Saturday, May 17, 2014

Toibb v. Radloff case brief summary

Toibb v. Radloff
Facts: Toibb undervalues his assets and filed Chapter 7 – converts to Chapter 11 after he knows what his stock is worth. His plan to fund the plan with any dividends from the stock…
o   Issue: Can individual debtors not engaged in a business file for Chapter 11?
o   Holding: “Absent some showing of harm to the creditors of a nonbusiness debtor allowed to reorganize under Chapter 11, we see nothing in the allocation of "burdens" and "benefits" of Chapter 11 that warrants an inference that Congress intended to exclude a consumer debtor from its coverage.”
o   § 1112(b): Court has substantial discretion to dismiss or convert for cause ( if a plan is not workable…)
o   Generally, debtor needs to fulfill some Chapter 11 purpose such as:
Revitalizing business
Preserving jobs
Increasing returns to creditors
Moving assets to their highest utility
o   Rule: Individual debtors may file Chapter 11.
o   Rule: Debtor need not be engaged in an “ongoing business” to be eligible for Chapter 11.
·         Policy: “Terminal Euphoria”
o   Many Chapter 11 cases take years to complete. One reason is that too many debtors who seek refuge in Chapter 11 have no business being there – not merely because (like Sheldon Toibb) they have no business to reorganize, but because the businesses they do have are beyond resuscitation, and because their filings (unlike Sheldon Toibb’s) are not calculated to achieve even the broader Chapter 11 goal of maximizing the value of estate property and enhancing the return for creditors. One court has diagnosed the problem as the “terminal euphoria” of debtors that are doomed. In re Little Creek Development Co.

1 comment:

  1. Toibb v. Radloff – individual debtors without ongoing business may file chapter 11

    · Toibb converted his case from chapter 7 to chapter 11 after finding out that his IEC shares were not worthless à his plan would give his creditors pro rata share of $25,000 (value of the stock), and if the stock pays dividends over the next 6 years or if he sells his tocks, he would share 50% with creditors à creditors are doing better than they would in chapter 7 (where they would just get pro rata of $25,000)

    · Debtor has presumptive right to convert chapter 7 to chapter 11 if the case has not been converted from 11 to 7 (§706a)

    · Under §109, there is no requirement for ongoing business for reorganization under chapter 11 – the language of the statute is not unclear, and legislative history doesn’t express legislative intent to the contrary

    o Even though chapter 11 is to help rehabilitation of business, it doesn’t mean to exclude individuals without business

    o The Code has a policy of maximizing the value of the bankruptcy state

    § In this case, chapter 11 would not leave the creditors worse off than in chapter 7

    § If the debtor refuses to cooperate, then the court can convert case to chapter 7 or dismiss the case (§1112b)

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