Case No. 10-46276.United States Bankruptcy Court, E.D. Michigan, Southern Division.
July 18, 2010
ORDER REQUIRING DEBTOR TO AMEND DISCLOSURE STATEMENT
THOMAS TUCKER, Bankruptcy Judge
The Debtor filed a plan and disclosure statement, in a document entitled “Combined Plan of Reorganization and Disclosure Statement” (Docket # 29). The Court cannot grant preliminary approval of the disclosure statement contained within this document (“Disclosure Statement”). The Court notes the following problems, which Debtor must correct.
First, the Debtor must state the full name of the corporation in the caption — “2 Day’s Child Learning Center, Inc.”[1]
(Emphasis added).
Second, the formatting and the content of the Plan is inadequate and must be rewritten according to the following general guidelines.[2]
• Debtor must include a section in the plan (e.g.,
“Article I”), which defines any capitalized or abbreviated terms in the Plan (e.g., Debtor must define “Effective Date” which appears on pages 3, 6, and 8-10 of the Plan). The Plan currently defines this term on page 10 of the Plan, only after the term has already been used numerous times.
• Debtor must include a separate section in the Plan (e.g., “Article II”), which defines groups of claimants that are not subject to classification and are notPage 2
entitled to vote on the Plan, state the estimated amount of each claim, and state their treatment under the Plan (e.g., Group I consisting of allowed administrative claims (in this case, include the quarterly fees for the United States Trustee, Debtor’s attorney fees owing to Reed Associates, P.C., and other post-petition professional fees, if any), and Group II consisting claims that are entitled to priority under 11 U.S.C. § 507(a)(8) (e.g., the allowed priority claims of the Internal Revenue Service (“IRS”), the Department of Treasury, and the Michigan Unemployment Income Agency)). The § 507(a)(8) priority tax claims of the Internal Revenue Service and the Michigan Unemployment Income Agency are currently improperly classified and treated in “Class II.” “[P]riority tax claims . . . are not supposed to be classified in a Chapter 11 plan for voting or other purposes.” In re Northwest Timberline Enterprises, Inc., 348 B.R. 412, 422 (Bankr. N.D. Tex. 2006) (citing 11 U.S.C. §§ 1123(a)(1)). Debtor must amend the Plan so that the § 507(a)(8) claims are not included in a class under Article III, which Debtor must include in the Plan. (See below).
• Debtor must include a separate section in the Plan (e.g., “Article III”), which defines classes of claimants subject to classification and state the treatment of each class. With regard to each such class, Debtor must: (1) state a clear descriptive name of the class (e.g., “Class I”); (2) name or describe the persons or entities that are being treated under the class (e.g., “the Internal Revenue Service” or “general unsecured creditors”); (3) state the amount of the claim of each entity or person, if known, and if unknown, state Debtor’s best estimate of the amount of the claim (or, if the class is a large one, Debtor may simply estimate the total amount of claims in the class); (4) describe the nature of the claim (e.g., “Entity X asserts a first priority security interest in all the assets of the Debtor arising from financing it provided to Debtor prepetition”); (5) state the total amount of the claims in the class; (6) state specifically the treatment proposed; and (7) state whether the class is impaired or unimpaired under the Plan.
• Debtor must treat the secured claim of the “IRS” in the amount of $9,952.28, and the secured claim “the Michigan Department of Treasury” in the amount of $12,356.46, [3] which are currently treated in the same class on page 3, in separate classes. Debtor must also treat the secured portion of the claim of the Michigan Unemployment Insurance Agency in a separate class.[4]
• Debtor must correct all typographical errors (e.g., on page 7 of the Plan, DebtorPage 3
must amend the statement “Executory contracts with the Debtor rejects” to “Executory contracts which the Debtor rejects”; Debtor must change “chide” to “child” in Article II, Paragraph C of the Plan on page 11).
• The Plan does not contain a class consisting of the equity interest holders of Debtor. Debtor must amend the Plan so that it includes a class of, and the treatment of, the equity interest holders. Unless otherwise provided in the plan or in an order confirming a Chapter 11 plan, the general rule is that the confirmation of a plan “terminates all rights and interests of equity security holders . . . provided for by the plan.” 11 U.S.C. § 1141(d)(1)(B). The Plan must state who currently owns the Debtor, and who will own the reorganized Debtor after confirmation of the Plan (e.g., Debtor must state whether the current shareholder(s) will retain her/their sole shareholder interest(s)).
Third, in Article II, Paragraph A, of the Disclosure Statement on page 11 under the heading “The Debtor,” Debtor must state the full name of the corporation, and state that Debtor is a corporation.
Fourth, Article II, Paragraph B, of the Disclosure Statement on page 11 states: “The pay of Antoinette Martin Florence, president, will be $30,000.000 per year.” (Emphasis added). In addition to this, Debtor must state, regarding Ms. Florence: (1) her background (e.g., her education and work history/experience); (2) her relationship with Debtor (e.g., creditor, lessee, shareholder), (3) what her current salary is; and (3) whether she receives any fringe benefits (If she doesn’t receive any fringe benefits, Debtor must state this.).
Fifth, Debtor must provide more details, not just vague and general statements, under the heading “Background of Financial Problems” on page 12 of the Disclosure Statement, regarding the financial problems of Debtor. Debtor must explain, for example, what the accounting issues were and how the accounting issues impacted day to day spending and precipitated the bankruptcy filing.
Sixth, Debtor must estimate the full amount of priority and administrative claims in
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Article IV, Paragraph D of the Disclosure Statement on page 15.
Seventh, Debtor must provide the financial summaries for the 3-year pre-petition period (2007, 2008, 2009) in the same line-itemization format as it provided its financial projections in Exhibit A.
Eighth, Article V, Paragraph C of the Disclosure Statement on page 18 states: “Both Ms. Florence and Ms. Anderson will receive salary reductions which themselves may even be further reduced dependent upon the success of the plan.” Debtor must delete this sentence and provide separately an estimate of what Ms. Florence and Ms. Anderson will receive in salary post-confirmation. Debtor must also state separately with respect to Ms. Florence and Ms. Anderson, whether they will receive any fringe benefits after confirmation of the Plan.
Ninth, Debtor must add the following statement to Article VI, Paragraph A of the Disclosure Statement on pages 18-20, describing “Voting Procedures”: “Any ballot that does not appropriately indicate acceptance or rejection of the Plan will not be counted.”
Tenth, Debtor must amend Article VI, Paragraph E.2 of the Disclosure Statement, describing the “Effect of Confirmation,” so that it states: Except as provided in the Plan and in11 U.S.C. § 1141(d),”.
Accordingly,
IT IS ORDERED that no later than July 29, 2010, Debtor must file, an amended combined plan and disclosure statement which corrects the above stated problems.
IT IS FURTHER ORDERED that Debtor also must provide to Judge’s chambers, no later than July 29, 2010, a redlined version of the amended combined plan and disclosure statement, showing the changes Debtor has made to Debtor’s “Combined Plan of Reorganization and
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Disclosure Statement” (Docket # 29), filed June 29, 2010. Debtor must submit this redlined document to chambers electronically, through the Court’s order submission program.
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