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Summarizing by Amir Shachmurove

Formatech, Inc. v. Sovereign Bank (In re Formatech, Inc.)

Formatech, Inc. v. Sovereign Bank, et al. (In re Formatech, Inc.), No. MW 12-012 (1st Cir. B.A.P. December 7, 2012))
The Bankruptcy Appellate Panel for the First Circuit ("BAP") entered an order DIMISSING the appeal initiated by Formatech, Inc., the debtor and appellant ("Debtor" or "Formatech"), subsequent to entry of an order converting the case to one under chapter 7 and appointment of a trustee on standing grounds.
Procedural context:
Appeal from order of the United States Bankruptcy Court, District of Massachusetts (J. Hoffman) ("Bankruptcy Court") denying Debtor's motion to surcharge the collateral of secured creditors, Sovereign Bank ("Sovereign") and Massachusetts Growth Capital Corporation ("MGCC"), in connection with sale of Debtor's assets.
Formatech filed a voluntary chapter 11 petition on August 12, 2011, with the intent of satisfying creditor claims from the proceeds anticipated to be received from sale of the company's assets. Following receipt of a stalking horse bid of $655,000 from an equipment liquidator and entry of a bid procedures order by the Bankruptcy Court, the Debtor, through its investment banker, solicited further bids. Even though the bid procedures order explicitly required deposits to be delivered via wire, Debtor's counsel accepted a good-faith deposit in connection with an overbid submitted by an entity named "Canaimex" (a Canadian company) paid by check. Canaimex was deemed a qualified bidder without the Debtor confirming that the funds had cleared. With an auction imminent, the Debtor, through its counsel, filed a motion to surcharge the collateral of Sovereign and MGCC to pay counsel's fees ("Surcharge Motion"). Canaimex attended the auction on January 5, 2012, and was declared the highest bidder for the debtor's assets at a price of $1,070,000; a sale order entered one week later. Meanwhile, Sovereign had filed an objection to the Surcharge Motion and the court scheduled a hearing on the Surcharge Motion on February 2, 2012. At that hearing, it was disclosed by counsel to Sovereign to the Court that Canaimex refused to close and that since the deposit had not cleared, liquidated damages were not available to the estate. On motion of the United States Trustee, the Bankruptcy Court entered an order that same day converting the case to one under Chapter 7. Subsequently, on March 7, 2012, the Bankruptcy Court entered an order denying the Surcharge Motion. ("Order"). The debtor filed a timely notice of appeal of the Order. On appeal, the BAP considered whether it had proper appellate jurisdiction. It first held that the Order was indeed a "final" order for purposes of appeal. It then determined that it still lacked appellate jurisdiction because the Debtor no longer had "standing" to pursue the appeal following conversion and appointment of a chapter 7 trustee; in addition, the BAP held that appellate standing was lacking as the pecuniary interests of appellant, a chapter 7 debtor, were not impacted by entry of the Order. The BAP entered an order dismissing the appeal.
Lamoutte, Kornreich and Caban

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