In re American Capital Equipment, LLC

In re American Capital Equipment, LLC, Case No. 10-2239 (3d Cir. July 25, 2012).
Time of Confirmability Determination Bankruptcy judges can determine a Chapter 11 plan is unconfirmable without first holding a confirmation hearing where: (1) the plan is "patenty unconfirmable, such that (a) there are no disputes of material fact and (b) defects in the plan cannot be cured by creditor voting. This is in part because the Court controls its docket. Patently Unconfirmable->Feasibility The Chapter 11 plan at issue was patently unconfirmable because it was not feasible. It was not feasible because it set up a plan based on "wholly speculative litigation proceeds." Patently Unconfirmable->Good Faith The Chapter 11 plan at issue was also (independently) patently unconfirmable because it was not proposed in good faith, as it "paid creditors using insurance dollars intended to compensate Asbestos Claimants for their personal injuries," and created a conflict of interest situation where the insured would be incentivized to sabatoge its defense; therefore, it did not "fairly achieve a result consistent with the objectives and purposes of the Bankruptcy Code." Conversion of Chapter 11 to Chapter 7->Standard of Review In reviewing a Bankruptcy Court's decision to convert a case from Chapter 11 to Chapter 7, reviewing courts apply the abuse of discretion standard.
Procedural context:
Skinner (Debtor) filed numerous Chapter 11 plans. The Bankruptcy Court held that the fifth iteration of Skinner's Chapter 11 plan was patently unconfirmable pursuant to 1129(a)(3) & (a)(11), and therefore converted the case to a Chapter 7 pursuant to 1112(b). Skinner appealed to the Western District of Pennsylvania, before Judge Gary Lancaster, who affirmed the Bankruptcy Court's order. Skinner appealed to the Third Circuit.
Skinner, founded in 1868, manufactured ships and ship parts. Skinner's parts and ships made between 1930 and 1970 allegedly contained asbestos. Pursuant to insurance coverage agreements, insurers defended asbsestos claims against the insured, Skinner. Skinner filed bankruptcy because of cash-flow problems, not because of mass-tort litigation claims against it. Insurers contended that Skinner's Chapter 11 plans were filed in bad faith and parties collusively attempted to get money from the insurers to pay creditors and bankruptcy professionals, rather than asbestos claimants (the Third Circuit did not reach the issue of collusion, but the allegation gives the case a flavor). The plan called for a surcharge of 20% to be paid by Asbestos Claimants who opted in to the plan's settlement process through a process called the "Court Approved Distribution Procedures" ("CADP"). CADP and the 20% surcharge were non-negotiable facets of the plan, according to the plan proponents.
Fisher, Vanaskie, and Roth

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