03/05/2008 367 Objection Filed by U.S. Trustee (RE: related document(s)361 Application for Administrative Expenses/Compensation, filed by Trustee Kenneth C. Henry, 359 Objection filed by U.S. Trustee U.S. Trustee, 357 Application for Administrative Expenses/Compensation, filed by Trustee Kenneth C. Henry). (Hanrahan, Philip) (Entered: 03/05/2008)
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Doc 367
OCR extract
IN RE:
CASE NO. 07-50935
CHAPTER 11
(Judge Howard)
PRO MOLD, INC.
(Debtor)
OBJECTION OF THE UNITED STATES TRUSTEE TO THE AMENDED SECOND INTERIM COMPENSATION APPLICATION OF KENNETH HENRY
Comes Richard F. Clippard, United States Trustee, ("United States Trustee") by counsel, and objects to the Amended 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 "Amended Application") (Document No. 361). 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 his Second Interim Application for Compensation (the "Application") on January 23, 2008 (Document No. 357). The Application and the related Notice (Document No. 358, filed on January 23, 2008, provided for a 20-day period within which to file Objections. The United States Trustee timely filed an Objection (Document No. 359) (the "Initial Objection") to the Application. The Initial Objection primarily addressed two concerns: (1) The Trustee did not calculate his compensation using the Bankruptcy Code Section 326(a) percentage limitations, and (2) due to the financial condition of the Debtor, the unconfirmed tax status of the Debtor and the expected additional fee applications of other professionals, a "Hold-Back" of payment of allowed fees to the Trustee was necessary and appropriate in this case.
3. In response to the Initial Objection, on February 14, 2008. the Trustee filed his Amended Application. In the Amended Application the Trustee included EXHIBIT A, a copy of which is attached hereto and incorporated herein by reference, in which the Trustee endeavored to calculate his compensation based on Bankruptcy Code 326(a). In the Amended Application the Trustee also agreed to a 75% Hold-Back.
4. The United States Trustee files this Additional Objection due to errors with regard to the Trustee's Exhibit A and concerns regarding the Hold-Back percentage. The commission calculation (Exhibit A) is defective with regard to at least two aspects.
A. Exhibit A includes in the commission calculation the amount of $685,000 related to the foreclosure sale. The language of Bankruptcy Code Section 326(a) is clear that the Trustee's compensation is calculated "upon 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". The $685,000 is a "credit bid", and no "moneys" were disbursed from this amount. It has long been recognized that amounts of "credit bids" are not included in the calculation of trustee commission percentages. See Staiano v. Cain (In re Lan Assocs. XI, L.P.), 192 F.3d 109 (3rd Cir. 1999) (credit bid not included in trustee's compensation base); Prichard v. United States Trustee (In re England), 153 F.3d 232 (5th Cir. 1998) (section 326(a) caps trustee's compensation based upon only moneys disbursed, without any allowance for property disbursed); In re American Canadian Investments, Inc., 353 B.R. 852 (Bankr. E.D. Va.) (credit bid is not included in trustee section 326(a) compensation calculation). Therefore, none of the $685,000 should be included in the commission calculations.
B. As of the date this Additional Objection is filed, the Trustee has filed Financial Reports for October 2007 (Document No. 313) and November 2007 (Document No. 325). Extracts from the October Financial Report and the November Financial Report are attached hereto and incorporated herein by reference as EXHIBITS B [1] and C respectively. As of the date of the filing of this Additional Objection the Trustee has not filed Financial Reports for December 2007 and January 2008, even though both of these Financial Reports are due and outstanding. Unless and until the December and January Financial Reports are filed, the United States Trustee can not confirm the accuracy of the claimed commission amounts. The Court should therefore not allow any compensation based on December and January disbursements, unless and until the Trustee files the December and January Financial Reports.
5. As noted above, the Trustee has agreed, in the Amended Application, to a 75% "Hold-Back". As noted in the Initial Objection, it appears, based on the most recently filed Financial Report (November 2007), that there is (or was) approximately $130,000 in cash on hand in the Estate. However, as noted below there are competing claims to this cash fund.
A. As of the date of the filing of this Additional Objection, the Debtor has not paid its U.S. Trustee fees for the fourth quarter of 2007. As shown on the Invoice for such fees, a copy of which is attached hereto and incorporated herein by reference as EXHIBIT D, this fee is estimated to be $3,750.00 [3]. No compensation should be paid to the Trustee (or any other professional) until the December Financial Report and January Financial Reports are filed and the U.S. Trustee fee for the Fourth Quarter of 2007 has been paid and sufficient "reserves" are established to pay future U.S. Trustee fees [4].
B. As of the date of the filing of this Additional Objection, there has not been a showing made that the Debtor has estimated the status of any post-petition taxes which might be outstanding for 2007 and 2008. Additionally, the Debtor has not sought authority to employ an accountant to prepare its 2007 and 2008 tax returns [5]. Unless and until such estimates are provided, it is unclear if a 75% Hold—Back will be sufficient or if a higher percent hold back is appropriate.
C. On February 19, 2008 (Document No. 362) counsel for the Trustee filed her Fee Application seeking approximately $53,000 in fees and expenses [6]. Assuming the Court ultimately approves all, or a potion of this Fee Application, this will be a competing claim to estate funds.
D. Since the Trustee has not filed the December 2007 or January 2008 Financial Reports, it is unclear if there are any "operational" expenses that are unpaid for which amounts must be reserved.
E. On information and belief, the Trustee may be planning on asking the Court to "close" this case. The United States Trustee may oppose such a request and may instead ask the Court to convert this case to Chapter 7. In the event of such a conversion, the administrative expenses in Chapter 7 will have priority over the administrative expenses in Chapter 11, which would, or could, require the Trustee and other professionals to "disgorge" fees previously awarded in the Chapter 11 case.
F. Based on the foregoing, until the above questions are adequately addressed, this Court should impose at least an 85% Hold-Back and should not allow any fees to be paid until the Trustee files all outstanding Monthly Reports and pays the outstanding U.S. Trustee fees in full.
[1]It should be noted that there is a minor discrepancy between the Trustees' Exhibit A which asserts that October disbursements are $332,866.94 and Exhibit B, the extract from the October Financial Report, which reflects that the October disbursements were actually $332,341.86.
[2] The Trustee has advised various parties that he is not in a position to file one or more of these outstanding Monthly Financial Reports due to a transfer of the records to the asset purchaser. However, as indicated by the very specific dollar amounts set forth on Exhibit A, it appears that at least at some time in the not to distant past the Trustee had access to the Disbursement records. As an aside, the transfer of various assets does not excuse the Trustee from filing financial reports.
[3] This is an estimate only because, as noted above, the Debtor has not filed its Financial Report for December 2008.
[4] By the March 13, 2008 Hearing on this Fee Objection, the Debtor's February 2008 Monthly Financial Report will also be due for filing.
[5] As noted in the Initial Objection, on information and belief the Debtor may still have to file its 2006 and 2007 Federal and State tax returns. Due to the corporate relationship between the Debtor and Plasticon International, Inc., ("Plasticon"), also a debtor before this Court (Case No. 07-50934), Plasticon is responsible for ensuring appropriate tax returns are prepared and filed.
6. The Court should therefore defer ruling on the Amended Application until the December 2007 and January 2008 Financial Reports are filed by the Trustee and U.S. Trustee fees related thereto are paid in full. Additionally, the Court should consider the compensation calculation only on "moneys disbursed". The United States Trustee reserves the right to raise any other issues regarding the Application, the Amended Applications, and any further amended applications including but not limited to if amounts claimed due are "reasonable", until which time as the Trustee submits another amended Application addressing the issues set forth above.
[6] The United States Trustee is currently in the process of reviewing this Fee Application and it is unknown at the current time if the United States Trustee will file an Objection to this Fee Application. At a minimum, the United States Trustee anticipates requesting a Hold-Back with regard to this Fee Application also.
WHEREFORE, for the reasons set forth above the United States Trustee requests this Court to enter an Order:
1. Overruling the Amended Application without prejudice to allow the Trustee to file an additional or supplemented Amended Second Application addressing the issues set forth above,
2. Alternatively, allowing compensation based only on October 2007 and November 2007 disbursements provided that no such compensation be paid until the Trustee files the Monthly Operating Reports for December 2007, January 2007 and February 2007 and the Trustee pays the Fourth Quarter United States Trustee Fees and the Trustee establishes a "reserve" for future United States Trustee Fees, 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 March 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
CERTIFICATE OF SERVICE
This is to certify that a copy of the foregoing was served on March 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 |
