The Debtor is a real estate development company in Parker, Colorado. An affiliated company to the Debtor obtained construction financing to develop the initial infrastructure for a housing subdivision. The construction loans are secured by lots owned by the affiliated company located in the second phase of the development. The Debtor owns lots located in the first phase of the development. The construction lender filed state court litigation seeking an equitable lien in the phase one properties and recorded a lis pendens against the lots.
As a result of the litigation, the Debtor sought relief under Subchapter V of Chapter 11. The Debtor negotiated with creditors and reached a settlement with the construction lender. After filing different iterations of its Subchapter V Plan, the Debtor resolved all of the objections, except of one secured creditor. That bank voted to reject the Plan, objected to confirmation, and moved for the case to be converted to chapter 7.
The Court examined confirmation of the non-consensual plan under 11 U.S.C. § 1191(b), which eliminates the requirements of 11 U.S.C. § 1129(a)(8)(each impaired class has accepted the plan) and (10)(at least one impaired class has accepted the plan), provided that the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interest that is impaired under, and has not accepted, the plan.
The Court found a number of the requirements of 11 U.S.C. § 1129 were not contested and were satisfied through an offer of proof. An evidentiary hearing was conducted regarding the remaining contested issues.
The Court found that Debtor acted in good faith pursuant to 11 U.S.C. § 1129(a)(3). The Debtor utilized the bankruptcy process to negotiate a Plan that has been accepted by all of its creditors with the exception of the bank. The Plan’s modification of the bank’s claims is permissible under the Bankruptcy Code and has a reasonable chance of success. The Plan met the requirements of 11 U.S.C. § 1129(a)(7)’s Best Interests of Creditors Test. Creditors will receive more through the Plan than they would in a chapter 7 and because the Plan incorporates the settlement with the construction lender, it avoids potential risks and delays of further litigation relating to the equitable lien.
The Court found the terms of the settlement agreement with the construction lender incorporated into the Plan were fair and reasonable and in the best interests of the estate.
The Plan proposes to pay all of the claims in full through the sale of the lots. The Court found the Plan did not discriminate unfairly and is fair and equitable with respect to the objecting bank. The unrebutted evidence established the objecting bank’s modified claim was adequately protected and that the twelve-month injunction for the sale of the lots and enjoining the bank from collection, after which point it may seek state law remedies if applicable, is reasonable and permissible. The Court confirmed the Plan over the bank’s objection.