1^(st) Circuit BAP: Improperly Elected Board of Directors Could Not Authorize Bankruptcy Petition

1^(st) Circuit BAP: Improperly Elected Board of Directors Could Not Authorize Bankruptcy Petition

The U.S. Bankruptcy Court for the District of Massachusetts did not clearly err in finding that the board of directors of a debtor was not duly elected when it authorized the bankruptcy petition, according to the Bankruptcy Appellate Panel for the First Circuit.

As a result, the BAP affirmed the dismissal of the petition for cause due to lack of authority to file. The dispute between the parties centered around whether the debtor’s board of directors was elected before the relevant annual shareholder’s meeting was adjourned. There was conflicting testimony for both sides.

Ultimately, the bankruptcy court held that the directors could not have been properly elected because a formal ballot vote was not held, as required under the debtor’s bylaws. The BAP agreed.

The BAP also affirmed the bankruptcy court’s refusal to condition dismissal on the payment of administrative expenses incurred by the Trustee and his counsel, because (a) the Trustee did not file a fee application as required under Bankruptcy Rule 2016(a), and (b) Section 326 limits a chapter 7 trustee’s reasonable compensation to a percentage of the funds disbursed by the trustee, which in this case were $0.00.