KVN Corporation, Inc. v. Green (In re KVN Corporation)

Citation:
KVN Corporation, Inc. v. Green (In re KVN Corporation), B.A.P. No. NC-13-1318 (9th Cir. B.A.P., July 29, 2014)
Tag(s):
Ruling:
The Bankruptcy Appellate Panel of the Ninth Circuit vacated and remanded the decision of the Bankruptcy Court denying approval of a carve out agreement between the Chapter 7 trustee and the secured creditor from lien proceeds from the sale of fully encumbered assets. A rebuttable presumption of impropriety arises regarding such sharing agreements which can be overcome with a showing that the trustee has fulfilled her duties to investigate and disclose and that there will be a meaningful distribution to unsecured creditors.
Procedural context:
Appeal from the Bankruptcy Court for the Northern District of California (J. Jaroslovsky), denying a motion (and a motion for reconsideration) for approval of a "carve out" stipulation between the Chapter 7 Trustee and a fully secured creditor, reviewed for abuse of discretion.
Facts:
Appellant Linda S. Green, the Chapter 7 Trustee ("Trustee"), filed a motion with the Bankruptcy Court seeking approval of a stipulation with Wilshire State Bank ("Bank"). The stipulation provided for the Trustee's sale of certain fully-encumbered gun inventory (from the Debtor's sporting goods store) against which the Bank held a perfected UCC-1, in exchange for a carve out of half of the net proceeds of sale. The Bankruptcy Court denied the motion (and a subsequent motion for reconsideration), ruling that there is a presumption of impropriety regarding sharing agreements for the sale of fully-encumbered assets. The B.A.P. held that, although there is a presumption of impropriety, there is no per se rule against such agreements and that the presumption can be overcome by showings that the Trustee has fulfilled her duties to investigate the assets and has disclosed that information, and that the agreement will result in a meaningful distribution to unsecured creditors. For that reason, the B.A.P. vacated the decision and remanded to the case to the Bankruptcy Court to determine whether or not the agreement at issue would result in a meaningful distribution to the unsecured creditors of the estate.
Judge(s):
Jury, Kurtz and Dunn, Bankruptcy Judges

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