AMAP Sales & Collision, Inc.

UNITED STATES BANKRUPTCY COURT 	FOR PUBLICATION
EASTERN DISTRICT OF NEW YORK
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In re:
AMAP SALES & COLLISION, INC., 	Chapter 11 Case
d/b/a AMAP COLLISION, 	No. 08-71853 (AST)
Debtor.
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MEMORANDUM OPINION AND ORDER EXTENDING DEBTOR’S TIME
TO CONFIRM A PLAN OF REORGANIZATION
APPEARANCES:
Larry I. Glick, Esq.
1500 Miami Center
201 S. Biscayne Boulevard
Miami, FL 33131
Tel: (305) 379-9180
United States Trustee
Diana G. Adams
Stan Yang
Office of the United States Trustee
The Alfonse M. Damato U.S. Courthouse
560 Federal Plaza - Room 560
Central Islip, NY 11722-4437
Issues Before the Court and Summary of Ruling
Debtor, AMAP Sales & Collision, Inc. (“AMAP” or “Debtor”), has filed a
Motion (the “Motion”) seeking an Order extending its time to obtain confirmation
of its plan of reorganization (the “Plan”). The Motion is brought pursuant to
Sections 1121(e)(3) and 1129(e) of the Bankruptcy Code. Debtor seeks an
extension of time to confirm a plan of reorganization until December 31, 2009,
without prejudice to seeking further extensions of time. For the reasons herein,
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the Motion is granted.
Jurisdiction
This Court has jurisdiction over this core proceeding pursuant to 28 U.S.C.
§§ 157(b)(2)(A)and (L), and 1334(b), and the Standing Order of Reference in
effect in the Eastern District of New York.
Findings of Fact and Conclusions of Law
The Court makes the following findings of fact and conclusions of law, in
accordance with Rule 7052 of the Federal Rules of Bankruptcy Procedure.
Procedural History
Debtor filed a petition for relief under Chapter 11 with this Court on April
15, 2008 (the “Petition Date”). Debtor made a timely election to be treated as a
“small business debtor” within the meaning of Section 101(51D) of the
Bankruptcy Code. The election was made as a part of debtor’s voluntary
petition. [dkt item 1]
Debtor timely filed its small business Plan and small business Disclosure
Statement on February 9, 2009. [dkt items 38, 39]
Debtor filed the Motion on February 20, 2009. [dkt item 41] Notice of the
Motion was properly given to all scheduled creditors, all creditors filing proofs of
claim, all parties filing a notice of appearance in this case, and the United States
Trustee (the “US Trustee”).
Debtor filed an Affidavit of Michelle E. Espey in support of the Motion on
March 8, 2009 (the “Espey Affidavit”). [dkt item 43]
A hearing was held on the Motion on March 6, 2009. The hearing was
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attended by Debtor, through its principal, Nicolas Cosmo (“Cosmo”), and its
counsel, as well as by the US Trustee. No objection was filed to the Motion.
Also, no opposition was expressed against the Motion at the hearing. Cosmo
testified in support of the Motion.
The Debtor’s primary creditor is the New York State Department of
Taxation and Finance (“NYS Tax”). Debtor’s Plan proposes, inter alia, to pay
NYS Tax over five (5) years. Debtor’s obligation to NYS Tax is unliquidated and
is the subject of an audit being conducted by NYS Tax. Debtor testified that it
will, if necessary, supplement its operating revenues with non-debtor sources of
cash.
To better assess the Plan’s feasibility, the Court directed that Debtor
supplement its evidence in support of its Motion with projections setting out the
Debtor’s anticipated profits and losses, and sources and uses of cash to make
the projected payments to creditors, including NYS Tax. Debtor timely filed these
projections on March 19, 2009 (the “Projections”). [dkt item 47]
Legal Analysis
Debtor is a “small business debtor” within the meaning of Section
101(51D) of the Bankruptcy Code. In the 2005 amendments to the Bankruptcy
Code, 1 Congress added certain specific, time-sensitive provisions for small
1 Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (“BAPCPA”), Pub.L. No.
109-8, 119 Stat. 23 (2005).
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business debtors seeking to confirm a plan or reorganization. 2 In Section
1121(e)(1), the Code addresses the small business debtor’s time to file a plan
and disclosure statement, by first providing that only the debtor may file a plan for
the first one hundred and eighty (180) days after the date of the order for relief,
but that the debtor must file a plan within three hundred (300) days. Under
Section 1121(e)(2), the 180-day exclusivity period may be extended for cause,
but only to a date which is no more than 300 days after the date of the order for
relief.
Regardless of the date on which the plan is filed, the Court must confirm
an appropriate plan within forty-five (45) days after filing, pursuant to Section
1129(e), which provides as follows:
[i]n a small business case, the court shall confirm a plan that complies with
the applicable provisions of this title and that is filed in accordance with
section 1121(e)(3) not later than 45 days after the plan is filed unless the
time for confirmation is extended in accordance with section 1121(e)(3).
28 U.S.C. §1129(e).
Moreover, Section 1121(e)(3) provides as follows:
(3) the time periods specified in paragraphs (1) and (2), and the time fixed
in section 1129( e) within which the plan shall be confirmed, may be
extended only if-
(A) the debtor, after providing notice to parties (including the United
2 The Bankruptcy Code and Rules also contain specific provisions governing approval of a
disclosure statement in a small business case. Under Section 1125(f), the Court may dispense with a
separate hearing on a disclosure statement by, inter alia, “finding that the plan itself provides adequate
information and that a separate disclosure statement is not necessary” (§ 1125(f)(1)), or by conditionally
approving a disclosure statement “on application of a plan proponent,” subject to final approval in
conjunction with the hearing on confirmation of the plan. § 1125(f)(3); Bankruptcy Rule 3017.1. Adequacy
of a small business disclosure statement is addressed in In re J.D. Mfg., Inc., No. 07-36751, 2008 WL
4533690 (Bankr. S.D. Tex. Octo. 2, 2008).
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States trustee), demonstrates by a preponderance of evidence that it is
more likely than not that the court will confirm a plan within in a reasonable
amount of time;
(B) a new deadline is imposed at the time the extension is granted; and
(C) the order extending the time is signed before the existing deadline
has expired.
28 U.S.C. §1121(e)(3).
Limited case law has developed interpreting Section 1121(e)(3), and,
specifically, the evidence required for the Court to find by “a preponderance of
evidence that it is more likely than not that the court will confirm a plan within in a
reasonable amount of time.” In certain circumstances, the Court has denied the
request, such as in In re Safeguard-RX, Inc., Slipcopy, No. 08-31552-H3-11,
2009 WL 249767 (Bankr. S.D. Tex. Feb. 2, 2009):
The 	plan 	as 	proposed 	does 	not 	address 	resolution 	of 	the 	disputes
between Debtor and its landlord. The disclosure statement filed in the
instant case lacks any indication of any sort of financial planning on the
part of Debtor for its existence as a reorganized Debtor post-confirmation,
other than a hope that Debtor will be able to resolve its difference with its
landlord and/or move to a new location. In a small business case, the
Debtor and Debtor's counsel must move expeditiously to ensure that the
deadlines under the Bankruptcy Code are met. The court concludes that
the instant motion should be denied.
In re Safeguard-RX, Inc., 2009 WL 249767 at *2.
In a case involving a hearing on confirmation combined with an extension
request, after a lengthy trial and in an exhaustive analysis, Judge Gargotta of the
Austin, Texas, bankruptcy court denied the extension request:
However, as explained in detail below, after considering all of the evidence
presented during the entire five-day hearing, the Court finds that the
Debtor failed to provide sufficient evidence that confirmation of the First
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Amended Plan is more likely than not, given the Court's ruling that
confirmation of that Plan is denied. Accordingly, to that extent the Motion
to Extend Time will be denied.
In re Save Our Springs (S.O.S.) Alliance, Inc., 388 B. R. 202, 229 (Bankr. W.D.
Tex. 2008).
Furthermore, where the debtor fails to appear for the hearing on the
extension request or fails to submit any evidence in support of the motion, the
court should deny the request:
[T]he debtor failed to appear and also failed to file any documents in
support of such an extension. As a consequence and as required by 11
U.S.C. § 1121(e)(3), no evidence meeting the preponderance standard
having been submitted, the court entered an Order denying extension of
confirmation deadline [-].
In re Luther, No. 066-16303DK, 2007 WL 1063008 *2 (Bankr. D. Md. Mar. 22,
2007).
In this Court’s view, the plain language of Section 1121(e)(3) requires the
Court find by a preponderance of evidence that it is more likely than not that the
court will confirm a plan within a reasonable amount of time, not necessarily the
plan which is before the Court at the time of hearing on the extension motion.
Certainly, small business debtors should have the flexibility to modify their plans
pursuant to Section 1127, as circumstances of the dynamic chapter 11 process
allow or dictate. Further, while this Court agrees that a small business debtor
and counsel must move expeditiously, circumstances outside the control of the
debtor and counsel can, as is occurring in this case, make adherence to the
unextended deadlines extremely difficult or even impossible.
Finally, as with a motion to approve a compromise of controversies, where
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the debtor or trustee is not required to put on a “mini trial” demonstrating the
strengths and weaknesses of the claims being compromised, the debtor is not
required to put on a confirmation trial in order to obtain an extension of time to
obtain confirmation. It is well settled that “bankruptcy courts in this circuit may
only approve a proposed settlement after an independent determination that it
does not ‘fall below the lowest point in the range of reasonableness.’ ”
Resolution Trust Corp. v. Best Prods. Co. (In re Best Prods. Co.), 177 B.R. 791
(S.D.N.Y.1995), aff'd, 68 F.3d 26 (2d Cir.1995); In re Stanwich Fin. Servs. Corp.,
377 B.R. 432, 436 (Bankr. D. Conn. 2007); In re Raytech Corp., 261 B.R. 350,
360 (Bankr. D. Conn. 2001). In order to make such a determination, the court
must evaluate “the fairness of the terms of the compromise” and “form an
educated estimate of the complexity, expense, and likely duration of [any
unsettled] litigation, the possible difficulties of collecting any judgment which
might be obtained, and all other factors relevant to a fair and full assessment of
the wisdom of the proposed compromise.” Protective Comm. for Indep.
Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414, 424-25
(1968). “In applying that standard the bankruptcy court does not need to conduct
a ‘mini trial’ of the merits of the claims underlying the controversy being settled.”
Raytech, 261 B.R. at 360 (citing In re W.T. Grant Co., 699 F.2d 599, 608 (2d Cir.
1983)).
To require the Court to conduct a trial on confirmation in order for a debtor
to obtain an extension of time under Section 1121(e)(3) would seem to be at
cross purposes with the small business sections, which provide methods to
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streamline the efficiency and reduce the costs of the Chapter 11 process for
small businesses, while at the same time increasing judicial oversight of the
process. Prior to enacting BAPCPA, Congress stated: “With respect to business
bankruptcy, S. 256 includes several significant provisions intended to heighten
administrative scrutiny and judicial oversight of small business bankruptcy cases,
which often are the least likely to reorganize successfully.” Bankruptcy Abuse
Prevention and Consumer Protection Act of 2005, Report of the Committee on
the Judiciary, House of Representatives, House Report No. 109-31, Pt. 1, 109th
Cong, 1st Session 92 (2005) (the “Report”).
In that Report, Congress further stated as follows:
Most chapter 11 cases are filed by small business debtors. Although the
Bankruptcy Code envisions that creditors should play a major role in the
oversight of chapter 11 cases, this often does not occur with respect to
small business debtors. The main reason is that creditors in these smaller
cases do not have claims large enough to warrant the time and money to
participate actively in these cases. The resulting lack of creditor oversight
creates a greater need for the United States trustee to monitor these
cases closely. Nevertheless, the monitoring of these debtors by United
States trustees varies throughout the nation. S. 256 addresses the special
problems presented by small business cases by instituting a variety of
time frames and enforcement mechanisms designed to weed out small
business debtors who are not likely to reorganize. It also requires these
cases to be more actively monitored by United States trustees and the
bankruptcy courts.
Report, p. 19.
In this case, the US Trustee served the role Congress intended by
participating in the hearing on the Motion and expressing its lack of opposition to
the extension. The Court has fulfilled its function by closely reviewing the
evidence submitted by Debtor.
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Thus, although a debtor seeking the Section 1121(e)(3) extension of time
must put on evidence from which the Court can determine whether the Court will
confirm a plan within in a reasonable amount of time, the Court need not conduct
a trial on confirmation.
In this case, Debtor is in the business of auto and truck collision repair and
painting, and is one of the few auto body shops on Long Island that is equipped
to handle fleet accounts. Cosmo has been the president of the Debtor for
approximately thirty (30) years. Debtor has twelve full-time employees and
approximately five independent contractors.
During its most recent year of operations, Debtor generated gross
revenues in excess of $1,600,000. Within the last six months, Debtor’s business
has expanded to include the painting of aircraft. Moreover, Debtor has operated
profitably since the filing of its chapter 11 petition, and its monthly operating
reports reflect post-petition operating income through January 2009 in an amount
in excess of $80,000, after payment of statutory fees to the US Trustee.
Although it was operating profitably, Debtor filed for Chapter 11 relief
because of a dispute with NYS Tax regarding unpaid sales tax. Prior to filing,
Debtor and NYS Tax tentatively agreed to an offer in compromise to settle the
sales tax claim (the “Offer in Compromise”). However, this Offer in Compromise
was deemed withdrawn by NYS Tax upon its subsequent commencement of a
sales tax audit of Debtor for the period from March 2004 through February 2007
(the “Audit”).
The Audit has continued post-petition and remains pending. Debtor has
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provided NYS Tax with more than 6,000 pages of documents in connection with
the Audit.
On February 9, 2009, Debtor timely filed its proposed Plan and an
accompanying disclosure statement (the “Disclosure Statement”). 	The Plan
proposes to pay NYS Tax’s secured and priority claims in full within five years
after the effective date of the Plan (the “Effective Date”), with interest at 2.5
percent.
The Plan proposes to pay general unsecured creditors in full, without
interest, within six years after the Effective Date.
Debtor proposes that the funding for the Plan come from three sources:
(a) cash on hand as of the Effective Date; (b) cash generated by future
operations; and (c) funds contributed by Cosmo or entities or persons related to
Cosmo.
Debtor presently has on hand in excess of $30,000, which is available to
fund payments required under the Plan.
Potential non-debtor sources funding for the Plan include: (a) a mortgage
loan to be secured by the building housing Debtor’s operations, which building is
owned by a company controlled by Cosmo; (b) a mortgage loan to be secured by
Cosmo’s personal residence; and (c) a reverse mortgage loan to be secured by
the residence of Cosmo’s mother.
The Court requested the Projections largely due to the fact that the
Disclosure Statement does not identify the amount of NYS Tax’s claim to be paid
under the Plan. NYS Tax has filed a claim against Debtor in the aggregate
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amount of $1,256,373.33 (the “NYS Tax Claim”). Debtor has filed an objection to
the NYS Tax Claim (the “Claim Objection”), which remains pending. In the
exercise of its business judgment, Debtor does not intend to pursue the Claim
Objection until the Audit is concluded. Following the conclusion of the Audit,
Debtor intends to resubmit the Offer in Compromise and negotiate the allowed
amount of the NYS Tax Claim.
The Projections indicate that, even without obtaining funding from any
third party source, Debtor should be able to make the payments required under
the Plan if the NYS Tax Claim is reduced to a number comparable to the pre-
petition Offer in Compromise. Debtor acknowledges that confirmation of the Plan
is dependent upon Debtor’s ability to reduce the NYS Tax Claim to an amount
that is comparable to the Offer in Compromise.
Certainly, Debtor has complied with the timing mechanics and procedural
requirements created by the Bankruptcy Code and Rules. Debtor timely filed its
Plan and Disclosure Statement within the 300-day period prescribed by Section
1121(e)(2) of the Bankruptcy Code. Debtor timely filed its Motion seeking an
extension of the time to confirm the Plan within the 45 day period set forth in
Section 1129(e) of the Bankruptcy Code.
Because of the pendency of the Audit and the resulting uncertainty
concerning the allowed amount of the NYS Tax Claim, Debtor is unable to
confirm the Plan within the 45 day period set forth in Section 1129(e) of the
Bankruptcy Code.
Debtor asserts that it has established that it can reduce the NYS Tax
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Claim to an amount comparable to the Offer in Compromise. However, this
Court does not make that finding, as it does not have before it the record of the
Audit, nor is this matter a hearing on the NYS Tax Claim. 	Further, this Court
need not make that finding, as this Court does not need to find that Debtor can
confirm the filed Plan, only that it can confirm a Plan. Although Debtor has filed a
claim objection to the NYS Tax Claim, and/or could file for a determination of tax
liability under Section 505, the Debtor has exercised its business judgment and
determined to allow the Audit to continue and run its course. If the Audit results in
a proposed liability higher than Debtor has proposed to pay, and/or results in an
agreed treatment for the NYS Tax Claim that is different than the current Plan,
Debtor can seek to amend its Plan. If the Audit yields an unmanageable claim,
Debtor can seek to dismiss or convert this case.
However, based upon the evidence presented, consisting of the Cosmo
testimony, the Espey Affidavit, and the Projections, Debtor has demonstrated by
a preponderance of the evidence that it is more likely than not the Court will
confirm a plan of reorganization within a reasonable time.
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ORDER
Based upon the foregoing findings of fact and conclusions of law, the
Court hereby Orders that the time for Debtor to confirm a plan of reorganization
is extended to December 31, 2009, without prejudice to seeking further
extensions of such time upon proper motion requesting such relief.
Dated:Central Islip, New York
March 25, 2009
/s/ Alan S. Trust
Hon. Alan S. Trust
United States Bankruptcy Judge
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