William L. Whaley and Paula A. Whaley

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
WILLIAM and PAULA WHALEY, 	CASE NO. 09-05130-8-JRL
Chapter 11
Debtors.
IN RE:
WHALEY PARTNERS, a North Carolina 	CASE NO. 09-005121-8-JRL
general partnership, 	Chapter 11
Debtor.
____________________________________________________________________________
ORDER
This case is before the court on the debtors’ motion to establish order and priority of crop
liens, subordinate the lien of Wachovia Bank, N.A. (“Wachovia”) to lien in favor of Guy C. Lee
Manufacturing Company and to grant authority to trustee for execution of necessary documents.
A hearing took place in Raleigh, North Carolina on March 24, 2010.
BACKGROUND
William L. Whaley Jr. and Paula A. Whaley, individuals, and Whaley Partners, a general
partnership (collectively, the “debtors”), filed for protection under Chapter 11 of the Bankruptcy
SO ORDERED.
SIGNED this 01 day of April, 2010.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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1 By consent order entered August 12, 2009, Wachovia was granted a first priority lien on
the beach property in an amount limited to the diminution of value of Wachovia’s interest in its
collateral caused by the debtors’ use of cash collateral.
2
Code on June 22, 2009. After filing, the debtors continued their farming operations. On July 9,
2009, Joseph N. Callaway was appointed trustee in both cases pursuant to 11 U.S.C. § 1104.
Seeking the funding necessary to continue farming operations for the 2010 crop year, the
individual debtors filed a motion for authorization to obtain post-petition financing and grant
post-petition liens and replacement liens on February 26, 2010. A hearing was held on March 1,
2010, along with a follow-up telephonic hearing on March 16, 2010. On both occasions,
Wachovia objected on the ground that, because a trustee was appointed in each of these cases,
the debtors lacked standing to seek post-petition financing. However, the trustee assured the
court of his consent to the debtors’ motion, that the requested financing was in the best interest
of the debtors’ estates, and that the financing sought was in an amount absolutely necessary to
allow the debtors to continue their farming operations through the plan confirmation hearing.
Partly on the basis of the trustee’s assurance, by order dated March 22, 2010 (the “order”), the
court granted the motion in part, allowing the debtors to fund their farming operations for the
2010 crop year by using $250,000.00 of estate funds held by the trustee. The court further
allowed the debtors to borrow $350,000.00 from Ross Lampe secured by a third priority lien on
the 2010 crops and a third priority lien on the individual debtors’ Carteret County beach house
(the “beach property”), pending further hearing to establish Wachovia’s interest in the beach
property. 1
The debtors failed to secure post-petition financing in the manner permitted by the order,
and now seek court approval of an alternative proposal. Specifically, the debtors now wish to
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subordinate the existing deed of trust on the individual debtors’ beach property in favor of
Wachovia to a new first priority deed of trust in favor of Guy C. Lee Manufacturing Company;
the new deed of trust would secure a cash advance of $350,000.00, plus twelve percent interest.
The debtors’ motion also seeks court approval of an advance of up to $800,000.00 by Helena
Chemical Company for “inputs” for the 2010 crop year, to be secured by a first crop lien, and
sets out a proposed order of priority of the 2010 crop proceeds.
DISCUSSION
The court recognizes that § 364 of the Bankruptcy Code allows the trustee to obtain post-
petition financing on behalf of the estate in a Chapter 11 case. See 11 U.S.C. § 364(a),(b).
Section 364(d)(2) further provides that the court may authorize the obtaining of credit and the
incurring of debt secured by a lien senior or equal to existing liens on property of the estate. See
11 U.S.C. § 364(d)(2) (allowing the court to subordinate existing encumbrances, after notice and
a hearing, if the trustee is otherwise unable to obtain credit and if there is adequate protection of
the original lien holder’s interest). Both immediately prior to the hearing on the debtors’ motion
and again at the hearing, however, the trustee informed the court that, regrettably, the debtors’
motion no longer had his support. Accordingly, the court finds that the debtors do not have
standing to seek approval of the post-petition financing proposed in their motion; upon
appointment, the trustee is vested with the sole right to administer the debtors’ estate. See In re
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Bresnick, 406 B.R. 582, 585 (Bankr. E.D.N.Y. 2009).
Based on the foregoing, the debtors’ motion is DENIED.
END OF DOCUMENT
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