Millwork Specialties, Inc.

1At the hearing, counsel for the Committee noted that since the case had been confirmed,
his motion should have been brought under Section 1112(b) of the Bankruptcy Code as opposed
to Section 1104.
UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
WILMINGTON DIVISION
IN RE:
MILLWORK SPECIALTIES, INC.
DEBTOR
CASE NO. 09-07010-8-RDD
CHAPTER 11
ORDER APPOINTING CHAPTER 11 TRUSTEE
Pending before the Court is the Motion for the Appointment of Chapter 11 Trustee Pursuant
to 11 U.S.C. § 11041 filed by the Unsecured Creditors Committee (the “Committee”) on March 21,
2011 (the “Motion”) and the Response to the Motion for Appointment of Chapter 11 Trustee
Pursuant to 11 U.S.C. § 1104 and Motion for Leave to Modify Plan filed by Millwork Specialties,
Inc. (the “Debtor”) on March 29, 2011 (the “Response”). The Court conducted a hearing in Wilson,
North Carolina on March 30, 2011 to consider the Motion and the Response.
On April 20, 2010, the Court entered an Order Confirming Chapter 11 Plan. The confirmed
plan required that the Debtor pay certain amounts to the unsecured creditors in quarterly payments
SO ORDERED.
SIGNED this 01 day of April, 2011.
________________________________________
Randy D. Doub
United States Bankruptcy Judge
____________________________________________________________
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plus an amount equal to fifty percent (50%) of the net cash flow of the Debtor’s business, after
payment of secured claims and operating costs, over a period of five (5) years.
Two quarterly payments in the amount of $33,750.00 each were made to unsecured creditors.
However, the Debtor failed to make its January 15, 2011 payment. Pursuant to the Motion, the
Committee alleges that the Debtor is selling its assets and winding down its affairs. The Committee
contends that the Debtor’s involvement with the sale of its assets will yield a higher return for
creditors but believes that a Chapter 11 Trustee should be appointed to oversee liquidation, possible
conversion to Chapter 7, and payment of claims in accordance with the Bankruptcy Code.
The Response admits that the Debtor was unable to make its January 2011 payment to the
unsecured creditors. Furthermore, it recognizes that the Debtor intends to wind down its business
and liquidate its assets. However, the Debtor contends that the principals of the Debtor have been
more than cooperative throughout this case and could efficiently and properly conduct the orderly
liquidation of its assets and achieve the best possible return without the additional cost of a Chapter
11 Trustee.
Russell Worley testified that the Debtor has a few outstanding orders to complete that would
generate approximately $6,000.00 - $8,000.00 in sales. At the present time, he has two employees
who are manufacturing the doors for the orders and completing deliveries. Mr. Worley and his
accounting assistant are not receiving a salary at this time. He testified that the monthly operating
expenses are $10,000.00. This amount includes the monthly rent for the building where the Debtor
operates its business. This building is owned by Red Hill Properties, LLC, an entity owned by
Russell Worley and Brenda Worley.
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Mr. Worley testified that he and his father, Emory Worley, made several loans to the Debtor
since confirmation in order to cover the Debtor’s operating expenses. The Debtor did not execute
a promissory note in connection with these purported loans made by insiders. 	Furthermore,
throughout the history of this case, extensive testimony was presented about funds provided to the
Debtor by Mr. Worley.
Mr. Worley stated that he had received some offers for certain equipment and inventory and
that he would cooperate with a Chapter 11 Trustee to liquidate the assets. One of those offers was
from Myrtle Beach Building Supply, a company that previously had a partnership with the Debtor
and Southeast Building Supply, which also recently closed its doors.
Mr. Worley also testified that some of the inventory of the Debtor was being stored at a
building owned by Red Hill Properties, LLC. He stated that this real property was under a contract
for sale and that the inventory would need to be removed from this location.
Subsection (b) of Section 1112 of the Bankruptcy Code was clarified by technical
amendments effective December 22, 2010. See Bankruptcy Technical Corrections Act of 2010, Pub.
L. 111-327, 124 Stat. 3557 (Dec. 22, 2010). Section 1112(b)(1) now provides:
Except as provided in paragraph (2) and subsection (c), on request of a party in
interest, and after notice and a hearing, the court shall convert a case under this
chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is
in the best interests of creditors and the estate, for cause unless the court determines
that the appointment under section 1104(a) of a trustee or examiner is in the best
interests of creditors and the estate.
The change in the statute eliminated the defense of unusual circumstances. In re Landmark
Atlantic Hess Farm, LLC, 2011 Bankr. LEXIS 739 (Bankr. Md. March 3, 2011). Unless the specific
circumstance as described in Sections 1112(b)(2) or 1112(c) apply, the court shall dismiss or convert
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the case, or appoint a chapter 11 trustee or an examiner upon the showing of cause. Landmark, 2011
Bankr. LEXIS 739 * 6.
Examples of cause are set forth in Section 1112(b)(4). Section 1112(b)(4)(A) provides that
cause for dismissal or conversion could be “substantial or continuing loss to or diminution of the
estate and the absence of a reasonable likelihood of rehabilitation.”
There is no question that the Debtor is in default under the confirmed plan. Mr. Worley
testified that he has begun liquidating the Debtor’s assets and soliciting offers for the sale of other
assets. Furthermore, the Debtor’s monthly operating expenses are in excess of revenues thereby
reducing assets of the Debtor.
Since the petition was filed, Russell Worley has made two loans to the Debtor, one loan for
$14,726.00 and a second loan for $87,000.00 for payroll costs. In addition, Emory Worley has also
loaned the Debtor funds in the amount $41,000.00. Based on the Response filed by the Debtor, the
Worleys have loaned the Debtor $65,800.00 since the confirmation of this case.
The Debtor recognizes that it has no likelihood of reorganization and seeks to modify its
confirmed plan such that it could liquidate its assets. The Court believes that given the number of
insider transactions and the continued diminution of the estate, cause exists for the appointment of
a Chapter 11 Trustee and the appointment is in the best interest of creditors.
Therefore, based on the pleadings filed in this case and the evidence presented, the Court
finds that the appointment of a Chapter 11 Trustee is appropriate in this case. The Court having
considered the testimony presented and for good cause shown, hereby appoints Stephen L. Beaman,
Esquire, of Wilson, North Carolina as Chapter 11 trustee pursuant to 11 U.S.C. § 1112.
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Furthermore, Mr. Beaman shall exercise all the powers and duties of a trustee pursuant to
11 U.S.C. § 1106(a).
SO ORDERED.
END OF DOCUMENT
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