Chapter 11 Case Dismissed Post-confirmation Due to Debtor’s Inability to Start Payments
Chapter 11 Case Dismissed Post-confirmation Due to Debtor’s Inability to Start Payments
Judge González of the U.S. Bankruptcy Court for the District of Puerto Rico granted the U.S. Trustee’s motion to dismiss a chapter 11 case due to the debtor’s inability to effectuate substantial consummation of the confirmed plan, as well as due to a material default on the confirmed plan.
The plan was confirmed on February 15, 2022, almost three and a half years after the petition was filed. The effective date of the plan was set at May 30, 2022, with payments starting on June 15, 2022, to allow for the opening of the debtor’s restaurant, which would provide the primary means of implementation of the plan.
On May 17, 2022, the debtor requested to postpone the effective date until December 15, 2022. The debtor justified the request in that the restaurant was not yet ready to open due to the lack of construction personnel and scarcity of construction materials and equipment. Since no opposition was filed, the court granted the extension.
On November 21, 2022, the debtor filed another motion for extension of time to commence plan payments and requested the court to postpone the effective date until September 2023 based on the same grounds as the previous extension.
This time, the U.S. Trustee opposed the request. The U.S.
Trustee argued that, among other reasons, the extensions should not be granted because the plan, as amended, was not feasible, since there was no credible evidence that the debtor’s restaurant would open on the date proposed by the debtors. Additionally, the U.S. Trustee argued that the plan did not comply with 11 U.S.C. § 1129(a)(9)(C) because the debtor would not finish paying priority tax claims until almost ten years after the order for relief.
The U.S. Trustee also requested dismissal based on the debtor’s inability to effectuate substantial consummation of a confirmed plan, as well as due to a material default of a confirmed plan.
The court ultimately agreed with the U.S. Trustee, denied the proposed modifications to the confirmed plan, and dismissed the case. For Judge González, the debtor did not carry its burden to show that the restaurant would open as projected.
Moreover, the court found that the debtor’s continued postponement of payments forced priority claimants to subsidize the debtor’s operations and to assume the risk of its failure.
Given the time that had passed since the plan was confirmed, the absence of payments, and because the plan’s proposed amendments did not comply with 11 U.S.C. §§ 1129(a)(11) or 1129(a)(9)(C), the court had no trouble finding cause to dismiss under 11 U.S.C. §§ 1112(b)(4)(M) and 1112(b)(4)(N).