ABA Business Bankruptcy Committee Small Business Subcommittee Meeting Monday, October 9, 2017

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1 ABA Business Bankruptcy Committee Small Business Subcommittee Meeting Monday, October 9, 2017 Small Business Debtor Provisions in Chapter 11 What is Working and What is Not? Panelists: Jeffrey Bast, Bast Amron LLP, Miami, FL Janet E. Bostwick, Janet E. Bostwick, PC, Boston, MA Susan K. Seflin, Brutzkus Gubner Rozansky Seror Weber LLP, Woodland Hills, CA Materials 1. Section 1102(a) and Small Business Debtors, Jeffrey Bast, Bast Amron LLP, Miami, FL. 2. Small Business Debtors: (A) Plan Procedures and (B) United States Trustee Oversight, Susan K. Seflin, Brutzkus Gubner Rozansky Seror Weber LLP, Woodland Hills, CA,. 3. Small Business Debtors: Beware the Deadline. Janet E. Bostwick, Janet E. Bostwick, PC, Boston, MA 4. Speakers Biographies To join or learn more about the Subcommittee, please check our website: Small Business Subcommittee:

2 ABA Business Bankruptcy Committee Small Business Subcommittee Meeting October 9, 2017 Section 1102(a) and Small Business Debtors Jeffrey P. Bast Bast Amron LLP Miami, FL Bankruptcy Code Sec. 101(51D) defines a small business debtor as: (A) subject to paragraph (B), means a person engaged in commercial or business activities (including any affiliate of such person that is also a debtor under this title and excluding a person whose primary activity is the business of owning or operating real property or activities incidental thereto) that has aggregate noncontingent liquidated secured and unsecured debts as of the date of the filing of the petition; or the date of the order for relief in an amount not more than $2,566,050 (excluding debts owed to 1 or more affiliates or insiders) for a case in which the United States trustee has not appointed under section 1102(a)(1) a committee of unsecured creditors or where the court has determined that the committee of unsecured creditors is not sufficiently active and representative to provide effective oversight of the debtor; and (B) does not include any member of a group of affiliated debtors that has aggregate non-contingent liquidated secured and unsecured debts in an amount greater than $2,566,050 (excluding debt owed to 1 or more affiliates or insiders). Bankruptcy Rule 1020(a) requires a debtor to state in a voluntary petition (or within 14 days after entry of an order for relief in an involuntary case) whether the debtor is a small business debtor. And the Debtor s statement controls unless one of two things occur: either (i) the court finds that the debtor s statement is incorrect or (ii) the US Trustee appoints a committee in the case. This memo focuses on the latter. As a general rule, a trustee in a Chapter 11 case is required to appoint a committee of creditors holding unsecured claims. See 11 U.S.C. 1102(a)(1) ( the United States trustee shall appoint a committee of creditors holding unsecured claims ). In re Haskell-Dawes, Inc., 188 B.R. 515, (Bankr. E.D. Pa. 1995) But under 1102(a)(3), [o]n request of a party in interest in a case in which the debtor is a small business debtor and for cause, the court may order that a committee of creditors not be appointed. Section 1102(a)(3) was enacted as part of the Bankruptcy Reform Act of This exception is one of several amendments that was made to the Bankruptcy Code in 1994 in an effort to expedite the process by which small businesses may reorganize under chapter 11. Bankruptcy 1

3 Reform Act of 1994, House Report No , Section 218, reprinted in 1994 U.S.Code Cong. & Ad.News 3340, (In 2005, the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 included amendments to the provisions relating to small business cases and small business debtors. In particular, the BAPCPA amendments made the designation as a small business debtor and related provisions mandatory.) Also of note, a motion under 1102(a)(3) must be made before a committee is appointed; there is no provision in the Code authorizing a court to disband a duly appointed committee. 7 Collier on Bankruptcy, [1] at ( While there is no specific time limit referred to in section 1102(a)(3), a motion for an order directing that a creditors committee not be appointed should be made immediately upon the filing of a case. A motion not made until after the United States trustee has established the creditors committee should be dismissed as untimely. ) No explanation is provided in the Bankruptcy Code for what constitutes cause for relief under 1102(a)(3); nor is the legislative history of assistance in this regard. Haskell, 188 B.R. at 520. Collier s states the following: Section 1102(a)(3) provides that the court may order that a committee not be appointed for cause in a small business case. This is intended to be a flexible standard allowing the court to take into account all of the relevant facts and circumstances. In most cases, the court will balance the potential cost of a committee against the need to protect the interests of creditors in the reorganization process. It is likely that creditors committees will be appointed in most chapter 11 cases involving small businesses, and that orders to dispense with a committee will be relatively unusual. For many small businesses, no individual unsecured creditor has enough of an economic stake in the process to justify the cost of monitoring the proceeding and the lack of a creditors committee will mean that creditors do not participate at all in the process. 7 Collier on Bankruptcy, There is only one reported decision detailing the standard for cause under 1102(a)(3): In re Haskell-Dawes, Inc., 188 B.R. 515, (Bankr. E.D. Pa. 1995). In Haskell, the debtor asserted four grounds to establish cause: 1) The additional costs of such a committee and the professionals which it might hire would unduly burden its reorganization efforts; 2) The debtor s intention to file a pot plan, which would provide for a pot of money to be divided among the unsecured creditors and that any costs incurred by professionals hired by a creditors' committee will decrease the amount of money available in the pot; 3) The unlikelihood that any consensual plan will be proposed and the debtor expected to seek confirmation of its plan through the cram-down provisions of 1129(b); and 2

4 4) The only creditors to oppose the debtor s motion were the three unsecured creditors whose claims are: (i) for non-trade debt; and (ii) in dispute. The Haskell court denied the debtor s motion finding that the debtor failed to establish cause under 1102(a)(3). Specifically, with respect to the factors enumerated by the debtor, the court found: 1) Other than the general and conclusory statements to this effect made by its principal, the debtor introduced no evidence into the record to support the argument that the additional costs of a committee would unduly burden its reorganization. There was no financial data of any kind presented and no attempt made to explain in any concrete terms how the additional costs incurred by a creditors' committee might negatively impact the debtor s ability to reorganize. The court noted that the appointment of a creditors' committee will always result in additional costs to the debtor and could be advanced by every small business seeking relief under 1102(a)(3). Since Congress did not exclude appointment of creditor s committees from small business cases altogether, the cause requirement imposed in 1102(a)(3) must require something more than a general assertion that the appointment of a creditors' committee may cost the debtor money; 2) As to the reduction of the pot for distribution, the court found there are many contingencies that could affect the amount of money available to the unsecured creditors in the pot; the possibility that fees may be incurred by professionals retained by a creditors' committee is only one of them. Moreover, given a committee s statutory role and involvement in the case, it is quite possible that the monetary benefits gained by the unsecured creditors, through the efforts of the committee, could outweigh any impact which the committee's costs may have on the pot ; 3) No evidence was offered regarding the debtor s efforts to negotiate with its two largest creditors and little evidence was presented regarding their claims. In addition, there are benefits which a creditors' committee could provide even if the debtor seeks cramdown. The creditors' committee could be instrumental in identifying any obstacles which exist to confirmation, in negotiating resolutions to such obstacles and, possibly, in ultimately effecting a consensual plan; and 4) All of the debtor s unsecured creditors, except those three opposing the motion, possess claims in amounts of less than $6,000. It is unlikely that such creditors would have considered it economically practicable to expend additional monies to formally oppose the motion. There was no evidence and the court could not assume that all other unsecured creditors are uninterested in having a creditors' committee appointed to represent their interests. 3

5 Just a few courts have considered these issues since. The debtor in In re ALUMINUM ROOFING SPECIALISTS, INC., 2009 WL (Bankr. C.D. Cal.) made similar arguments as part of its first day motions: [T]he Debtor has been required to undergo sustained cost-cutting and restructuring to move toward a break-even point of operations that will permit it to operate profitably in the midst of a home improvement market that remains deeply recessionary. Though it is justifiably pleased with its progress, the Debtor can ill afford the administrative burden and expense commonly associated with the Chapter 11 process. Moreover, the Debtor has communicated proactively with its creditors throughout its restructuring process and, to date, has enjoyed good relations with its creditors. The Debtor believes that by continuing to work consensually with its creditors (including Andersen), it can achieve the same best interests for creditors that a Committee would be charged with obtaining at a much greater cost (Gindele Decl. at 14). Consequently, the Debtor believes there is good cause to order that a Committee not be appointed in this case. The docket in the case reflects no ruling on the motion and no committee was ever appointed. Similarly, the debtor in In Re: DENTAL ARTS LABORATORY & SUPPLY CO., INC. made conclusory arguments that the estate has limited funds, the case is not complex, and the financial burden of a committee would be too much to bear. The US Trustee objected, stating: These factors are not extraordinary and in fact are common in most small business cases. The Debtor's concerns regarding expenses can be dealt with when and if applications for employment for professionals are filed by a Creditor's Committee and other appropriate times. Concerns of the Debtor regarding limitation on expenses and costs to the estate are consistent with the fiduciary responsibilities of any creditors' committee and it should not be presumed a Creditors' Committee appointed in this case will incur any unnecessary costs or expenses. In Re: DENTAL ARTS LABORATORY & SUPPLY CO., INC., 2006 WL (Bankr. E.D. KY). The debtor s motion was ultimately withdrawn after the US Trustee filed a notice that it would not be appointing a committee, presumably unable to find a sufficient number of creditors willing to serve. In In re Greenbrier Hotel Corporation, Case No, (E.D. Va. 2009), the debtor moved under 1102(a)(3), making conclusory assertions that the cost of appointing an unsecured creditor s committee outweighed the benefits given the minimal amount of non-contingent, liquidated non-insider debt and citing ABI statistics regarding the average fees for committee professionals. No opposition was filed and the court held a hearing the day after the motion was filed; it granted it with all the other first day motions without making any findings. And in In re Professional Colorgraphics and Publishing Inc., Case No (Bankr. D. Alaska), the creditors committee opposed the debtor s efforts to dispense with the committee arguing (1) that the motion was untimely as the committee was already formed and (2) citing 4

6 Haskell, that the debtor made only generalized, unsupported statement\s that not having a committee would save money. At the moment, Haskell is the only case addressing the for cause standard under 1102(a)(3). Based on that case, practice guides, and court filings we have been able to locate, the following practice pointers can be noted: 1) The motion should be made immediately upon filing of the case; a motion made after the appointment of a committee is untimely; 2) A debtor must assert more than general concerns regarding the cost of a committee and the burden to the debtor and its reorganization efforts; 3) A debtor should have evidence to support it specific concerns as to why the appointment of a committee will unduly burden its reorganization efforts. If a debtor is unsuccessful in preventing the appointment of a committee under 1102(a)(3), the Rule 1020 provides yet another exception to the exception. Specifically, Rule 1020(c) states: If a committee of unsecured creditors has been appointed under 1102(a)(1), the case shall proceed as a small business case only if, and from the time when, the court enters an order determining that the committee has not been sufficiently active and representative to provide effective oversight of the debtor and that the debtor satisfies all the other requirements for being a small business. A request for a determination under this subdivision may be filed by the United States trustee or a party in interest only within a reasonable time after the failure of the committee to be sufficiently active and representative. The debtor may file a request for a determination at any time as to whether the committee has been sufficiently active and representative. Rule 1020(c) therefore creates an exception to the exception the small business debtor is a small business debtor, unless a committee is appointed, unless the committee is inactive. The failure of the committee to be sufficiently active and representative is actually built into the definition of small business debtor under 101(51D): The term small business debtor means a case in which the United States trustee has not appointed under section 1102(a)(1) a committee of unsecured creditors or where the court has determined that the committee of unsecured creditors is not sufficiently active and representative to provide effective oversight of the debtor Thus, if the office of the US Trustee appoints a committee in a small business case, then the case is no longer a small business case, unless and until the court determines that the committee is not sufficiently active and representative. Rule 1020(c) provides that a request for such a determination may be filed by any party in interest only within a reasonable time after the failure of the committee to be sufficiently active and representative. If no such determination is sought or made, however, then the case remains a non-small business case. We are aware of no reported cases, motions or appellate briefs discussing the standard or what must be shown for a court to determine whether a committee is sufficiently active. But we 5

7 wonder how the Debtor will be expected to navigate the deadlines in the case that starts as a small business case, becomes a non-small business case upon appointment of a trustee and is later converted back to a small business case upon such a finding. The expense, delay and uncertainty associated with seeking such a finding may explain why this relief is rarely if ever sought. 6

8 ABA Business Bankruptcy Committee Small Business Subcommittee Meeting October 9, 2017 Small Business Debtors: (A) Plan Procedures and (B) United States Trustee Oversight Susan K. Seflin Brutzkus Gubner Rozansky Seror Weber LLP Woodland Hills, CA, Expedited Procedures for Plan and Disclosure Statement in Small Business Cases The chapter 11 plan and disclosure statement process can be one of the most expensive and lengthy part of a chapter 11 bankruptcy. In order to attempt to curtail the time and expense of confirming a plan, the Bankruptcy Code and Bankruptcy Rules provide for an expedited process where the court conditionally approves the disclosure statement and the hearing on the final approval of the plan and disclosure statement are combined into one hearing, or where the court determines that a separate disclosure statement is not even necessary. 11 U.S.C. 1125(f) provides as follows for a small business case: (1) the court may determine that the plan itself provides adequate information and that a separate disclosure statement is not necessary; (2) the court may approve a disclosure statement submitted on standard forms approved by the court or adopted under section 2075 of title 28; and (3) (A) the court may conditionally approve a disclosure statement subject to final approval after notice and a hearing; (B) acceptances and rejections of a plan may be solicited based on a conditionally approved disclosure statement if the debtor provides adequate information to each holder of a claim or interest that is solicited, but a conditionally approved disclosure statement shall be mailed not later than 25 days before the date of the hearing on confirmation of the plan; and (C) the hearing on the disclosure statement may be combined with the hearing on confirmation of a plan. Bankruptcy Rule 3016(d) provides that [i]n a small business case, the court may approve a disclosure statement and may confirm a plan that conform substantially to the appropriate Official Forms or other standard forms approved by the court. 1

9 Bankruptcy Rule provides as follows: (a) Conditional Approval of Disclosure Statement. In a small business case, the court may, on application of the plan proponent or on its own initiative, conditionally approve a disclosure statement filed in accordance with Rule On or before conditional approval of the disclosure statement, the court shall: (1) fix a time within which the holders of claims and interests may accept or reject the plan; (2) fix a time for filing objections to the disclosure statement; (3) fix a date for the hearing on final approval of the disclosure statement to be held if a timely objection is filed; and (4) fix a date for the hearing on confirmation. (b) Application of Rule Rule 3017(a), (b), (c), and (e) do not apply to a conditionally approved disclosure statement. Rule 3017(d) applies to a conditionally approved disclosure statement, except that conditional approval is considered approval of the disclosure statement for the purpose of applying Rule 3017(d). (c) Final Approval. (1) Notice. Notice of the time fixed for filing objections and the hearing to consider final approval of the disclosure statement shall be given in accordance with Rule 2002 and may be combined with notice of the hearing on confirmation of the plan. (2) Objections. Objections to the disclosure statement shall be filed, transmitted to the United States trustee, and served on the debtor, the trustee, any committee appointed under the Code and any other entity designated by the court at any time before final approval of the disclosure statement or by an earlier date as the court may fix. (3) Hearing. If a timely objection to the disclosure statement is filed, the court shall hold a hearing to consider final approval before or combined with the hearing on confirmation of the plan. Section 1125 of the Bankruptcy Code and Bankruptcy Rules 3016(d) a are designed to simplify the plan confirmation process though it is important to ensure that the disclosure statement contains adequate information in order to avoid the court denying confirmation and approval of the disclosure statement on that basis. In In re Bellows, 554 B.R. 219 (Bankr. D. Ak. 2016), the bankruptcy court conditionally approved the disclosure statement for two jointly administered small business debtors in accordance with 11 U.S.C. 1125(f)(3). At the combined hearing on the final approval of the disclosure statement and plan confirmation and upon the bank s objection, the bankruptcy court denied confirmation because the disclosure statement did not provide adequate information (even though the court did find that the plan was feasible). Id. at

10 Oversight by the Office of the United States Trustee 28 U.S.C. 586(a)(7) provides that in small business cases, the United States trustee shall. (A) conduct an initial debtor interview as soon as practicable after the date of the order for relief but before the first meeting scheduled under section 341(a) of title 11, at which time the United States trustee shall (i) begin to investigate the debtor s viability; (ii) inquire about the debtor s business plan; (iii) explain the debtor s obligations to file monthly operating reports and other required reports; (iv) attempt to develop an agreed scheduling order; and (v) inform the debtor of other obligations; (B) if determined to be appropriate and advisable, visit the appropriate business premises of the debtor, ascertain the state of the debtor s books and records, and verify that the debtor has filed its tax returns; and (C) review and monitor diligently the debtor s activities, to determine as promptly as possible whether the debtor will be unable to confirm a plan. In other words, a small business debtor is subject to additional oversight by the United States trustee that other chapter 11 debtors are not subject to. While all debtors have an initial debtor interview where the U.S. trustee inquires about the debtor s business plan and explains various obligations, only with a small business debtor is the U.S. trustee required to investigate the debtor s viability. Furthermore, the U.S. trustee shall also review and monitor diligently the debtor s activities, to determine as promptly as possible whether the debtor will be unable to confirm a plan. 28 U.S.C. 586(a)(7)(C). Practitioners should remember this additional oversight by the U.S. trustee in order to prepare the officers of small business debtors to adequately respond to the U.S. trustee s inquiries into viability. 3

11 1. Overview The Statute ABA Business Bankruptcy Committee Small Business Subcommittee Meeting October 9, 2017 Small Business Debtors: Beware The Deadlines Janet E. Bostwick Janet E. Bostwick, PC Boston, MA In 2005, Congress make significant changes to the provisions governing small business debtors. Instead of giving debtors an election, the statute now makes the small business debtor provisions mandatory for those entities that meet the definition. Under Section 101(51D), the small business debtor is an entity (i) that has noncontingent debts of no more than $2,566,050 (excluding affiliate debt); (ii) where no committee has been appointed or the committee is not sufficiently active ; and (iii) is not engaged in the business of ownership and operation of real property. 11 U.S.C. 101(51D). (The dollar amount is subject to adjustment every three years.) Small business debtors get the benefit of an extended exclusivity period. But, the benefit comes with a cost new deadlines on plans and confirmation as well as a heightened standard to obtain extensions of the deadlines. a. Exclusivity Under Section 1121(e) of the Code, a small business debtor has the exclusive right to file a plan for 180 days after the date of the order for relief, unless the court orders otherwise. 11 U.S.C. 1121(e). However, unlike other Chapter 11 cases, there is a higher standard to be met for an extension. The debtor may only obtain an extension after notice and a hearing if the provisions of Section 1121(e)(3) are met, discussed below. b. Plan and Confirmation Deadlines Small business debtors face a deadline to file the plan and disclosure statement not later than 300 days after the order for relief. 11 U.S.C. 1121(e)(2). In addition, under Section 1129(e), the court must confirm a plan within 45 days after the plan is filed. 11 U.S.C. 1129(e). 1

12 c. Extensions The Code sets specific standards that must be met for a small business debtor to get an extension of exclusivity, or the deadlines for filing a plan or obtaining confirmation of a plan. Under Section 1121(e)(3), the time periods can only be extended if the debtor provides notice to parties in interest including the United States Trustee; the debtor demonstrates by a preponderance of the evidence that it is more likely than not the court will confirm a plan within a reasonable time, a new deadline is set when the extension is granted; and the order is signed before the deadline expires. 11 U.S.C. 1121(e)(3). For extensions of exclusivity, the Code also requires that the extension be after notice and a hearing. 11 U.S.C. 1121(e)(1)(A Courts view the statute as requiring strict compliance with the deadlines. The 300 day term is not the exclusivity period, it is an imperative term to file a plan, and non-compliance creates a drop-dead effect that ultimately warps debtor's reorganizational efforts. In re Sanchez, 429 B.R. 393, 398 (Bankr. D.P.R. 2010). Failure to meet the drop dead deadlines for filing a plan or confirming the plan is cause for dismissal or conversion. Id., In re Caring Heart Home Health Corp., Inc., 380 B.R. 908, 911 (Bankr. S.D. Fla. 2008); In re Burgos, 510 B.R. 460, 462 (Bankr. D.P.R. 2014). For many small business debtors, the deadlines loom large and create issues. The deadlines can be unforgiving, even for the diligent debtor. The cases below highlight some of the issues that courts have faced in dealing with the deadlines. 2. When Does The 300 Day Deadline To File A Plan and Disclosure Statement Begin? The statute states that the deadline to file a plan runs from the entry of the order for relief. Despite the language of the statute, some small business debtors argued for a tolling period or different start date. However, courts have typically strictly construed the 300 day filing deadline from the entry of the order for relief. If Congress had intended to provide an exception to the 300 day period's calculation, it could have easily done so. Likewise, Congress could have delineated tolling events for that 300 day period. However, the fact that no such language was included allows this Court to conclude none were intended. In re Burgos, 510 B.R. 460, 462 (Bankr. D.P.R. 2014). 2

13 Courts have held that the 300 day deadline applied: From the date of the original petition, without any additional delay for the 57 days when the case had been dismissed and subsequently reinstated. In re Burgos, 510 B.R. 460, 462 (Bankr. D.P.R. 2014). From the date of the original petition, not the date of conversion, in a case converted from Chapter 13 to Chapter 11. In re Rivera, No , 2013 WL , at *2 (Bankr. D.P.R. July 5, 2013) From the date of the petition, not the date when the debtor was designated a small business debtor. In re Display Group, Inc., No AST, 2010 WL , at *5 (Bankr. E.D.N.Y. Nov. 16, 2010). Since the debtor had failed to initially designate itself as a small business debtor box, the United States Trustee filed an objection under Rule Although the debtor conceded the designation applied, the debtor argued for the deadlines to run from the date of the order changing the designation. The court applied the petition date, finding no distinction in the Code for cases where the designation was subsequently changed. 3. Are There Equitable or Other Arguments To Extend The Deadlines if Missed? Debtors have also argued that courts can exercise their equitable powers to permit an extension that is not in strict compliance with the statute. But, courts have found no basis to exercise such powers. Neither Rule 9006(b) nor some other equitable power of this Court allows the Court to contradict the clear meaning of a statute enacted by Congress. In re Caring Heart Home Health Corp., Inc., 380 B.R. 908, 911 (Bankr. S.D. Fla. 2008). As a result courts have: Declined to grant a motion filed after the deadline on a nunc pro tunc basis, pointing to the express language of the statute. In re Caring Heart Home Health Corp., Inc., 380 B.R. 908, 911 (Bankr. S.D. Fla. 2008). Rejected the argument that additional time can be granted under Section 105. In re Rivera, No , 2013 WL , at *2 (Bankr. D.P.R. July 5, 2013). Declined to find authority under Bankruptcy Rule 9006(b)(1) to extend time after the deadline expired. In re Roots Rents, Inc., 420 B.R. 28, 37 (Bankr. D. ID 2009). 4. Is a Motion Required? Section 1121(e)(3) requires the debtor to provide notice to interested parties including the United States Trustee and Section 1121(e)(3) requires notice and a hearing before an extension of exclusivity. Does the debtor have to file a motion to extend the deadlines for plan confirmation? Some courts have concluded that a request for the extension does not need to be made by motion. Bertram Communications LLC v. Netwurx, Inc., No. 09-CV-1037, 2009 WL , at *3 (E.D. Wis. Nov. 13, Requests for continuation of confirmation, where no objection was raised, have been found to satisfy the Code s requirements: 3

14 The statute does not require the filing of a motion, but simply that the debtor give notice to parties in interest which is sufficient under the particular circumstances. In this case, parties in interest received notice of the debtor's desire to adjourn the confirmation hearing at the time of the hearing and did not raise any opposition. The adjournments were granted based upon representations that progress was being made toward reorganization; again, no party in interest opposed the requests or indicated that the delay was unreasonable. The extensions were approved during the relevant conferences or hearings and memorialized on the docket. In re Mississippi Sports & Recreation, Inc., 483 B.R. 164, (Bankr. W.D. Wis. 2012). However, in both of those cases, the creditor or United States Trustee did not raise the objection until the final confirmation hearing. 5. What Happens If the Objection Is Not Raised Initially? What happens if a party does not raise the objection of the 45 day limit until well into the case? Courts find little favor for late objections, particularly where the other party either consents or doesn t object to the continuations of the confirmation hearing: Bertram Communications LLC v. Netwurx, Inc., No. 09-CV-1037, 2009 WL , at *3 n.7 (E.D. Wis. Nov. 13, 2009). As an alternative to finding the debtor s extension request timely, the court concluded that the creditor had waived its argument by failing to raise the issue on a timely basis. In re Maxx Towing, Inc. 55 B.C.D. 64, 2011 WL (E.D. Mich. 2011). The debtor timely filed its plan, but confirmation was continued several times to address an issue of valuation and the plan was not confirmed within 45 days. After several continuances, the United States Trustee raised an objection based on Section 1129(e). The court noted repeatedly the belated filing by the United States Trustee, and denied the objection. The court concluded that the delays were not due to the debtor s failure to prosecute the case, but the time needed to address valuation issues. In re Mississippi Sports & Recreation, Inc., 483 B.R. 164, (Bankr. W.D. Wis. 2012). The court considered held that the debtor had met the requirements for an extension. But, the court also noted that the creditor had acquiesced to the continuances. 6. What Do You Need To Show For An Extension? Section 1121(e)(3) requires the debtor to demonstrate by a preponderance of the evidence that it is more likely than not that the court will confirm a plan within in a reasonable time. What does the debtor have to show? Courts have required that there be some evidence shown from which the court can find that confirmation within a reasonable amount of time is likely, rejecting a bare bones motion. In re Darby Gen. Contracting, Inc., 410 B.R. 136, 144 (Bankr. E.D.N.Y. 2009). 4

15 But courts do not require a mini- trial or a trial on confirmation issues. In re AMAP Sales & Collision, Inc., 403 B.R. 244, 249 (Bankr. E.D.N.Y. 2009). [T]he question is not so much whether the evidence shows the plan will likely be confirmed, but rather whether the evidence shows that it is unlikely that the debtor will ever get a plan confirmed within a reasonable time. In re JMC Outfitters Co., No C, 2009 WL , at *2 (Bankr. W.D. Tex. May 25, 2009)(emphasis in original). Another court analogized to the standard under Section 362(e) requiring the debtor to show a reasonable possibility to a successful reorganization within a reasonable time. In re Save Our Springs (S.O.S.) Alliance, Inc., 388 B.R. 202, 227 (Bankr. W.D. Tex. 2008), aff'd., No. A-08-CA-727 LY, 2009 WL (W.D. Tex. Sept. 29, 2009), aff'd 632 F.3d 168 (5th Cir. 2011). The court considered the issues as a sliding scale requiring a different level of proof depending on the stage of the case. 7. How Does A New or Amended Plan Affect the Deadlines? Chapter 11 plans are frequently amended or superseded by a new plan. But how does that affect the deadlines imposed by Section 1121(e) and 1129(e)? If a small business debtor files a plan that is not confirmed within 45 days, can the debtor file a new plan before the 300 day deadline? If the debtor timely files the plan before the 300 day deadline, can the debtor file an amended plan or new plan after the deadline? And when does the 45 day period run from the original plan or the amended plan? The answers from the court often depend on the timing, and the nature of the amended or new plan. One court found no reason to dismiss the case where the debtor failed to obtain confirmation within 45 days, permitting the debtor to file a new plan within the 300 day period for filing a plan. In re Crossroads Ford, Inc., 453 B.R. 764, (Bankr. D. Neb. 2011). There is no prohibition on filing more than one plan, and no specific language in 1121 or 1129 mandating dismissal of the case if the first plan is withdrawn or fails to comply with Title 11. Id. Courts have found that amended plans filed after the 300 day deadline were still timely where they related back to the original timely filed plan. In re Florida Coastal Airlines, Inc., 361 B.R. 286, 290 (Bankr. S.D. Fla. 2007); Bertram Communications LLC v. Netwurx, Inc., No. 09-CV-1037, 2009 WL , at *3 (E.D. Wis. Nov. 13, 2009). However, where an amended plan was materially different from the first plan, the amended plan did not relate back to the original plan and the debtor could not file a plan. In re Save Our Springs (S.O.S.) Alliance, Inc., 632 F.3d 168, 176 (5th Cir. 2011); In re Castle Horizon Real Estate, LLC, No JRL, 2010 WL , at *1 (Bankr. E.D.N.C. Sept. 10, 2010). But if an amended plan relates back to the original plan, the debtor may encounter a problem with the 45 day period for confirmation. Courts have held that the 45 day 5

16 period for confirmation ran from the first plan filed, not the amended plan, where the amended plan was not significantly different. In re Save Our Springs (S.O.S.) Alliance, Inc., 388 B.R. 202, 227 (Bankr. W.D. Tex. 2008), aff'd., No. A-08-CA-727 LY, 2009 WL (W.D. Tex. Sept. 29, 2009), aff'd 632 F.3d 168 (5th Cir. 2011) See also In re Star Ambulance Service, LLC, 540 B.R. 251 (Bankr. S.D. Tex ). 8. Can The Debtor Change Its Mind? Can a small business debtor escape the deadlines by changing its designation? And if it does so, is the change retroactive? Under Bankruptcy Rule 1020, the debtor must indicate on the petition whether or not it is a small business debtor. Fed. R. Bankr. P A party in interest can object to the designation within 30 days after the Section 341 meeting or 30 days after any amendment. The status of the case is governed by the debtor s designation unless and until the court enters an order finding that the debtor s statement is incorrect. Fed. R. Bankr. P Bankruptcy Rule 1009 permits a debtor to amend the schedules at any time before the case is closed. But the courts differ on whether they will permit the change, particularly where it is a last minute attempt to avoid the consequences of failure to meet the deadlines of Section Courts consider whether the debtor received a benefit from the designation, or creditors have been prejudiced. Where the debtor benefited from the extended exclusivity and the expedited process, courts have applied the principle of judicial estoppel to prevent the debtor changing the designation to avoid dismissal. In re Save Our Springs (S.O.S.) Alliance, Inc., 632 F.3d 168, 176 (5th Cir The question is not whether or not the debtor is a small business debtor, but whether it can rely on that defense to the motion to dismiss. In re CCT Communications, Inc., 420 B.R. 160, 171 (Bankr. S.D.N.Y. 2009). Other courts have permitted the change where there is an original good faith mistake, and no prejudice to creditors. In re Swartville, LLC, 483 B.R. 453, 457 (Bankr. E.D.N.C. 2012); In re Childs, No. BR , 2010 WL , at *4 (Bankr. D. Utah Dec. 9, 2010). If there is a change in designation, does it apply retroactively (to eliminate the deadlines)? Some courts have held that to avoid dismissal, the debtor must have complied with the deadlines up to the point of changing the designation. In re Dal- Jones Investments, LLC, No SWH, 2012 WL , at *2 (Bankr. E.D.N.C. July 9, 2012); In re Castle Horizon Real Estate, LLC, No JRL, 2010 WL , at *1 (Bankr. E.D.N.C. Sept. 10, 2010). However, other courts found nothing in the rules to preclude the retroactive application and permit the debtor to be excused from the deadlines. In re Childs, No. BR , 2010 WL , at *4 (Bankr. D. Utah Dec. 9, 2010); In re Swartville, LLC, 483 B.R. 453, 457 (Bankr. E.D.N.C. 2012). 6

17 9. Who Does the Deadline Apply To? Does the 300 day deadline for filing a small business debtor plan apply to a plan by a creditor or other party? Courts have held that the deadline does not preclude creditors from filing a plan. In re Simbaki, Ltd., 522 B.R. 917, 921 (Bankr. S.D. Tex. 2014), In re Riviera Drilling & Exploration Co. 502 B.R. 863, 874 (10th Cir. BAP 2013) and In re Florida Coastal Airlines, Inc., 361 B.R. 286, 292 (Bankr. S.D.Fla. 2007). These courts consider the following: There is a distinction between Section 1121(e), which limits the debtor s exclusivity, and Section 1121 (c) which governs a creditor or party in interest s right to file a plan. In re Riviera Drilling & Exploration, Co., 502 B.R. 863, 874 (10th Cir. BAP (Colo.) 2013). The 2005 amendments resulted in a change from a deadline for all plans to a deadline for the plan, implying it only applies to the debtor s plan referenced in Section 1121(e)(1). In re Simbaki, Ltd., 522 B.R. 917, 921 (Bankr. S.D. Tex. 2014). Section 1121(e)(3) also reflects a change from the prior law, since it now permits only the debtor (not a party in interest) to obtain an extension of the deadline. If this applied to creditors plans, then a creditor would be at the mercy of the debtor to obtain any necessary extension. In re Florida Coastal Airlines, Inc., 361 B.R. 286, 292 (Bankr. S.D.Fla. 2007). Where creditors can still file a competing plan, the court may deny a motion to dismiss. In re Shea, Ltd., 545 B.R. 529, 540 (Bankr. S.D. Tex However, where no other party has expressed any interest or filed a plan, the debtor cannot defeat the motion to dismiss on the basis that another party could propose a plan. In re CCT Communications, Inc., 420 B.R. 160, 171 (Bankr. S.D.N.Y. 2009). Does the deadline apply to a jointly administered debtor that is not a small business? At least one bankruptcy court has found that a joint debtor remains bound by the deadlines since the affiliated joint debtor was a small business debtor. In re Shea, Ltd., 545 B.R. 529, 540 (Bankr. S.D. Tex. 2016). 7

18 Speakers Jeffrey P. Bast Bast Amron, PC, Miami, FL, Tel Jeff Bast has been practicing insolvency law for more than 20 years. He represents clients on bankruptcy and bankruptcy avoidance, emphasizing corporate reorganization, workouts, creditors rights, and commercial litigation both in and out of bankruptcy court. He also provides insolvency-related transactional advice and has extensive experience with all aspects of bankruptcy sales and acquisitions. Jeff represents corporate and individual debtors, shareholders, trustees, receivers, indenture trustees and creditors committees, as well as secured and unsecured creditors in complex workouts, reorganizations and liquidations. After law school, Jeff completed two bankruptcy judicial clerkships in Texas and Florida. He then practiced law in the restructuring groups at two international law firms, where he was elevated to equity partner. In 2008, Jeff left the big firm life to start his own practice. In 2009, he founded Bast Amron LLP with his partner Brett Amron. The firm is now widely recognized as one of South Florida s top boutique firms delivering sophisticated advice to an array of clients with complex commercial disputes. Jeff is a frequent speaker and writer both in the U.S. and abroad on topics related to insolvency. Jeff has been recognized by his peers and numerous publications for professional excellence including: Best Lawyers in America, Chambers and Partners, Martindale Hubble, South Florida Legal Guide and Florida Super Lawyers. Jeff is Co- Chair of the Small Business Bankruptcy Subcommittee of the ABA Business Bankruptcy Law Committee. Janet E. Bostwick Janet E. Bostwick, PC, Boston, MA, jeb@bostwicklaw.com, tel For more than 30 years, Janet E. Bostwick has focused her legal practice on financially troubled companies, including Chapter 11 business reorganizations and chapter 7 liquidations as well as out of court workouts and restructuring. She regularly represents debtors, lenders, creditors, committees, and other parties in interest dealing with financially distressed companies. Ms. Bostwick is Co- Chair of the Small Business Bankruptcy Subcommittee of the ABA Business Bankruptcy Law Committee. She is also a member of the American College of Bankruptcy and serves as a trustee of the American College of Bankruptcy Foundation. Throughout her career, Ms. Bostwick has been actively involved in other professional organizations including the Boston Bar Association, the International Women Insolvency and Restructuring Confederation and the American Bankruptcy Institute, serving on committees and in leadership roles as well as being a frequent speaker on bankruptcy issues. Ms. Bostwick earned a J.D. from Cornell Law School and a B.A. in Economics and Mathematics from the State University of New York at Albany. Susan K. Seflin Brutzkus Gubner Rozansky Seror Weber LLP, Woodland Hills, CA, sseflin@bg.law, Tel. (818) Susan K. Seflin s practice involves all aspects of bankruptcy and creditor-debtor rights, with particular emphasis on Chapter 11 reorganizations and related litigation. Ms. Seflin received her B.A. in Economics from University of California Berkeley, an MBA from Pepperdine School of Business and Management and her Juris Doctor from Pepperdine University School of Law in Malibu, California (2000). During graduate school, Ms. Seflin externed for the Hon. Arthur M. Greenwald, U.S. Bankruptcy Judge for the Central District of California. Ms. Seflin was admitted to the California State Bar in June 2001.