The Bankruptcy Code and Court in the Affairs of a Reorganized Debtor
| Publication year | 1988 |
| Pages | 215 |
| Citation | Vol. 17 No. 2 Pg. 215 |
1988, February, Pg. 215. The Bankruptcy Code and Court in the Affairs of a Reorganized Debtor
Literature abounds on the effects of bankruptcy, the operation of a business in bankruptcy and plan confirmation. However, very little has been written on post-confirmation matters such as the U.S. Bankruptcy Court's jurisdiction, the remedies of creditors for defaults under a confirmed plan and the debtor's rights to further relief in the Bankruptcy Court. Perhaps because nearly 90 percent of cases started in Chapter 11, at least in the District of Colorado, end up being converted or dismissed, most attention is paid to pre-confirmation and confirmation issues. Post-confirmation matters though are equally important. The plan is the creditor's new contract with the debtor. Providing for defaults in that new relationship should garner at least as much attention as it did in pre-petition transactions. The parties in a reorganization should understand these matters and negotiate and draft the plan with them in mind.
This article discusses issues which should be addressed by counsel for debtors and creditors in preparing for the debtor's operations after confirmation.
Upon confirmation of a Chapter 11 plan, the debtor and any entity organized to carry out the plan must carry out the plan and comply with orders of the Court. The debtor's duties include distributing funds, securities or property to holders of allowed claims and interests. Upon confirmation of a Chapter 12 or 13 plan, distributions must be commenced by the trustee.(fn1)
Within thirty days after the date of the order confirming the plan, the trustee or debtor-in-possession must file a report with the Court concerning actions and progress made in the consummation of the Chapter 11 or 12 plan.(fn2) (A Chapter 13 debtor engaged in business is excused from filing such a report.)(fn3) The Court may direct that further reports be filed until the plan is consummated.(fn4) The Suggested Interim Chapter 12 Rules have been adopted as Special Local Rules in the District of Colorado, but they do not address this issue.(fn5) Therefore, a Chapter 12 debtor is not yet excused and must file such reports.
The Bankruptcy Code is not clear on the issue of retention of jurisdiction. The property of the estate vests in the debtor upon confirmation (unless the plan provides otherwise), but it appears that the estate created by the filing of a bankruptcy petition continues to exist until it has been fully administered. At this point, the Court will enter a final decree closing the case and terminating the existence of the estate.(fn6) The Bankruptcy Court, acting as a unit of the District Court, has original and exclusive jurisdiction of the bankruptcy case, and has original but not exclusive jurisdiction of all civil proceedings arising under the Bankruptcy Code or arising in or related to the bankruptcy case.(fn7) Matters concerning the administration of the estate and other proceedings affecting adjustment of the debtor-creditor relationship, apparently whether before or after confirmation, are "core proceedings," as to which the Bankruptcy Court has exclusive jurisdiction and may enter final orders.(fn8)
Most Chapter 11 plans provide for retention of jurisdiction in the Bankruptcy Court to do several, often broadly enumerated, things. This practice emanates from Chapter XI of the Bankruptcy Act of 1898 and Rule 11-42(b)(5) thereunder.(fn9) Under the old Act, the Bankruptcy Court had jurisdiction post-confirmation only to the extent retained in the plan.(fn10) In cases under the Bankruptcy Reform Act of 1978 ("Code"),(fn11) however, the Court has certain post-confirmation jurisdiction, whether or not the plan provides for retention of jurisdiction.(fn12) In In re Micro-Acoustics Corp., for instance, the Court found that it had jurisdiction to entertain a motion to convert for post-confirmation defaults.(fn13)
Thus, the Bankruptcy Court retains jurisdiction post-confirmation, among other things, to supervise the consummation of the plan, administer the estate,
The list in a typical plan of items over which the Bankruptcy Court retains jurisdiction usually includes those set forth above, but sometimes goes further in an attempt to allow the reorganized debtor to seek relief in the court often perceived as the most favorable forum for the debtor. Under the Code, such plan provisions are effective for one of two reasons: (1) because statutes of the United States otherwise confer such jurisdiction on the Bankruptcy Courts; or (2) because the provisions of the confirmed plan bind all parties which dealt with the debtor prior to confirmation, and thus such provisions constitute consent by all such parties to the exercise of jurisdiction by the Bankruptcy Court.(fn16)
The jurisdictional provisions of Title 28 of the United States Code state that the district courts have exclusive jurisdiction of all "cases under title 11," and non-exclusive jurisdiction of all "civil proceedings arising under title 11, or arising in or related to cases under title 11."(fn17) Even if the "estate" ceases to exist after confirmation, the "case" certainly continues until a final order is entered closing it.(fn18) Just as the bankruptcy case continues to exist, individual disputes will continue or arise post-confirmation and can be described as "arising in or related to" the continuing Title 11 (Bankruptcy Code) case. Thus, it appears that a statutory basis exists for continuing, broad jurisdiction of post-confirmation disputes.(fn19)
Alternatively, an argument can be fashioned that the binding effect of a confirmation order constitutes consent of those parties who had adequate notice of the proceeding to adjudication of post-confirmation matters described in the plan's retention of jurisdiction section. There is case authority for the proposition that the provisions of Article III of the U.S. Constitution granting certain judges life tenure are personal rights which may be waived by the parties to permit a judge without life tenure to enter final orders.(fn20) Such an argument, if availing at all, would be restricted to those parties somehow affected by the plan, and would not appear to bind parties whose first dealings with the debtor were post-confirmation.
The amendments to the Bankruptcy Rules effective August 1, 1987, include a requirement that a complaint, counterclaim, cross-claim, or third-party complaint in an adversary proceeding allege whether or not the proceeding is core or non-core, and, if non-core, whether or not the pleader consents to the entry of final orders by the Bankruptcy judge.(fn21) Similarly, the party responding to the pleading must address this issue and must either consent or not consent.(fn22) The Advisory Committee Notes to the 1987 Amendments state that only "express consent in the pleadings or otherwise" is effective to allow the Bankruptcy judge to enter final orders. Consequently, while the Bankruptcy Court may have jurisdiction to hear the post-confirmation dispute, the effectiveness of resorting to that Court may be limited in non-core matters by a party's lack of consent to final adjudication.
Notwithstanding the existence of jurisdiction post-confirmation, the cases have evinced a desire to return the debtor to the "real world" of business with all its risks and vagaries.(fn23) Thus, post-confirmation disputes with the Internal Revenue Service, landlords and the like will most often be handled as if there were no pending bankruptcy case. This result is justified not only by the need to reduce the burdens of case administration on the already overburdened Bankruptcy Court, but also by the goal of promoting certainty, predictability and normality in post-confirmation business relationships.
Creditors who retain claims against or interests in the reorganized debtor may appreciate or insist upon the ability to adjudicate certain...
To continue reading
Request your trial