02/06/2008 359 Objection Filed by U.S. Trustee (RE: related document(s)358 Notice of Filing, filed by Trustee Kenneth C. Henry, 357 Application for Administrative Expenses/Compensation, filed by Trustee Kenneth C. Henry). (Hanrahan, Philip) (Entered: 02/06/2008)
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Doc 359
IN RE:
CASE NO. 07-50935
(Judge Howard)
PRO MOLD, INC. CHAPTER 11
(Debtor)
OBJECTION OF THE UNITED STATES TRUSTEE TO THE SECOND INTERIM COMPENSATION APPLICATION OF KENNETH HENRY
Comes Richard F. Clippard, United States Trustee, (“United States Trustee”) by counsel, and objects to the Second Interim Application for Compensation and Reimbursement of Expenses for Kenneth C. Henry, Chapter 11 Trustee: Memorandum of Points and Authorities; and Declaration of Kenneth C. Henry in Support Thereof (the “Application”) (Document No. 357). As grounds in support of this Objection the United States Trustee states as follows:
1. This Chapter 11 Case was filed on May 16, 2007.
2. Kenneth C. Henry, the Chapter 11 Trustee (“Mr. Henry” or the “Trustee”) filed the Application January 23, 2008. The Application and the related Notice (Document No. 358, filed on January 23, 2008, provide for a 20-day period within which to file Objections. This Objection of the United States Trustee is filed within this 20-day period.
3. The Trustee filed the Application seeking fees based on hourly rates times the number of hours worked. However, in the case of Chapter 11 trustees, compensation [1] is “capped” by Bankruptcy Code Section 326(a) which states that “reasonable compensation” shall not exceed a certain percentage of “all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secure claims”. This percentage scale is the following:
A. 25% of the first $5,000 or less;
B. 10% of any amount in excess of $5,000 but not in excess of $50,000;
C. 5% of any amount in excess of $50,000 but not in excess of $1,000.000; and
D. Reasonable compensation not to exceed 3% of such moneys in excess of $1,000,000.
[1] Reasonable compensation to a Chapter 11 Trustee is, pursuant to Bankruptcy Code Section 330(a)(7), to be treated by the Court as a commission, based on Bankruptcy Code Section 326.
4. Based on the foregoing, the Application is fatally defective because it fails to address the Section 326(a) disbursement percentages and the related “commission caps” noted above, and this Court should therefore overrule the Application without prejudice to allow the Trustee to resubmit the Application adding a detailed breakout of reasonable compensation based on all moneys disbursed or turned over in the case by the Trustee to parties in interest, excluding the Debtor, but including holders of secured claims.
5. Alternatively and additionally, the United States also requests that there be an appropriate “hold-back” of the payment of any further compensation to the Trustee, and any other professionals in this case, to insure that all professionals are paid a pro-rata amount in the event there are not sufficient cash assets in the Estate to pay all administrative expenses, taxes and any and other higher “priority claims” in full.
A. The November Financial Report (Document No. 325), the most current Financial Report filed by the Trustee as of the date of this Objection, indicates the Estate had $29,301.39 in its “general” bank account. Since the filing of the November Financial Report, the Estate has also received $100,000 as a result of the settlement with the “Murphy Entities”. It therefore appears that at the current time there is approximately $130,000 in cash available for operations and the payment of professional fees and other priority expenses as set out in the Bankruptcy Code.
B. Pursuant to Bankruptcy Code Section 346, various Sections of the Internal Revenue Code, and 28 U.S.C Sections 959 and 960, the Trustee, on behalf of the Estate, must file various Federal, State and perhaps local tax returns and pay any such taxes due. These payment requirements apply to the time the case is in Chapter 11. Additionally, it may be appropriate and necessary for the Trustee to file any pre-petition tax returns, of any type or nature, that the Debtor failed to file prior to the initiation of the Bankruptcy Case [2].
C. Pursuant to Bankruptcy Code Sections 503 and 507, a specific payment priority hierarchy is established. Payments to professionals under §503(b)(2) and payment of specified taxes under §503(b)(1) are both §507(a)(2) administrative expenses.
D. To date in this case, in addition to the appointment of the Trustee, the Court has entered an Order authorizing the employment of counsel for the Trustee. It is anticipated that additional professionals, such as an accountant for the Trustee, may be employed in the future. Pursuant to the above-noted statutes, payment to professionals, including the Trustee, is on a pro-rata basis in the event there are insufficient funds to pay all professionals in full.
E. Unless and until the Court is assured that either all post-petition taxes have been paid; sufficient “reserves” established for such payment; or that no post-petition tax payments or other priority claims and expenses are due and owing, no payments should be made to professionals (including the Trustee), or alternatively, sufficient amounts should be “held-back” from any payments to professionals (including the Trustee) to insure sufficient funds are available to pay any and all post-petition tax liabilities of the Estate and other claims of equal or higher priority.
[2] On information and belief, the Debtor may still have to file its 2006 and 2007 Federal and State tax returns. In addition since this case is still open in 2008, tax returns for 2008 will have to be filed, and taxes for one or more of these years may be owed.
6. The above-noted issue regarding “hold-backs” are raised herein due to the large size ($80,679.92) of the Trustee’s Application and the limited amount of cash currently available to pay such fees, if and when, the Court approves any future fee applications.
7. The United States Trustee reserves the right to raise any other issues regarding the Application, or any amended Applications, including but not limited to whether or not amounts claimed due are “reasonable”, until which time as the Trustee submits a revised Application adding a discussion of compensation approval based on the percentage “caps” of “all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secure claims.
WHEREFORE, for the reasons set forth above the United States Trustee requests this Court to enter an Order:
1. Overruling the Application without prejudice to allow the Trustee to file an Amended Second Application adding a discussion of the compensation “caps” based on a percentage of “all moneys disbursed or turned over in the case by the trustee to parties in interest, excluding the debtor, but including holders of secure claims”.
2. Specifying that all future fee orders will contain a “hold-back” of an amount to be determined by the Court in future orders, and,
3. Granting such other and further relief as is just, proper, necessary, or appropriate.
NOTICE
Please take Notice that the forgoing matter will be heard by the Court on March 13, 2008 at 2:15 p.m. or as soon thereafter as counsel may be heard, in the U.S. Bankruptcy Courtroom B, 3rd Floor, 100 E. Vine Street, Lexington, KY 40507.
Dated this the 6th day of February 2008.
Richard F. Clippard
United States Trustee
By Counsel
/s/ Philip L. Hanrahan
Philip L. Hanrahan
Trial Attorney
100 East Vine St., Suite 500
Lexington, KY 40507
(859) 233-2822 P:\Chapter 11 Files\Plasticon International 07-50934\Pro Mold, Inc.
CERTIFICATE OF SERVICE
This is to certify that a copy of the foregoing was served on February 6, 2008: (1) electronically via CM/ECF on those parties who receive electronic notice in this case, and (2) via first class mail, postage prepaid on:
Kenneth C. Henry
310 W. Liberty Street, Suite 507
Louisville, KY 40202
Chapter 11 Trustee
/s/ Philip L. Hanrahan
Philip L. Hanrahan |
