UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW HAMPSHIRE. Chapter 11

Transcription

1 UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW HAMPSHIRE In re: KINGSBURY CORPORATION, Debtor. Chapter 11 Case No MOTION FOR APPROVAL OF CASH MANAGEMENT SYSTEM AND FOR AUTHORIZATION OF USE OF PREPETITION BANK ACCOUNTS AND BUSINESS FORMS Kingsbury Corporation (the Debtor ), the debtor and debtor-in-possession in the above-captioned chapter 11 case, by and through its attorneys, hereby moves this Court to enter an order approving a cash management system and authorizing the Debtor to use prepetition bank accounts and business forms. In further support of this motion (the Motion ), the Debtor states as follows: JURISDICTION, VENUE AND STATUTORY BASIS 1. This Court has jurisdiction to entertain the Motion pursuant to 28 U.S.C. 157 and Venue is proper in this district pursuant to 28 U.S.C and The predicate for the relief sought herein is 11 U.S.C. 105(a) and 363(c)(1). BACKGROUND 2. On September 30, 2011 (the Petition Date ), the Debtor filed a voluntary petition for relief under chapter 11 of 11 U.S.C. 101 et seq. (the Bankruptcy Code ). The Debtor continues to operate its business as a debtor-in-possession pursuant to 1107 and 1108 of the Bankruptcy Code. No trustee or examiner has been appointed in the Debtor s chapter 11 case, and no official committee has been appointed. 1

2 3. Additional background information regarding the Debtor and the relief sought by this Motion is set forth in the Affidavit of Iris A. Mitropoulis in Support of First Day Motions, which was filed on the Petition Date and which is incorporated by reference herein. Existing Cash Management System and Bank Account Structure 4. The Debtor operates a cash management system (the Cash Management System ) that enables the Debtor to collect and disburse cash in an efficient manner. The Cash Management System consists of three accounts (the Accounts ) that facilitate the timely and efficient collection, concentration, management and disbursement of funds by the Debtor. 5. The Debtor s primary bank account is a lockbox (the Lockbox ) which is maintained at TD Bank, N.A. ( TD Bank ) and is controlled by TD Bank for the benefit of TD Bank and Diamond Business Credit, LLC ( Diamond ). The Debtors customers are directed to send receivables directly to the Lockbox and all other funds received by the Debtor are deposited into the same account. 6. The Debtor also maintains an operating account at Cheshire County Federal Credit Union (the Operating Account ) and a payroll account at Connecticut River Bank, N.A. (the Payroll Account ). The Debtor carries little or no balance in either of these accounts. When the Debtor requires cash to pay payroll or other expenses, the Debtor submits a loan authorization request to Diamond for funds to be released in an amount necessary to cover the specified expenditures. Diamond then instructs T.D. Bank to deposit funds into either the Operating Account or the Payroll Account as appropriate. 7. Through the use of the Accounts for receipts and disbursements, the Cash Management System allows the Debtor to effectively manage its cash needs. 2

3 RELIEF REQUESTED A. Request for Authority to Continue to Use the Cash Management System 8. The Debtor hereby seeks authority to continue to use the Cash Management System so that the Debtor can seamlessly continue the operation of its business in accordance with its existing cash management procedures. 9. The Lockbox is a necessary condition to the Debtor s financing arrangement with Diamond and is the account into which all customers are directed to deposit receivables. If the Lockbox account is closed, the Debtor will need to provide each of its customers with new payment instructions. Any new remittance procedure may lead to confusion and delay in receiving payments and could be detrimental to its business operations going forward. 10. The current Cash Management System allows for a fluid transfer of funds from the Lockbox to the Payroll and Operating Accounts as necessary and enables the Debtor to meet obligations such as payroll in a timely fashion. Closing the Payroll and Operating Accounts would cause unnecessary time, expense and effort with no benefit to the Debtor s estate. The Debtor does not carry a balance in either of these accounts and, therefore, account records regarding deposits and withdrawals will clearly and necessarily delineate between pre- and post-petition proceeds. 11. Transitioning to a new cash management system would cause the Debtor to incur additional costs and deplete assets of the estate without providing any benefit to the Debtor s creditors. Under the circumstances, the maintenance of the Cash Management System is both essential to the Debtor s business and in the best interests of the Debtor s estate. 12. Bankruptcy courts routinely grant chapter 11 debtors the authority to continue using existing cash management systems, treating a request for such authority as a relatively simple matter. In re Baldwin-United Corp., 79 B.R. 321, 327 (Bankr. S.D. Ohio 1987); see 3

4 also Official Comm. of Unsecured Creditors v. Columbia Gas Sys. Inc. (In re Columbia Gas Sys. Inc.), 997 F.2d 1039, 1061 (3d Cir. 1993) (noting with approval the bankruptcy court s finding that a requirement to maintain all accounts separately would be a huge administrative burden and economically inefficient. ); Charter Co. v. Prudential Ins. Co. of Am. (In re Charter Co.), 778 F.2d 617, 621 (11 th Cir. 1985) (holding that the debtors postpetition use of their prepetition routine cash management system was entirely consistent with applicable provisions of the Bankruptcy Code). 1 Indeed, in many cases within the First Circuit, courts have allowed chapter 11 debtors to maintain their existing cash management systems. See, e.g., In re Munce s Superior Petroleum Products, Inc., Chapter 11 Case No JMD (Bankr. D.N.H. Mar. 17, 2011); In re Irving Tanning Company, Chapter 11 Case No LHK (Bankr. D. Me. Nov. 22, 2010); In re Red Shield Environmental, LLC, Chapter 11 Case No LHK (Bankr. D. Me. July 10, 2008). 13. Section 363(c)(1) of the Bankruptcy Code authorizes a debtor in possession to use property of the estate in the ordinary course of business without notice or a hearing. 11 U.S.C. 363(c)(1). The purpose of 363(c)(1) of the Bankruptcy Code is to provide a debtor in possession with the flexibility to engage in those transactions that make up the bulk of its day-to-day operations without incurring the excessive monitoring costs that would result from the need to provide notice of, and obtain approval for, such ordinary course activities. See, e.g., Medical Malpractice Ins. Ass n v. Hirsch (In re Lavigne), 114 F.3d 379, 384 (2d Cir. 1997); Chaney v. Official Comm. of Unsecured Creditors of Crystal Apparel, Inc. (In re Crystal Apparel, Inc.), 207 B.R. 406, 409 (S.D.N.Y. 1997); In re Enron Corp., No (ALG), 1 Because orders approving the continued use of preexisting cash management systems generally are entered at the time of or shortly after the commencement of a bankruptcy case, few, if any, requests for the entry of such orders are ever contested. In fact, references to court orders authorizing the continued use of centralized cash management systems are generally found in opinions regarding collateral proceedings, rather than in reported decisions approving or disapproving the use of a particular system. See, e.g., In re FRG, Inc., 107 B.R. 461, 465 (Bankr. S.D.N.Y. 1989) (involving motion to transfer venue, but referring to an order authorizing the debtors to continue to utilize their prepetition cash management system). 4

5 2003 WL , at *15 (Bankr. S.D.N.Y. Mar. 21, 2003). Within the purview of 363(c) of the Bankruptcy Code, a debtor in possession is authorized to continue the routine transactions associated with its cash management system. B. Request that the Debtor be Allowed to Use the Accounts and Business Forms 14. The United States Trustee for Region 1 (the U.S. Trustee ), who administers bankruptcy cases filed in the District of New Hampshire, has issued certain chapter 11 operating guidelines pursuant to 28 U.S.C These guidelines include a requirement that chapter 11 debtors close all existing bank accounts upon filing of the petition and open new debtor in possession accounts in certain financial institutions designated as authorized depositories by the U.S. Trustee. These requirements are designed to provide a clear line of demarcation between prepetition and postpetition claims and payments, and help to protect against the inadvertent payment of postpetition claims by preventing the banks from honoring checks drawn before the Petition Date. 15. As noted above, in the ordinary course of business, the Debtor uses a total of three different accounts at three different banks or repositories in its Cash Management System, including one Account that is a lockbox maintained by for the benefit of secured creditors. While the Debtor acknowledges that the U.S. Trustee s requirements can serve a useful function in certain chapter 11 cases, the application of those requirements to the instant case would create a needless hardship for the Debtor, particularly where the Debtor has established certain payment mechanisms. Allowing the Accounts to be maintained with the same account numbers will assist the Debtor in accomplishing a smooth transition to operation in chapter 11. Consequently, the Debtor seeks a waiver of the requirement that the Debtor open new accounts. 16. Bankruptcy courts within this Circuit have routinely permitted debtors to utilize their existing bank accounts, finding that such relief is entirely consistent with applicable 5

6 provisions of the Bankruptcy Code. See, e.g., In re Munce s Superior Petroleum Products, Inc., Chapter 11 Case No JMD (Bankr. D.N.H. Mar. 17, 2011); In re Sea Pine, Inc., Chapter 11 Case No LHK (Bankr. D. Me. April 27, 2010); In re Correct Building Products, LLC, Chapter 11 Case No JBH (Bankr. D. Me. July 8, 2009); In re Red Shield Environmental, LLC, Chapter 11 Case No LHK (Bankr. D. Me. July 10, 2008); In re Androscoggin Energy LLC, Chapter 11 Case No LHK (Bankr. D. Me. Dec. 22, 2004); In re Pegasus Satellite Television, Inc., Chapter 11 Case No JBH (Bankr. D. Me. June 7, 2004); In re Divine Inc., Chapter 11 Case No JNF (Bankr. D. Mass. 2003); In re ACT Mfg., Inc., Chapter 11 Case No JBR (Bankr. D. Mass. 2001); In re Trend-Lines, Inc., Chapter 11 Case No CJK (Bankr. D. Mass. 2000). 17. The Debtor also requests that it be authorized to continue to use all correspondence, business forms (including, but not limited to, letterhead, purchase orders, and invoices) and checks existing immediately before the Petition Date without reference to the Debtor s status as a debtor-in-possession. Parties doing business with the Debtor will undoubtedly be aware of the Debtor s status as a debtor-in-possession as a result of press coverage and noticing. Moreover, if the Debtor were required to change its correspondence, business forms and checks, it would be forced to choose standard forms rather than the current forms with which the Debtor s employees and customers are familiar. Such a change in operations would create a sense of disruption and potential confusion within the Debtor s organization and confusion for the Debtor s customers. The Debtor believes that it would be extremely costly and disruptive to cease using all existing forms and to purchase and begin using new stationery, business forms, and checks. The Debtor respectfully submits that to do so would be unnecessary and that appropriate care can be taken to assure the proper use of the existing forms. 6

7 18. For these reasons, the Debtor requests that it be authorized to use existing checks and business forms without being required to place the label Debtor in Possession on each. 2 Courts in this circuit and other circuits in business cases have routinely granted the same or similar relief to chapter 11 debtors. See, e.g., In re Munce s Superior Petroleum Products, Inc., et al., Chapter 11 Case No JMD (Bankr. D.N.H. Mar. 17, 2011); In re Sea Pine, Inc., Chapter 11 Case No LHK (Bankr. D. Me. April 27, 2010); In re Correct Building Products, LLC, Chapter 11 Case No JBH (Bankr. D. Me. July 8, 2009); In re Red Shield Environmental, LLC, Chapter 11 Case No LHK (Bankr. D. Me. July 10, 2008); In re Androscoggin Energy LLC, Chapter 11 Case No LHK (Bankr. D. Me. Dec. 22, 2004); In re Gold-Standard Baking, Inc., 179 B.R. 98, (Bankr. N.D. Ill. 1995) (holding United States Trustee s requirement prohibiting issuance of checks without debtor in possession designations unenforceable); In re Great Northern Paper, Inc., Case No LHK (Bankr. D. Me. 2003). C. Request for Waiver of Stay 19. In addition, by this Motion, the Debtor seeks a waiver of any stay of the effectiveness of the order approving this Motion. Pursuant to Rule 6004(h) of the Federal Rules of Bankruptcy Procedure, [a]n order authorizing the use, sale, or lease of property other than cash collateral is stayed until the expiration of 14 days after entry of the order, unless the court orders otherwise. As set forth above, maintenance of the Accounts, Cash Management System, and business forms are essential to prevent potentially irreparable damage to the Debtor s operations, value and ability to implement its chapter 11 strategy. Accordingly, the Debtor submits that ample cause exists to justify a waiver of the fourteen-day stay imposed by Rule 6004(h), to the extent that it applies. 2 After the Debtor has exhausted its current supply of checks, the Debtor will have new checks printed with the designation DIP or Debtor in Possession if the U.S. Trustee so requires. 7

8 NOTICE 20. Notice of the hearing on this Motion was served on the following parties on the date on which it was filed by or facsimile: (1) the United States Trustee; (2) the Debtor s secured creditors, or, if applicable, the lawyers representing such creditors; (3) the non-insider holders of the twenty (20) largest unsecured claims against the Debtor or, if applicable, the lawyers representing such holders; and (4) applicable federal and state taxing authorities. WHEREFORE, the Debtor respectfully requests the entry of an order: (i) authorizing and approving the Debtor s use of the Cash Management System; (ii) allowing the Debtor to continue using the Accounts and existing business forms; and (iii) granting such other relief as may be appropriate. Dated: September 30, 2011 KINGSBURY CORPORATION By its proposed attorneys: /S/ Jennifer Rood Jennifer Rood, Esq. BERNSTEIN, SHUR, SAWYER & NELSON Jefferson Mill Building 670 North Commercial Street, Suite 108 PO Box 1120 Manchester, NH (603) and /s/ Robert J. Keach, Esq. Robert J. Keach, Esq. Jessica A. Lewis, Esq. Máire B. Corcoran, Esq. BERNSTEIN, SHUR, SAWYER & NELSON 100 Middle St., PO Box 9729 Portland, Maine (207)

9 UNITED STATES BANKRUPTCY COURT DISTRICT OF NEW HAMPSHIRE In re: KINGSBURY CORPORATION, Debtor. Chapter 11 Case No ORDER APPROVING CASH MANAGEMENT SYSTEM AND AUTHORIZING USE OF PREPETITION BANK ACCOUNTS AND BUSINESS FORMS Upon consideration of the Motion for Approval of Cash Management System and for Authorization of Use of Prepetition Bank Accounts and Business Forms (the Motion ), filed by Kingsbury Corporation (the Debtor ), the debtor and debtor-in-possession in the abovecaptioned Chapter 11 case, and it appearing that due and proper notice of the Motion has been given, the Court having conducted a hearing on the Motion on October, 2011 (the Hearing ), and having considered the evidence admitted at the Hearing, including, without limitation, the Affidavit of Iris A. Mitropoulis in Support of First Day Motions, which was admitted into evidence without objection from any party; it is hereby ORDERED, ADJUDGED, and DECREED: 1. That the Motion is granted; 2. That the Debtor be and hereby is relieved of the requirements of Section II(B) of the U.S. Trustee Operating Guidelines and Reporting Requirements for Chapter 11 Cases (the UST Guidelines ); 3. The Debtor is authorized to continue use of its existing business and correspondence forms and checks without alteration and without the designation Debtor in Possession imprinted upon them, provided, however, that following the Petition Date, the 1

10 Debtor will have new checks printed with the designation DIP or Debtor in Possession after the Debtor exhausts its current supply of checks. 4. The Debtor is authorized to make disbursements from the Accounts (as that term is defined in the Motion) other than by check, to the extent consistent with the Debtor s existing cash management practices. 5. The Debtor is hereby authorized to use the Accounts and Cash Management System (as that term is defined in the Motion) upon the terms and conditions set forth in the Motion and this Order. 6. Nothing contained herein shall prevent the Debtor from opening any new bank accounts or closing any existing bank accounts as it may deem necessary and appropriate; provided, however, that any new U.S. account shall be with a bank that is insured by the Federal Deposit Insurance Corporation, that has a Moody s rating of Baa or better and that is organized under the laws of the United States or any state therein; and provided, further, however, that the Debtor shall disclose any new accounts to the UST in its monthly operating reports. 7. This Court shall retain jurisdiction to hear and determine all matters arising from the implementation of this Order. Dated: Honorable J. Michael Deasy UNITED STATES BANKRUPTCY JUDGE 2