Judge J. Craig Whitley has heard arguments and is considering motions to dismiss the Aldrich Pump and Murray Boiler chapter 11 cases brought by the official asbestos claimant committee (ACC) and a group of mesothelioma victims.
. . .
Kevin Maclay of Caplin & Drysdale,
co-counsel for the ACC, argued that even if the court decides it
has subject matter jurisdiction, it should dismiss the cases under
Bankruptcy Code section 1112(b), the bankruptcy dismissal statute.
Maclay maintained that the Fourth Circuit's 1989 Carolin decision governing bad-faith
dismissals is only applicable at the outset of a bankruptcy case
and therefore does not apply to the ACC's motion brought about
three years into the case.
As a result, Maclay focused on three separate grounds for
"cause" for dismissal under section 1112(b) raised in
other applicable case law. First, he argued that the debtors bear
several hallmarks of "new debtor syndrome," where a
debtor is created solely for the purpose of commencing a bankruptcy
case, including the debtors' creation via divisional merger 49
days before the petition date, the transfer of asbestos liabilities
without adequate consideration, and no ongoing business or
employees of the debtors' own. Maclay further argued that the
debtors commenced the bankruptcy case as a litigation tactic,
asserting that the divisional merger was designed to coerce
asbestos claimants into an unfavorable settlement through
bankruptcy and that the debtors are running the bankruptcy for the
benefit of their nondebtor affiliates.
Maclay continued that the cases should be dismissed even if
Carolin applies, because that case's test for
"objective futility" as a basis for dismissal is
satisfied. As explained by the parties today, objective futility
under Carolin focuses on whether there is a reasonable
hope for a debtor's rehabilitation. The second prong,
subjective bad faith, focuses on whether a debtor's true
motivation for filing for bankruptcy is to take advantage of the
automatic stay without any intent to reorganize.
Maclay argued that objective futility is demonstrated here by the
debtors' filing of a plan approximately two years ago without a
disclosure statement or any subsequent attempt to solicit votes.
According to Maclay, this amounts to a "tacit admission"
by the debtors that the plan is unconfirmable.
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This article is designed to give general information on the developments covered, not to serve as legal advice related to specific situations or as a legal opinion. Counsel should be consulted for legal advice.
