Opinion
Case No. 8:20-bk-03018-CPM
04-13-2021
In re: Microcurrent Research and Education, LLC, Debtor.
Chapter 11
(Subchapter V) AMENDED ORDER: 1) DIRECTING REVISED LIQUIDATION ANALYSIS AND RE-BALLOTTING OF UNSECURED CREDITORS AND 2) CONTINUING CONFIRMATION HEARING
Amended to disclose the involvement of the Subchapter V Trustee, Amy Denton Harris, in airing the issue. --------
THIS CASE came on for a confirmation hearing on April 6, 2021. At the hearing, the Court learned from the Subchapter V Trustee that although unsecured creditors voted in favor of the Debtor's Second Amended Chapter 11 Plan of Reorganization (the "Plan") (Doc. No. 106), the Liquidation Analysis attached to the Plan failed to clearly disclose unencumbered cash on hand of approximately $80,000 to $100,000 (the "Unencumbered Cash"). Thus, unsecured creditors were not able to make a fully informed decision as to whether they would be better off under the terms of the Plan or under a chapter 7 liquidation. The Plan currently proposes to pay unsecured creditors a total of $750 to be paid out over a period of five years at $150 per year. A chapter 7 liquidation, on the other hand, would make available for distribution to unsecured creditors at least the Unencumbered Cash—less the chapter 7 trustee's compensation, which is a small percentage. See 11 U.S.C. § 326.
Based on the Debtor's failure to dedicate the Unencumbered Funds to pay unsecured creditors or to otherwise explain why those funds are absolutely needed as an operating reserve, the Court is concerned that the Debtor fails to appreciate the import of 11 U.S.C. § 1129(a)(3). Under that provision, which requires that a chapter 11 plan be "proposed in good faith," the Debtor must, among other things, demonstrate that the Plan comports with the Debtor's fiduciary duty to all creditors. The Court also questions why the Debtor projects its future profit as so insufficient that the Debtor cannot pay unsecured creditors anything more than a paltry $12.50 per month ($750/60 months). It appears that this Plan is being proposed for the benefit of equity holders, in which case the Court cannot find that the Plan has been proposed in good faith. See In re Davis Heritage GP Holdings, LLC, 443 B.R. 448, 461 (Bankr. N.D. Fla. 2011) ("The Debtor's Plan has not been proposed in good faith as is required by 11 U.S.C. § 1129(a)(3), because it is not intended for the benefit of the Debtor or its creditors. The Debtor's Plan is for the sole and exclusive benefit of its insiders.").
Accordingly, it is
ORDERED:
1. Within 14 days of entry of this order, the Debtor is directed to:
(a) revise its Liquidation Analysis to reflect more clearly the difference between what unsecured creditors would receive under the Plan and what they would likely receive under a chapter 7 liquidation;
(b) serve the revised Liquidation Analysis, along with new ballots, on all unsecured creditors; and
(c) file with the Court a Notice of Service of the same, together with a copy of the revised Liquidation Analysis.
2. The Court will conduct a continued confirmation hearing on June 15, 2021, at 11:00 a.m., in Courtroom 8B, Sam M. Gibbons Courthouse, 801 N. Florida Avenue, Tampa, Florida.
3. This order shall serve as notice to unsecured creditors that they shall have through June 7, 2021, to submit their new ballots (either accepting or rejecting the Plan) and to raise any objections they may have to the Plan in light of the revised Liquidation Analysis.
4. The Debtor shall file a revised ballot tabulation with the Court no later than June 11, 2021.
5. No other deadline set forth in the Order Scheduling Hearing on Plan Reorganization (Doc. No. 116) is enlarged.
ORDERED.
Dated: April 13, 2021
/s/_________
Catherine Peek McEwen
United States Bankruptcy Judge The Clerk is directed to serve a copy of this order on the Debtor and interested non-CM/ECF filers.