11/16/2007 293 Objection Filed by Official Committee of Unsecured Creditors (RE: related document(s)272 Motion to Convert Case from 11 to 7 filed by Creditor John P Murphy, Creditor Pro Plas LLC, Creditor John P. Murphy III Revocable Trust No 1, Creditor 10315 LLC). (Langdon, Dean) (Entered: 11/16/2007)
----------------------------
Doc 293
IN RE:
CASE NO. 07-50935
CHAPTER 11
PRO MOLD, INC. DEBTOR
OBJECTION OF THE OFFICIAL COMMITTEE OF UNSECURED CREDITORS OF PLASTICON INTERNATIONAL, INC. TO MOTION TO CONVERT CASE TO CHAPTER 7
Comes the Official Committee of Unsecured Creditors for Plasticon International, Inc. (the “Plasticon Committee”), by counsel, and for its Objection to the Motion by the Murphy Entities to Convert Case to a Proceeding Under Chapter 7 (Doc. No. 272) (the “Motion”) states as follows:
Committee’s Standing to File This Objection
1. The Plasticon Committee was reconstituted on June 26, 2007 in the companion case of Plasticon International, Inc. (“Plasticon”), Case No. 07-50934.
2. Plasticon is the parent of Pro Mold, Inc. (“Pro Mold”), as it owns 100% of the stock of Pro Mold [Case No. 07-50934, Doc. No. 59, Schedule B. 13]. Plasticon is also a secured creditor of Pro Mold, with a debt scheduled by Pro Mold of approximately $1,500,000. [Doc. No. 64, Schedule D].
3. The Plasticon Committee has standing to bring this Objection pursuant to 11 U.S.C. §1109. Section 1109 states, in part, that “[a] party in interest, including . . . a creditors’ committee . . . may raise and may appear and be heard on any issue in a case under this chapter.”
4. A party in interest “is generally understood to include all persons whose pecuniary interests are directly affected by the bankruptcy proceedings.” In re Morton, 298 B.R. 301, 306 (6th Cir. B.A.P. 2003) citing Nintendo Co. Ltd. v. Patten (In re Alpex Computer Corp.), 71 F.3d 353, 356 (10th Cir.1995) and Yadkin Valley Bank & Trust Co. v. McGee (In re Hutchinson), 5 F.3d 750, 756 (4th Cir.1993)).
5. The definition of a “party in interest” is flexible and depends on the factual situation to which it is applied. Morton, supra, at 307. A “party in interest” may include one who has an actual pecuniary interest in the case, anyone who has a practical stake in the outcome of the case or whose interest will be impacted in any significant way in the case. Id.
6. The Plasticon Committee is a “party in interest” in the Pro Mold case for several reasons. To the extent Plasticon recovers on its secured claim against Pro Mold, the potential distribution to Plasticon’s unsecured creditors increases. To the extent administrative expenses increase or recoveries decrease in Pro Mold’s case, the potential distribution to Plasticon’s unsecured creditor’s decreases. Furthermore, the potential for any return to equity holders of Pro Mold directly impacts Plasticon’s unsecured creditors, as such a distribution may not be subject to a lien and be fully available for distribution to unsecured creditors. The interests represented by the Plasticon Committee clearly have a practical stake in the Pro Mold case, and the interests
of Plasticon’s unsecured creditors would be directly and substantially impacted by the conversion of this proceeding to Chapter 7. As a result, the Plasticon Committee has standing to
object to the Motion.
Conversion is Not Appropriate in This Case
7. Conversion of a case from a Chapter 11 to a Chapter 7 is governed by 11 U.S.C. §1112. Section 1112 provides, in part, that the court shall convert or dismiss a case absent unusual circumstances which establish that conversion is not in the best interest of creditors and the estate. In this case, unusual circumstances exist and conversion is not in the best interest of the creditors or the estate of Pro Mold.
8. Conversion in this case is not in the best interest of creditors and the estate, although it may be in the best interest of the Murphy Entities, which unabashedly admit that they seek conversion so that they may buy the company at auction and regain control over its assets. [Doc. No. 272, ¶38]. Of course, they could obtain such relief by simply prosecuting their Motion for Relief from the Automatic Stay to a conclusion. Instead, they seek to gain the additional benefits which would accompany a sale under 11 U.S.C. §363 while using a conversion to Chapter 7 as a tool to potentially dissuade other parties who may be interested in the assets and operations of Pro Mold. Clearly, that result is not in the best interests of Pro Mold’s creditors and its estate. If a sale of assets pursuant to 11 U.S.C. §363 is appropriate, there is no reason it may not take place in the Chapter 11 context.
9. Many of the reasons for conversion asserted by the Murphy Entities in their Motion are the result of actions by the Murphy Entities. The Murphy Entities joined in the U.S. Trustee’s request for appointment of a Chapter 11 Trustee and fully participated in the contested evidentiary hearing which led to the Trustee’s appointment. Pro Mold raised the objection that such an appointment would delay the case and hinder the proposed plan of reorganization. Now that the Murphy Entities have obtained what they asked for (a Trustee), and the attendant delays are occurring, the Murphy Entities should not be permitted to complain about getting what they asked for and seek to yet again change the direction of this case and the ability of other constituents and their professionals to work towards a reorganization of the Debtor.
10. While recognizing the clarity that hindsight provides, the Plasticon Committee finds that the Murphy Entities’ current desire to acquire the assets of Pro Mold via 11 U.S.C. §363, which comes after months of protracted litigation initiated by the Murphy Entities (and the attendant administrative expenses), to be a disingenuous attempt to accomplish what perhaps should have taken place earlier in this proceeding, had Pro Mold been given the benefit of the “breathing period” contemplated by the Bankruptcy Code and a chance to evaluate its prospects. Now an objective eye (in the form of the Trustee) has been introduced to the mix to make that evaluation, and the Murphy Entities once again seek to shift the playing field before the new player can get his feet firmly on the ground. Converting this case to Chapter 7 would likely benefit only the Murphy Entities.
11. Further, now that a Chapter 11 Trustee is in place and has invested substantial time and effort in evaluating the status of Pro Mold and the options available, he should be allowed a reasonable amount of time for those efforts to bear fruit. A reasonable amount of time has not passed since the Trustee’s appointment. The Murphy Entities seem to perceive Pro Mold as pieces of a canine chew toy, to be gnawed on serially until they decide which one tastes best. Having sought stay relief, the appointment of a trustee and now conversion, the Murphy Entities should understand and expect the Court to require them to “sit” for a time, while those with an interest in the continued viability of Pro Mold attempt to assess the status and reorganize.
12. Conversion is also inappropriate because of the additional layer of administrative expenses that will be created. If the case is converted, it is possible that a different trustee would be appointed (although the Plasticon Committee would hope not). The conversion would potentially duplicate efforts and increase the administrative burden of the Pro Mold Estate. Under 11 U.S.C. § 726(b), administrative expenses previously incurred in the Chapter 11 case would be subordinated to any administrative expenses incurred in the Chapter 7 case. While this may serve to benefit the Murphy Entities in their quest to acquire the Pro Mold assets at a bargain basement price by eliminating the requirement that administrative claims be paid in order to confirm a Chapter 11 plan, it puts potential recovery for other Pro Mold creditors at greater risk. If, as the Murphy Entities suggest, Pro Mold is unable to meet its current administrative expenses, [Doc. No. 272, ¶ 33], it would be inappropriate to convert this case and incur additional administrative fees to the detriment of Pro Mold’s creditors.
13. The Murphy Entities allege that Pro Mold’s customers remain loyal, it has lost few of its customers, and it possesses a “going concern value.” [Doc. No. 272, ¶41-43]. It is for this very reason that conversion to a Chapter 7 is inappropriate in this case. Pro Mold has the ability to reorganize, and reorganization would be in the best interest of all creditors and the estate. The Murphy Entities admit that Pro Mold’s highest and best value is as a going concern, which is why it is best suited for a Chapter 11, and why conversion to Chapter 7 is not merited.
14. Finally, the allegations which the Murphy Entities rely upon as cause for conversion to Chapter 7 virtually all relate to actions or omissions which pre-date the appointment of a Trustee in this case. The relief which the Murphy Entities sought (and obtained) for those prior events was the appointment of a Chapter 11 Trustee. Granting the Murphy Entities additional relief in the form of converting this case to Chapter 7 would be analogous to a party receiving a windfall. The difference is that the corresponding detriment falls upon Pro Mold’s creditors, including Plasticon. In this regard, the Objection of the United States Trustee is right on point, and the Plasticon Committee concurs with the United States Trustee.
WHEREFORE, for all the foregoing reasons the Committee respectfully requests this court to deny the Murphy Entities’ Motion.
WISE DELCOTTO PLLC
/s/ Dean A. Langdon, Esq.
200 North Upper Street
Lexington, KY 40507
Telephone: (859) 231-5800
Facsimile: (859) 281-1179
E-mail: dlangdon@wisedel.com
COUNSEL FOR UNSECURED CREDITORS COMMITTEE OF PLASTICON INTERNATIONAL, INC.
CERTIFICATE OF SERVICE
This document has been electronically filed and served via the Court’s ECF System on
November 16, 2007
/s/ Dean A. Langdon, Esq.
COUNSEL FOR UNSECURED CREDITORS COMMITTEE OF PLASTICON INTERNATIONAL, INC. |
