11/15/2007 306 Support Document Exhibit 108, filed by Pro Plas LLC (RE: related document(s)292 Support Document,,,, filed by Creditor Pro Plas LLC). (Case, E.) (Entered: 11/15/2007)
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Doc 306
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Support Document Exhibit 108
In Re: Case No. 07-50935
Judge William Howard
Chapter 11
PRO MOLD, INC.,
Debtor.
MOTION BY THE MURPHY ENTITIES TO CONVERT CASE TO A PROCEEDING UNDER CHAPTER 7
Creditors the John P. Murphy, III Revocable Trust No. 1; Pro Plas, LLC, a Missouri limited liability company; 10315, LLC, a Missouri liability company; and John P. Murphy, III (collectively the "Murphy Entities"), pursuant to 11 USC § 1112, move to covert this Chapter 11 proceeding to a Chapter 7 proceeding. In support of this motion the Murphy Entities respectfully state:
Jurisdiction
1. The Court has jurisdiction over this matter pursuant to 28 U.S.C. § 1334 and 28 U.S.C. §157.
2. This matter is a core proceeding under 28 U.S.C. §157(b)(2)(A).
Pro Mold's Bankruptcy Filing
3. On May 16, 2007 Debtor Pro Mold, Inc. ("Debtor Pro Mold"), filed its Voluntary Chapter 11 Petition for Relief in the United States Bankruptcy Court for the Eastern District of Kentucky, Lexington Division ("Court").
4. Debtor Pro Mold continued to operate its business and manage its financial affairs pursuant to Sections 1107 and 1108 of the Bankruptcy Code from May 16, 2007 until October 3, 2007, under the Control of James N. Turek, Sr., Debtor Pro Mold's President during this period.
Appointment of a Chapter 11 Trustee
5. On August 9, 2007, the Office of the United 'States Trustee filed its Motion for Appointment of a Chapter 11.
6. Shortly afterward, the Murphy Entities filed their own Motion for Appointment of a Chapter 11 Trustee.
7. On October 3, 2007, this Court conducted an evidentiary hearing and sustained the motions of the United States Trustee and the Murphy Entities for the Appointment of a Chapter 11 Trustee.
8. The Office of the United States Trustee appointed Kenneth Henry to serve as the Chapter 11 Trustee ("Trustee").
9. However, even with the appointment of a Chapter 11 Trustee, Debtor Pro Mold continues to struggle and its financial condition continues to deteriorate.
10. The damage to Debtor Pro Mold prior to the appointment of the Trustee makes conversion to Chapter 7 necessary.
Legal Authority for Conversion
11. 11 U.S.C. Section 1112 provides in part:
(b)(1) Except as provided in paragraph (2) of this subsection, subsection (c) of this section, and section 1104(a)(3) [11 USCS §1104(a)(3)], on request of a party in interest, and after notice and a hearing, absent unusual circumstances specifically identified by the court that establish that the requested conversion or dismissal is not in the best interests of creditors and the estate, the court shall convert a case under this chapter [11 USCS §§ 1101 et seq.] to a case under chapter 7 [11 USCS §§ 701 et seq.] or dismiss a case under this chapter [11 USCS §§ 1101 et seq.], whichever is in the best interests of creditors and the estate, if the movant establishes cause.
12. Cause is defined under 11 U.S.C. Section 1112 as follows:
(4) For purposes of this subsection, the term "cause" includes--
Motion to Convert Case to Chapter 7 v3.doc
(A) substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation;
(B) gross mismanagement of the estate;
(C) failure to maintain appropriate insurance that poses a risk to the estate or to the public;
(D) unauthorized use of cash collateral substantially harmful to 1 or more creditors;
(E) failure to comply with an order of the court;
(F) unexcused failure to satisfy timely any filing or reporting requirement established by this title or by any rule applicable to a case under this chapter [11 USCS §§ 1101 et seq.];
(G) failure to attend the meeting of creditors convened under section 341(a) [11 USCS § 341(a)] or an examination ordered under rule 2004 of the Federal Rules of Bankruptcy Procedure without good cause shown by the debtor;
(H) failure timely to provide information or attend meetings reasonably requested by the United States trustee (or the bankruptcy administrator, if any);
(I) failure timely to pay taxes owed after the date of the order for relief or to file tax returns due after the date of the order for relief;
(J) failure to file a disclosure statement, or to file or confirm a plan, within the time fixed by this title or by order of the court;
(K) failure to pay any fees or charges required under chapter 123 of title 28 [28 USCS §§ 1911 et seq.];
(L) revocation of an order of confirmation under section 1144 [11 USCS § 1144];
(M) inability to effectuate substantial consummation of a confirmed plan;
(N) material default by the debtor with respect to a confirmed plan;
(0) termination of a confirmed plan by reason of the occurrence of a condition specified in the plan; and
(P) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition.
Cause for Conversion to Chapter 7
13. During the time that Debtor Pro Mold operated as a Debtor in Possession, more than $100,000 was lost due to unauthorized disbursements, which directly violated the Orders of this Court.
14. Moreover, days before its bankruptcy filing, Debtor Pro Mold transferred $100,000 to LexReal Co., LLC, an entity controlled by James N. Turek, Sr.
15. While appoint of the Trustee stopped the misappropriation of funds, it is not the only problem that plagued Debtor Pro Mold in these proceedings.
16. While in Chapter 11, Debtor Pro Mold has not filed any of its monthly operating reports on time.
17. While in Chapter 11, Debtor Pro Mold has not filed operating reports for July, August, or September 2007.
18. While in Chapter 11, Debtor Pro Mold has not filed its 2006 federal or state income tax returns.
19. While in Chapter 11, Debtor Pro Mold did not file a Chapter 11 Plan and Disclosure Statement within 120 days of filing its bankruptcy.
20. While Debtor Pro Mold eventually filed a Chapter 11 Plan and Disclosure Statement, after the expiration of the 120-day deadline, the Plan and Disclosure statement does not contain any projections and is not viable.
21. While in Chapter 11, Debtor Pro Mold allowed the lease on its factory in St. Louis to be rejected by operation of law.
22. While in Chapter 11, Debtor Pro Mold repeatedly violated this Court's Chapter 11 Operating Order and Cash Collateral Order.
Ability of Pro Mold to Reorganize
23. Even with the appointment of the Chapter 11 Trustee and the cooperation of the Murphy Entities, Debtor Pro Mold's ability to reorganize in Chapter 11 is not reasonably possible.
24. Debtor Pro Mold's cash and accounts receivable have steadily declined during the course of this case.
25. Debtor Pro Mold's ability to obtain raw materials and pay its day to day operating expenses is severely limited.
26. Debtor Pro Mold continues to lose money and erode its asset base to meet its operating expenses and other post petition obligations.
Pro Mold is Administratively Insolvent
27. Debtor Pro Mold is administratively insolvent.
28. Debtor Pro Mold's legal fees, prior to the appointment of the Chapter 11 Trustee, are at least $200,000.
29. The fees for the Chapter 11 Trustee and his professionals will likely equal that amount if this case continues in Chapter 11.
30. The legal fees for the Murphy Entities already surpass $200,000 and continue to grow.
31. The situation is compounded by Debtor Pro Mold's recent receipt of its personal property tax and real estate tax bills for 2007, which are due on or before December 31, 2007.
32. Pro Mold's personal property and real estate tax liability is in excess of $90,000.
33. Pro Mold has no ability to meet any of these administrative expense obligations.
34. If this case continues in Chapter 11, the administrative costs alone will be more than $600,000 by year-end.
35. Even under ideal circumstances, Debtor Pro Mold's ability to shoulder these administrative costs is questionable.
36. In the present situation its ability to carry these administrative costs is impossible.
Authorization to Operate Business Pursuant to 11 U.S.C. X721
37. If this Court converts this case to a proceeding under Chapter 7, the Murphy Entities respectfully request authorization from this Court to allow the Trustee to operate Debtor Pro Mold's business pursuant to 11 U.S.C. §721.
38. Upon conversion the Murphy Entities intend to make an offer to buy all of the operating assets of Debtor Pro Mold pursuant to 11 U.S.C. §363, provided Debtor Pro Mold continues as a "going concern."
39. The Murphy Entities offer will, of course, be subject to higher and better offers from any other party interested in buying the operating assets of Debtor Pro Mold. 40, 11 USC §721 provides:
The court may authorize the trustee to operate the business of the debtor for a limited period, if such operation is in the best interest of the estate and consistent with the orderly liquidation of the estate.
41. Remarkably, despite the economic adversity faced by Debtor Pro Mold, its customers remain loyal.
42. Few, if any, customers have abandoned Debtor Pro Mold.
43. This loyal customer base is Debtor Pro Mold's single largest asset and gives the company "going concern value."
44. Preserving that value is essential to maximizing the estate's recovery on Debtor Pro Mold's business.
45. If Pro Mold is converted and closed the customers will have no choice but to reclaim their injection molds and move to a competitor of Debtor Pro Mold.
46. Pro Mold must continue to operate to keep its customers and retain its "going concern value."
47. Authorizing the Trustee to operate Debtor Pro Mold's business while the Trustee conducts a sale of Debtor Pro Mold pursuant to 11 U.S.C. §363 is in the best interest of the estate and consistent with the orderly liquidation of the estate.
Conclusion
48. Debtor Pro Mold is unable to effectively reorganize in Chapter 11.
49. No purpose is served by allowing Debtor Pro Mold to continue in Chapter 11.
50. Cause exists for conversion to Chapter 7.
51. Conversion to Chapter 7 is in the best interest of the estate and the creditors.
52. Allowing the Trustee to operate Debtor Pro Mold pursuant to 11 USC §721, while Debtor Pro Mold is sold pursuant to 11 U.S.C. §363, is in the best interest of the estate and consistent with the orderly liquidation of the estate.
WHEREFORE, the Murphy Entities respectfully request that this Honorable Court:
(i) order the conversion of this case to a proceeding under Chapter 7;
(ii) authorize the Trustee to operate Debtor Pro Mold pursuant to 11 USC §721, while Debtor Pro Mold is sold pursuant to 11 U.S.C. §363; and
(iii) award the Murphy Entities such other and further relief as this Court deems just and proper.
NOTICE OF HEARING
Please take notice that the foregoing shall come on for a hearing before the Bankruptcy Court for the Eastern District of Kentucky, Lexington Division on November 19, 2007 at 2:00 p.m. or as soon thereafter as may be heard, at the United States Bankruptcy Courthouse, 100 East Vine Street, 3rd Floor Courtroom, Lexington, Kentucky 40507.
Respectfully submitted,
GREENEBAUM DOLL & MCDONALD PLCC
STONE, LEYTON & GERSHMAN A Professional Corporation
By: /s/ Howard S. Smotkin
E. Rebecca Case, EDMO #2800
Howard S. Smotkin, EDMO #4407
7733 Forsyth Boulevard, Suite 500 St. Louis, Missouri 63105
(314) 721-7011
(314) 721-8660 Facsimile erc@stoneleyton.com hss@stoneleyton.com
Attorneys for the Murphy Entities
John W. Ames Gregory R. Schaaf
300 West Vine Street, Suite 1100
Lexington, Kentucky 40507
(859) 288-4629
(859) 367-3877 Facsimile
grs@gdm.com
Local Counsel for the Murphy Entities
CERTIFICATE OF SERVICE
This is to certify that a true and correct copy of the foregoing document has been served electronically in the method established under CM/ECF Administrative Procedures Manual and the Local Court Standing Order dated July 25, 2002 via electronic and/or first class, postage prepaid U.S. mail on this 1st day of November 2007.
/s/ Howard S. Smotkin
Howard S. Smotkin |
