California Court Discusses Grounds for Vacating a Bankruptcy Conversion Order

Businesses grappling with debts they are unable to pay can often seek relief via bankruptcy. The United States Bankruptcy Code sets forth the requirements and relief available for debtors under various chapters. Many businesses choose to file Chapter 11 bankruptcy actions, as it allows them to maintain operations and assets. In some instances, though, the court will convert a Chapter 11 bankruptcy case to a Chapter 7 case despite the debtor’s protests. In a recent California opinion issued in a bankruptcy matter, the court discussed the grounds for entering and vacating a conversion order. If you need assistance seeking bankruptcy relief, it is advisable to speak with a California bankruptcy lawyer as soon as you can.

Procedural History of the Case and Factual Setting

It is alleged that the debtor filed a Chapter 11 bankruptcy action. The bankruptcy court subsequently entered a Conversion Order, which converted the case from Chapter 11 to Chapter 7 bankruptcy. At the hearing on the matter, the debtor contends that it was not provided with sufficient notice of the hearing on the motion to convert and that it was not timely served with notice of the motion.

Reportedly, the bankruptcy court found that notice was sufficient and converted the case due to the debtor’s failure to file a Chapter 11 Plan of Reorganization and the imminent liquidation of assets, which would have best served the creditors’ interests. The debtor appealed, but the Bankruptcy Appellate Panel’s decision affirmed the bankruptcy court’s Conversion Order. The debtor filed a subsequent appeal, seeking relief under Federal Rule of Bankruptcy Procedure Rule 9024 as well.

Grounds for Vacating a Conversion Order

On appeal, the court affirmed the bankruptcy court’s decision, citing the abuse of discretion standard in reviewing both the conversion decision and the denial of the Rule 9024 motion. The court found that the notice requirements were met, as the motion to convert was filed and served within the specified time frame.

Moreover, the court determined that the conversion was appropriate given the debtor’s failure to present a viable plan for reorganization and the imminent liquidation of assets. Additionally, the court dismissed the debtor’s arguments regarding Rule 9024, stating that Rule 60(b)(6) relief is reserved for extraordinary circumstances preventing appeal, which the debtor failed to demonstrate. As the debtor did not provide any justifiable reason for reconsideration of the Conversion Order, the court affirmed the decisions of the bankruptcy court and the Bankruptcy Appellate Panel.

Meet with an Experienced California Bankruptcy Attorney

People overwhelmed by debts may be able to seek relief via bankruptcy, but whether they can proceed under Chapter 11 or Chapter 7 of the Bankruptcy Code depends on numerous factors. If you want to learn more about bankruptcy and whether it may be right for you, it is advisable to meet with an attorney. Matthew D. Roy is an experienced California bankruptcy lawyer who can inform you of your options and help you seek the best legal outcome possible. To arrange a meeting with Mr. Roy, you can reach out by using our form online or calling us at (916) 361-6028.