Graham & Currie Well Drilling Company, Inc.

UNITED STATES BANKRUPTCY COURT
EASTERN DISTRICT OF NORTH CAROLINA
RALEIGH DIVISION
IN RE:
GRAHAM & CURRIE WELL DRILLING
COMPANY, INC.,
DEBTOR.
CASE NO. 11-04363-8-JRL
CHAPTER 11
ORDER
This matter came before the court on the debtor’s motion for confirmation of its chapter
11 plan. A hearing was held on October 20, 2011 in Raleigh, North Carolina.
The debtor filed a voluntary petition for relief under chapter 11 of the Bankruptcy Code
on June 6, 2011. On September 6, 2011, the debtor filed its proposed chapter 11 plan and
disclosure statement. Pursuant to the proposed plan, the debtor’s principal will retain his equity
interest in the debtor. The plan provides treatment for two classes of creditors; secured creditor
claims make up class 1 and unsecured creditor claims make up class 2. Four Oaks Bank, the
largest class 2 claimant, rejected the debtor’s plan. The debtor’s principal has proposed to pay
$5,000.00 to retain his equity interest.
Section 1129(b) of the Bankruptcy Code allows the court to confirm a chapter 11 plan
despite the fact that not all impaired classes have voted to accept the plan so long as the plan
SO ORDERED.
SIGNED this 01 day of November, 2011.
________________________________________
J. Rich Leonard
United States Bankruptcy Judge
____________________________________________________________
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does not discriminate unfairly and is fair and equitable with respect to each impaired class that
has rejected the plan. 11 U.S.C. §1129(b)(1). A plan is considered “fair and equitable” with
respect to a class of unsecured claims where (1) the plan provides that each holder of a claim in
the class receives or retains property of value equal to the amount of such claim; or (2) the holder
of any claim or interest that is junior to claims of the class will not receive or retain any interest
or property on their junior claims under the plan. 11 U.S.C. §§1129(b)(2)(B)(i)&(ii). The latter
provision is also known as the absolute priority rule. See Case v. Los Angeles Lumber Prods.
Co., 308 U.S. 106, 115 (1939); see also Norwest Bank Worthington v. Ahlers, 485 U.S. 197, 202
(1988) (“the absolute priority rule provides that a dissenting class of unsecured creditors must be
provided for in full before any junior class can receive or retain any property [under a
reorganization] plan.” (internal quotations omitted)). “The Code does not allow confirmation of
a plan over the objection of an unsecured class where the plan affords equity security holders of a
debtor a special right to retain or acquire an equity interest in the reorganized debtor through a
cash contribution.” In re Lumber Exchange Ltd. Partnership, 125 B.R. 1000, 1008 (Bankr.
Minn. 1991).
Here, Four Oaks Bank, the largest general unsecured creditor, has rejected the plan.
Because of the size of the claim, this ballot means that the unsecured class has rejected its
treatment. The plan does not propose providing the unsecured class with the full amount of their
allowed claims. Therefore, the court must assess whether the plan can be confirmed over Four
Oaks Bank’s rejecting vote pursuant to §1129(b)(2)(B)(ii). The plan allows the debtor’s
principal to retain 100% ownership interest unimpaired. The court cannot find that the
principal’s payment of $5,000.00 is sufficient for the principal retaining his equity interest in the
debtor because the appropriate value must be determined by the market. Given the retention of
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the principal’s ownership interest, the court cannot confirm the plan as written because it does
not conform with the requirements of §1129(b).
The court finds that the debtor’s plan satisfies all the requirements under § 1129 except
the absolute priority rule. Based on non-compliance with §1129(b)(2)(B)(ii) as it relates to the
class of unsecured creditors the court DENIES the motion for confirmation. The debtor may file
an amended plan to meet the requirements of §1129. The amended plan may read that at the
original confirmation hearing the unsecured class rejected its treatment under the plan, and to
satisfy the absolute priority rule the principal of the debtor has offered $5,000.00 to retain his
equity interest. The debtor may then re-notice the creditors of the debtor with the amended plan,
and require anyone desiring to pay more than $5,000.00 for the equity interest to notify the court
in writing at least five days before the hearing on confirmation of the amended chapter 11 plan.
If there is no response, the court will find that $5,000.00 is sufficient for the principal to retain
his equity interest. If there is a response, the equity interest will be sold at the confirmation
hearing.
END OF DOCUMENT
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