years, with Mr. Beringer retaining ownership of the debtor. The plan envisioned that the "[d]ebtor would continue to operate in the ordinary course of business as a real estate holding company once any remaining accounts have been collected." Id. at 12. If the debtor was unable to continue to fund the plan, it would seek to sell its remaining assets.
Debtor's First Amended Disclosure Statement was approved on January 9, 1995 and debtor's plan was confirmed on April 10, 1995. Debtor's case was administratively closed on April 22, 1997.
On May 22, 2000, when property rents were no longer sufficient to continue to fund the plan, in accordance with the terms of its plan, the debtor moved to reopen its case and to sell its remaining real estate to Camden County College. The case was reopened and the sale was approved. On September 5, 2000, an order approving the final distribution to creditors was entered. On October 12, 2000, debtor's counsel filed a Notice of Deposit with the Court Registry along with a schedule of unclaimed funds. Additional unclaimed funds were later deposited on February 15, 2001.
On this record, I must conclude that GRS Acquisition Corporation, which purchased much of the debtor's assets in July 1994, does not qualify as the debtor's successor-in-interest. The sale of the debtor's assets to GRS Acquisition Corporation occurred prior to the formulation and confirmation of the debtor's plan. Following confirmation, the debtor continued to operate as a real estate holding company for an additional five years, funding the Chapter 11 plan through its accounts receivable collections and its rent receivables, ultimately selling its real estate to an unrelated third party. The funds in question were generated through the debtor's post petition existence as a real estate holding company, and were deposited in the Court Registry for the benefit of specified creditors who had no connection to GRS Acquisition Corporation. There is no other known connection between GRS Acquisition Corporation and the debtor that would be sufficient to designate the former as the debtor's successor-in-interest.
The terms of the 1994 sale of debtor's assets to GRS Acquisition Corporation included a three-year employment contract between GRS Acquisition Corporation and the debtor's principal, Walter Berringer, Jr., and a lease of real estate owned by the principal by GRS Acquisition Corporation. Neither of these arrangements offers GRS Acquisition Corporation successor-in-interest status to the debtors.
The applicant correctly cited to section 347(b) of the Bankruptcy Code to reflect that in a Chapter 11 case, unclaimed property that is not distributed under a confirmed plan "becomes property of the debtor or of the entity acquiring the assets of the debtor under the plan, as the case may be." 11 U.S.C. § 347(b). But GRS Acquisition Corporation did not acquire the assets of the debtor under the plan. See H.R. Rep. No. 595, 95th Cong., 1st Sess. 337 (1977); S.Rep. No. 989, 95th Cong., 2d Sess. 48 (1978) (noting that the funds should be returned to the Chapter 11 debtor, or to "the entity acquiring the assets of the debtor under the plan."). Rather, GRS Acquisition Corporation acquired a portion of the debtor's assets during the Chapter 11 case, by separate sale order, prior to the formulation or confirmation of a plan. The funds deposited into the Court Registry by the debtor were generated by the debtor from assets that were retained by the debtor long after the consummation of the sale of other assets to GRS Acquisition Corporation, which has no legitimate claim otherwise to the funds. GRS Acquisition cannot be said to be the debtor's successor-in-interest.
The applicant's citations to In re Newport Offshore Ltd., 219 B.R. 341 (Bankr. D.R.I. 1998) and to an order entered in the case of In re Fein Container Corp., No. 92-22679/NLW (Bankr. D.N.J. Apr. 25, 2008), are both distinguishable. In Newport, the Chapter 11 plan disbursing agent sought authority to release unclaimed funds to the Chapter 11 debtor after the plan had been substantially consummated. At that time, the reorganized debtor had been placed into a state court receivership. The court authorized the release of the funds to the receivers for the reorganized debtor, recognizing that the receivership caused the debtor's assets, including the debtor's entitlement to remittance of unclaimed funds, to be placed under the control of the receivers. In Fein Container, the debtor entered into an agreement with a purchaser who proposed to acquire substantially all of the assets of the debtor. The debtor's Chapter 11 plan was a liquidating plan funded in large part by the sales proceeds. Unlike the case here, in Fein Container, the debtor's plan served to liquidate the debtor's assets and to fund the distribution to creditors.
An order denying the motion to withdraw funds from the Court Registry is entered herewith.