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In re RTJJ, Inc. - No. 11-32050, 2013 Bankr. LEXIS 481 (Bankr. W.D.N.C. Feb. 6, 2013)

Rule:

Under the "new value" exception to 11 U.S.C.S. § 1129(b)(2)(B), equity may retain an interest in a reorganized debtor over the objection of a class of creditors whose claims are not paid in full, in exchange for a fresh contribution of new capital. The five requirements of "new value" are that it be (1) new, (2) substantial, (3) money or money's worth, (4) necessary for a successful reorganization, and (5) reasonably equivalent to the value or interest received.

Facts:

The debtor was established as a family business in 1997 for the purpose of purchasing and renting real property in Gastonia, North Carolina, and it owned sixty-two properties at the time it declared bankruptcy in August 2011. It asked the court to approve a reorganization plan that divided a $2,453,838 debt it owed a bank (its largest creditor) into secured debt in the amount of $1,471,350 and unsecured debt in the amount of $982,487 and satisfied the unsecured debt by making a payment of $50,000 to the bank. Debtor corporation filed a petition under Chapter 11 of the Bankruptcy Code and asked the court to confirm its second amended bankruptcy plan. The bank, it’s largest creditor filed an objection to the plan and asked the court for relief under 11 U.S.C.S. § 362(d) so it could foreclose on property the debtor owned.

Issue:

Does the plan meet the requirements of 11 U.S.C.S. § 1129?

Answer:

Yes.

Conclusion:

The court sustained the bank's objection to the debtor second amended plan in part and denied it in part, but confirmed the plan as it was revised at the hearing. Although the bank filed an objection to the debtor's plan and asked the court for relief from the automatic stay so it could foreclose on the debtor's properties, the court found that the plan met the requirements of 11 U.S.C.S. § 1129 and could be confirmed. The debtor's managers were doing an effective job of running the business under challenging economic conditions that affected the real estate market in Gastonia, and reorganization was preferable to liquidation because creditors would receive less if the debtor's assets were sold in a forced sale and a forced sale would further depress property values and reduce the number of homes that were available for low-income residents. The Properties, the Debtor's primary operating assets and the source of the Debtor's future income, are necessary to success of the Plan per 11 U.S.C. §362(d)(2)(B).

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