Vaquería Las Martas’ Third Bankruptcy Dismissed Due to Continuous Financial Decline A bankruptcy filing can provide a debtor with powerful tools
Vaquería Las Martas’ Third Bankruptcy Dismissed Due to Continuous Financial Decline A bankruptcy filing can provide a debtor with powerful tools
restore financial health, such as the ability to restructure or shed unsecured debts and reject burdensome contracts. However, it cannot transform a
fundamentally unviable business into a viable one. The chapter 12 case of Las Martas, Inc. has been a long and painful reminder of this principle, with three filings and over 11 years in bankruptcy. Having provided the debtor with several opportunities to show a reasonable likelihood of rehabilitation, Judge Lamoutte finally decided that the debtor could “not continue to speculate with [its secured creditor’s] money.” The debtor’s hope for reorganization was premised on projections that its financial performance would improve dramatically in the next two years.
For the court, however, those projections were overly optimistic and not grounded in the debtor’s recent financial reality.
Additionally, there was a giant elephant in the room that the debtor’s plan did not address to the satisfaction of the court: a pending foreclosure of the debtor’s principal’s farmland where the debtor ran its dairy farm business. The debtor’s proposed solution to this problem?
Have the debtor’s principal also file for bankruptcy, if necessary. Needless to say, the court was not convinced. It noted that this alternative “lack[ed] foresight since the Debtor’s principals would have to formulate a plan of reorganization to repay Condado’s mortgage note which they have been unable to do for the past twelve years.” In the end, the court did not see a substantial change in circumstances from the second bankruptcy, other than increasing debts, decreasing asset values, and a pending foreclosure.
Highlighting the need to strike a balance between the rights of a debtor with those of its creditors, the court dismissed the case.