- Case Type:
- Case Status:
- WW-15-1089-KuJuTa (9th Circuit, Dec 09,2016) Not Published
Debtor bar-operator’s failure to obtain liquor-liability insurance warranted conversion to chapter, rather than dismissal, of its chapter 11 case.
- Procedural context:
The U.S. trustee moved to dismiss or convert because debtor failed to provide proof of liquor-liability insurance. Over debtor’s objection to conversion and request for dismissal, the bankruptcy court converted the case. On debtor’s appeal, the BAP affirmed.
Under 1112(b)(4)(C), cause for conversion or dismissal includes failure to maintain appropriate insurance, if the failure poses a risk to the estate or to the public. Under 1112(b)(1), if the court finds cause for conversion or dismissal, it must determine whether conversion, dismissal, or appointment of a trustee or examiner would be in the best interests of creditors and the estate. Under 1112(b)(2), the court may not select conversion or dismissal if (1) the court finds and specifically identifies unusual circumstances establishing that conversion or dismissal is not in the best interests of creditors and the estate, (2) it is reasonably likely that a plan will be timely confirmed, (3) there is a reasonable justification for the act or omission asserted as the ground for conversion or dismissal, and (4) the act or omission will be timely cured.
Here, debtor conceded that its failure to obtain liquor-liability insurance constituted cause. The bankruptcy court selected conversion, rather than dismissal, because debtor’s creditors could be paid in full if the estate’s unencumbered assets were liquidated in chapter 7. In making that selection, the court property considered the interests of creditors over those of the debtor. Because debtor did not ask the bankruptcy court to appoint a trustee or examiner, the court did not err by failing to consider those options. Debtor could not have satisfied the cure requirement of the unusual-circumstances exception in 1112(b)(2).
Debtor received 16 days’ notice of the hearing. By local rule, the U.S. trustee may move to convert or dismiss on seven days’ notice. Although FRBP 2002(a)(4) requires 21 days notice of a hearing on a motion to dismiss or convert, FRBP 9006(c) permits the court to reduce that time, and the court did so by its local rule. Debtor failed to assert before the bankruptcy court debtor’s concern about the sufficiency of notice of the hearing.
- Frank L. Kurtz, Meredith A. Jury, and Laura S. Taylor, Bankruptcy Appellate Panel Judges.
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