Law School Case Brief
In re General Growth Props. - 409 B.R. 43 (Bankr. S.D.N.Y. 2009)
The principle that a Chapter 11 bankruptcy reorganization case can be dismissed as a bad-faith filing is a judge-made doctrine. Grounds for dismissal exist if it is clear that there was no reasonable likelihood that the bankruptcy debtor intended to reorganize and no reasonable probability that it would eventually emerge from bankruptcy proceedings. A bankruptcy petition will be dismissed if both objective futility of the reorganization process and subjective bad faith in filing the petition are found. A bankruptcy petition should be dismissed for lack of good faith only sparingly and with great caution.
GGP, one of the Debtors, is a publicly-traded real estate investment trust ("REIT") and the ultimate parent of approximately 750 wholly-owned Debtor and non-Debtor subsidiaries, joint venture subsidiaries and affiliates (collectively, the "GGP Group" or the "Company"). The GGP Group's primary business is shopping center ownership and management; the Company owns or manages over 200 shopping centers in 44 states across the country. These include joint venture interests in approximately 50 properties, along with non-controlling interests in several international joint ventures. The GGP Group also owns several commercial office buildings and five master-planned communities, although these businesses account for a smaller share of its operations. The Company reported consolidated revenue of $ 3.4 billion in 2008. The GGP Group's properties are managed from its Chicago, Illinois headquarters, and the Company directly employs approximately 3,700 people, exclusive of those employed at the various property sites. The market crisis precluded the debtors from refinancing their debt, and the lenders contended that the entities' individual bankruptcies were premature in view of the length of time before the debt matured. One lender also argued that it could block confirmation of its debtor entity's plan, and the lenders asserted that the entities lack of good faith was shown by their failure to negotiate with the lenders and by their replacement of independent managers.
Did the subject debtors file their petitions in bad faith?
The bankruptcy court held that there was no showing that the entities filed their petitions in bad faith. The individual entities were in varying degrees of financial distress and were justified in filing their petitions without waiting until they were closer to actual default, and the impairment of the ability of the debtors as a whole to obtain refinancing inevitably impaired the same ability of the entities. Further, the entities were not required to prove a confirmable plan or to negotiate with the lenders before filing their petitions, there was no indication pre-petition negotiations would be adequate, and the independent managers were properly replaced with managers who had expertise in financial restructuring.
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