Collins A. Mbanugo

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UNITED STATES BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
In re 	No. 08-47449 T
COLLINS A. MBANUGO, 	Chapter 11
Debtor-in-Possession.
____________________________/
MEMORANDUM RE PLAN AND DISCLOSURE STATEMENT
The hearing on the disclosure statement filed by the above-
captioned debtor on March 10, 2009 is scheduled for hearing on
April 16, 2009 at 11:00 a.m. 	A final hearing on a motion for
relief from stay filed by PR Investor Services, Inc. and Meridian
Mortgage Investors Fund VII, LLC (collectively “PR/Meridian”) is
scheduled for May 22, 2009. 	At the preliminary hearing, the Court
advised the debtor that it had taken a quick look at the disclosure
statement and concluded that it could not be approved in its
present form. 	The Court had not at that time had an opportunity to
review the plan and disclosure statement carefully. 	The Court has
Signed: April 13, 2009
________________________________________
LESLIE TCHAIKOVSKY
U.S. Bankruptcy Judge
________________________________________
Entered on Docket
April 14, 2009
GLORIA L. FRANKLIN, CLERK
U.S BANKRUPTCY COURT
NORTHERN DISTRICT OF CALIFORNIA
Case: 08-47449 Doc# 69 Filed: 04/13/09 Entered: 04/14/09 10:30:01 Page 1 of 8

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now read the plan and disclosure statement carefully, and
objections have been filed to the adequacy of the disclosure
statement. 	The Court issues this Memorandum to advise the parties
of its proposed rulings.
A. 	DEFECTS IN DEBTOR’S PLAN
1. 	There is no class created for the debtor’s equity in the
estate. 	The debtor’s equity interest must be classified and the
class designated as unimpaired.
2. 	The proposed treatment of the unclassified IRS claim is
improper. 	Under BAPCPA, such claims must now be paid within five
years from the petition date.
3. 	Paragraph 11.4 on page 13 states that the debtor reserves
the right to seek confirmation notwithstanding the rejection of the
plan by one or more classes of creditors. 	This statement is
misleading. 	Because the plan does not commit to paying unsecured
claims in full with post-petition interest and the debtor is
retaining his equity interest in the estate property, the plan may
not be confirmed over the rejection of Classes J and K.
B. 	DEFECTS IN DEBTOR’S DISCLOSURE STATEMENT
1. 	The liquidation analysis is inadequate. 	The debtor must
list each item of real property and each category of personal
property and estimate the liquidation value of each. 	From each
value, the debtor must deduct, as appropriate, the cost of
liquidation, the secured debt, and the amount of any exemption.
The net liquidation value of each item or category should then be
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totaled and from that deducted the estimated chapter 7 expenses,
next, the estimated chapter 11 expenses, and the estimated priority
claims. 	The balance should then be compared with the estimated
total of unsecured claims. 	The value of any potential lawsuits
must be included in this analysis. 	The discussion should also
disclose the time within which the proceeds of the liquidation are
likely to be distributed. 	This should be compared to the amount
and time frame of the proposed distribution under the plan.
2. 	The feasibility discussion is inadequate. 	It contains no
real factual information, just self-serving expressions of
optimism. 	If the feasibility depends primarily on the debtor’s
future salary from his medical practice, more concrete information
must be provided about the estimated revenues he anticipates
receiving. 	These must be compared to the amounts that he proposes
to pay under the plan. 	If the feasibility of those amounts cannot
be justified based on his recent earnings, justification must be
provided in some other way, e.g., what were his net revenues before
he allowed his medical practice to “drift”?
If the feasibility depends primarily on revenues from the sale
of real property, the disclosure statement should discuss in detail
what efforts the debtor has made to date to sell the real property
and when he expects any sales will be concluded.
Case: 08-47449 Doc# 69 Filed: 04/13/09 Entered: 04/14/09 10:30:01 Page 3 of 8

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C. 	CREDITORS’ OBJECTIONS
1. 	Objections by Alcoa, Inc.
Alcoa objects to approval of the disclosure statement on two
grounds:
a. 	Alcoa objects to the statement in the disclosure statement
that it was a prior owner of the land containing an abandoned
sulfur mine.
The Court has no basis at present to determine whether this
statement is correct or incorrect. 	If the issue is in dispute,
evidence should be provided sufficient to resolve the dispute or
the existence of the dispute should be disclosed in the disclosure
statement.
b. 	Alcoa objects to the disclosure statement on the ground
that it gives the impression that the $420,000 to be paid to
unsecured creditors by the debtor will be sufficient to pay those
claims in full. 	Alcoa notes that the plan provides that the
Remediation Agreement, which the debtor entered into with Alcoa,
will be rejected. 	Alcoa asserts that the rejection claims that
would arise as result of the rejection might exceed $2 million.
This objection has merit and will be sustained. 	The
disclosure statement would have to be amended to eliminate this
false impression and to discuss the anticipated range of the
rejection claims.
2. 	Objections by PR/Meridian
Case: 08-47449 Doc# 69 Filed: 04/13/09 Entered: 04/14/09 10:30:01 Page 4 of 8

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PR/Meridian makes the following objections to the disclosure
statement:
a. 	PR/Meridian contends that the disclosure statement does
not adequately disclose the facts relating to the pre-petition
events leading up to the bankruptcy filing. 	It notes that the
disclosure statement fails to disclose the debtor’s default on
Meridian’s secured claim and the fact that, before filing for
bankruptcy, the debtor filed a state court action and sought a
preliminary injunction of the foreclosure action, which was denied.
It notes that the debtor has also not disclosed whether he is in
default on his other secured obligations.
This objection will be sustained. 	Since the disclosure
statement discloses that the bankruptcy was filed to stop a
foreclosure by PR/Meridian, the failure to expressly disclose a
default is nonmaterial. 	However, the history of the state court
action should be disclosed, and the debtor should disclose whether
he is in default on his other secured obligations and, if so, to
whom and in what amounts.
b. 	PR/Meridian contends that the disclosure statement does
not adequately disclose the facts relating to the debtor’s
activities and condition since filing for bankruptcy. 	It notes
that the only information provided is that the debtor is a surgeon
and is taking steps to increase his medical practice. 	It contends
that more concrete information concerning his income from his
medical practice is necessary. 	It also notes that there is no
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information concerning what progress he has made in obtaining
approvals from the City of Oakland.
This objection overlaps with one of the defects noted by the
Court and will be sustained.
c. 	PR/Meridian contends that the disclosure statement does
not provide an adequate summary of the plan.
The substance of this objection goes to the inadequate
discussion of feasibility. 	Therefore, this objection will not be
sustained as a separate ground.
d. 	PR/Meridian contends that the disclosure statement does
not adequately describe the proposed impairment of Meridian’s
claim. 	It contends that the disclosure statement is unclear as to
whether its claim is impaired. 	According to PR/Meridian, it does
not state whether it will retain its lien, whether additional
collateral will be provided, how it arrived at an 8% interest rate,
and how its interest rate would accrue and/or be paid.
This objection will be overruled. 	The plan states with
sufficient clarity the proposed treatment of the PR/Meridian claim,
including that PR/Meridian will retain its lien. 	The disclosure
statement need not repeat this information and need not disclose
that it does not intend to provide additional collateral. 	The
adequacy of the interest rate is a confirmation issue. 	No
disclosure is required at this time of how the debtor arrived at
this interest rate.
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e. 	PR/Meridian contends that the disclosure statement does
not adequately discuss the feasibility of the plan and that the
liquidation analysis is inadequate.
This objection mirrors the Court’s own notation of defect.
The objection will be sustained.
END OF DOCUMENT
Case: 08-47449 Doc# 69 Filed: 04/13/09 Entered: 04/14/09 10:30:01 Page 7 of 8

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COURT SERVICE LIST
James F. Beiden
Law Offices of James F. Beiden
840 Hinckley Rd. #245
Burlingame, CA 94010
Kelly Woodruff
Farella Braun & Martel LLP
Russ Building, 235 Montgomery St.
San Francisco, CA 94104
Donald H. Cram
Severson & Werson
One Embarcadero Center, Ste. 2600
San Francisco, CA 94111
Case: 08-47449 Doc# 69 Filed: 04/13/09 Entered: 04/14/09 10:30:01 Page 8 of 8