11 U.S.C. § 1112 — Conversion or dismissal

Page 249 TITLE 11—BANKRUPTCY § 1112 ‘‘SEC. 2. TREATMENT OF AIRCRAFT EQUIPMENT SETTLEMENT LEASES WITH THE PENSION BENEFIT GUARANTY CORPORATION. ‘‘In the case of any settlement of liability under title IV of the Employee Retirement Income Security Act of 1974 [29 U.S.C. 1301 et seq.] entered into by the Pension Benefit Guaranty Corporation and one or more other parties, if— ‘‘(1) such settlement was entered into before, on, or after the date of the enactment of this Act [Mar. 17, 1993], ‘‘(2) at least one party to such settlement was a debtor under title 11 of the United States Code, and ‘‘(3) an agreement that is entered into as part of such settlement provides that such agreement is to be treated as a lease, then such agreement shall be treated as a lease for pur- poses of section 1110 of such title 11.’’ § 1111. Claims and interests (a) A proof of claim or interest is deemed filed under section 501 of this title for any claim or interest that appears in the schedules filed under section 521(a)(1) or 1106(a)(2) of this title, except a claim or interest that is scheduled as disputed, contingent, or unliquidated. (b)(1)(A) A claim secured by a lien on property of the estate shall be allowed or disallowed under section 502 of this title the same as if the holder of such claim had recourse against the debtor on account of such claim, whether or not such holder has such recourse, unless— (i) the class of which such claim is a part elects, by at least two-thirds in amount and more than half in number of allowed claims of such class, application of paragraph (2) of this subsection; or (ii) such holder does not have such recourse and such property is sold under section 363 of this title or is to be sold under the plan. (B) A class of claims may not elect application of paragraph (2) of this subsection if— (i) the interest on account of such claims of the holders of such claims in such property is of inconsequential value; or (ii) the holder of a claim of such class has re- course against the debtor on account of such claim and such property is sold under section 363 of this title or is to be sold under the plan. (2) If such an election is made, then notwith- standing section 506(a) of this title, such claim is a secured claim to the extent that such claim is allowed. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2630; Pub. L. 111–327, § 2(a)(32), Dec. 22, 2010, 124 Stat. 3561.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS A discussion of section 1111(b) of the House amend- ment is best considered in the context of confirmation and will therefore, be discussed in connection with sec- tion 1129. SENATE REPORT NO. 95–989 This section dispenses with the need for every cred- itor and equity security holder to file a proof of claim or interest in a reorganization case. Usually the debt- or’s schedules are accurate enough that they will suf- fice to determine the claims or interests allowable in the case. Thus, the section specifies that any claim or interest included on the debtor’s schedules is deemed filed under section 501. This does not apply to claims or interests that are scheduled as disputed, contingent, or unliquidated. Editorial Notes AMENDMENTS 2010—Subsec. (a). Pub. L. 111–327 substituted ‘‘521(a)(1)’’ for ‘‘521(1)’’. § 1112. Conversion or dismissal (a) The debtor may convert a case under this chapter to a case under chapter 7 of this title unless— (1) the debtor is not a debtor in possession; (2) the case originally was commenced as an involuntary case under this chapter; or (3) the case was converted to a case under this chapter other than on the debtor’s re- quest. (b)(1) Except as provided in paragraph (2) and subsection (c), on request of a party in interest, and after notice and a hearing, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, for cause unless the court determines that the appointment under section 1104(a) of a trustee or an examiner is in the best interests of creditors and the estate. (2) The court may not convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter if the court finds and specifically identifies unusual circumstances es- tablishing that converting or dismissing the case is not in the best interests of creditors and the estate, and the debtor or any other party in interest establishes that— (A) there is a reasonable likelihood that a plan will be confirmed within the timeframes established in sections 1121(e) and 1129(e) of this title, or if such sections do not apply, within a reasonable period of time; and (B) the grounds for converting or dismissing the case include an act or omission of the debtor other than under paragraph (4)(A)— (i) for which there exists a reasonable jus- tification for the act or omission; and (ii) that will be cured within a reasonable period of time fixed by the court. (3) The court shall commence the hearing on a motion under this subsection not later than 30 days after filing of the motion, and shall decide the motion not later than 15 days after com- mencement of such hearing, unless the movant expressly consents to a continuance for a spe- cific period of time or compelling circumstances prevent the court from meeting the time limits established by this paragraph. (4) For purposes of this subsection, the term ‘‘cause’’ includes— (A) substantial or continuing loss to or dimi- nution of the estate and the absence of a rea- sonable likelihood of rehabilitation; (B) gross mismanagement of the estate; (C) failure to maintain appropriate insur- ance that poses a risk to the estate or to the public; (D) unauthorized use of cash collateral sub- stantially harmful to 1 or more creditors; (E) failure to comply with an order of the court; Page 250 TITLE 11—BANKRUPTCY § 1112 (F) unexcused failure to satisfy timely any filing or reporting requirement established by this title or by any rule applicable to a case under this chapter; (G) failure to attend the meeting of creditors convened under section 341(a) or an examina- tion ordered under rule 2004 of the Federal Rules of Bankruptcy Procedure without good cause shown by the debtor; (H) failure timely to provide information or attend meetings reasonably requested by the United States trustee (or the bankruptcy ad- ministrator, if any); (I) failure timely to pay taxes owed after the date of the order for relief or to file tax re- turns due after the date of the order for relief; (J) failure to file a disclosure statement, or to file or confirm a plan, within the time fixed by this title or by order of the court; (K) failure to pay any fees or charges re- quired under chapter 123 of title 28; (L) revocation of an order of confirmation under section 1144; (M) inability to effectuate substantial con- summation of a confirmed plan; (N) material default by the debtor with re- spect to a confirmed plan; (O) termination of a confirmed plan by rea- son of the occurrence of a condition specified in the plan; and (P) failure of the debtor to pay any domestic support obligation that first becomes payable after the date of the filing of the petition. (c) The court may not convert a case under this chapter to a case under chapter 7 of this title if the debtor is a farmer or a corporation that is not a moneyed, business, or commercial corporation, unless the debtor requests such conversion. (d) The court may convert a case under this chapter to a case under chapter 12 or 13 of this title only if— (1) the debtor requests such conversion; (2) the debtor has not been discharged under section 1141(d) of this title; and (3) if the debtor requests conversion to chap- ter 12 of this title, such conversion is equi- table. (e) Except as provided in subsections (c) and (f), the court, on request of the United States trustee, may convert a case under this chapter to a case under chapter 7 of this title or may dis- miss a case under this chapter, whichever is in the best interest of creditors and the estate if the debtor in a voluntary case fails to file, with- in fifteen days after the filing of the petition commencing such case or such additional time as the court may allow, the information re- quired by paragraph (1) of section 521(a), includ- ing a list containing the names and addresses of the holders of the twenty largest unsecured claims (or of all unsecured claims if there are fewer than twenty unsecured claims), and the approximate dollar amounts of each of such claims. (f) Notwithstanding any other provision of this section, a case may not be converted to a case under another chapter of this title unless the debtor may be a debtor under such chapter. (Pub. L. 95–598, Nov. 6, 1978, 92 Stat. 2630; Pub. L. 98–353, title III, § 505, July 10, 1984, 98 Stat. 384; Pub. L. 99–554, title II, §§ 224, 256, Oct. 27, 1986, 100 Stat. 3102, 3114; Pub. L. 103–394, title II, § 217(c), Oct. 22, 1994, 108 Stat. 4127; Pub. L. 109–8, title IV, § 442(a), Apr. 20, 2005, 119 Stat. 115; Pub. L. 111–327, § 2(a)(33), Dec. 22, 2010, 124 Stat. 3561.) HISTORICAL AND REVISION NOTES LEGISLATIVE STATEMENTS Section 1112 of the House amendment represents a compromise between the House bill and Senate amend- ment with respect to the factors constituting cause for conversion of a case to chapter 7 or dismissal. The House amendment combines two separate factors con- tained in section 1112(b)(1) and section 1112(b)(2) of the Senate amendment. Section 1112(b)(1) of the House amendment permits the court to convert a case to a case under chapter 7 or to dismiss the case if there is both a continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabili- tation; requiring both factors to be present simulta- neously represents a compromise from the House bill which eliminated both factors from the list of causes enumerated. Sections 1112(c) and 1112(d) of the House amendment is derived from the House bill which differs from the Senate amendment only as a matter of style. SENATE REPORT NO. 95–989 This section brings together all of the conversion and dismissal rules for chapter 11 cases. Subsection (a) gives the debtor an absolute right to convert a volun- tarily commenced chapter 11 case in which the debtor remains in possession to a liquidation case. Subsection (b) gives wide discretion to the court to make an appropriate disposition of the case sua sponte or upon motion of a party in interest, or the court is permitted to convert a reorganization case to a liquida- tion case or to dismiss the case, whichever is in the best interest of creditors and the estate, but only for cause. Cause may include the continuing loss to or dimunition [sic] of the estate of an insolvent debtor, the absence of a reasonable likelihood of rehabilitation, the inability to effectuate a plan, unreasonable delay by the debtor that is prejudicial to creditors, failure to file a plan within the appropriate time limits, denial of confirmation and any opportunity to modify or propose a new plan, revocation of confirmation and denial of confirmation of a modified plan, inability to effectuate substantial consummation of a confirmed plan, mate- rial default by the debtor under the plan, and termi- nation of the plan by reason of the occurrence of a con- dition specified in the plan. This list is not exhaustive. The court will be able to consider other factors as they arise, and to use its equitable powers to reach an appro- priate result in individual cases. The power of the court to act sua sponte should be used sparingly and only in emergency situations. Subsection (c) prohibits the court from converting a case concerning a farmer or an eleemosynary institu- tion to a liquidation case unless the debtor consents. Subsection (d) prohibits conversion of a reorganiza- tion case to a chapter 13 case unless the debtor requests conversion and his discharge has not been granted or has been revoked. Subsection (e) reinforces section 109 by prohibiting conversion of a chapter 11 case to a case under another chapter proceedings under which the debtor is not per- mitted to proceed. Editorial Notes REFERENCES IN TEXT The Federal Rules of Bankruptcy Procedure, referred to in subsec. (b)(4)(G), are set out in the Appendix to this title. AMENDMENTS 2010—Subsec. (b)(1). Pub. L. 111–327, § 2(a)(33)(A)(i), amended par. (1) generally. Prior to amendment, par. Page 251 TITLE 11—BANKRUPTCY § 1113 (1) read as follows: ‘‘Except as provided in paragraph (2) of this subsection, subsection (c) of this section, and section 1104(a)(3), on request of a party in interest, and after notice and a hearing, absent unusual cir- cumstances specifically identified by the court that es- tablish that the requested conversion or dismissal is not in the best interests of creditors and the estate, the court shall convert a case under this chapter to a case under chapter 7 or dismiss a case under this chapter, whichever is in the best interests of creditors and the estate, if the movant establishes cause.’’ Subsec. (b)(2). Pub. L. 111–327, § 2(a)(33)(A)(ii)(I), in- serted introductory provisions and struck out former introductory provisions which read as follows: ‘‘The re- lief provided in paragraph (1) shall not be granted ab- sent unusual circumstances specifically identified by the court that establish that such relief is not in the best interests of creditors and the estate, if the debtor or another party in interest objects and establishes that—’’. Subsec. (b)(2)(B). Pub. L. 111–327, § 2(a)(33)(A)(ii)(II), substituted ‘‘converting or dismissing the case’’ for ‘‘granting such relief’’. Subsec. (e). Pub. L. 111–327, § 2(a)(33)(B), substituted ‘‘521(a)’’ for ‘‘521’’. 2005—Subsec. (b). Pub. L. 109–8 added subsec. (b) and struck out former subsec. (b) which consisted of intro- ductory provisions and pars. (1) to (10) relating to con- version of cases under this chapter to chapter 7 cases or dismissal for cause in the best interest of creditors and the estate. 1994—Subsec. (b). Pub. L. 103–394 inserted ‘‘or bank- ruptcy administrator’’ after ‘‘United States trustee’’. 1986—Subsec. (b). Pub. L. 99–554, § 224(1)(A), inserted ‘‘or the United States trustee’’ after ‘‘party in inter- est’’. Subsec. (b)(10). Pub. L. 99–554, § 224(1)(B)–(D), added par. (10). Subsec. (d). Pub. L. 99–554, § 256, inserted reference to chapter 12 and added par. (3). Subsecs. (e), (f). Pub. L. 99–554, § 224(2), (3), added sub- sec. (e) and redesignated former subsec. (e) as (f). 1984—Subsec. (a)(2). Pub. L. 98–353, § 505(a)(1), sub- stituted ‘‘originally was commenced as an involuntary case’’ for ‘‘is an involuntary case originally com- menced’’. Subsec. (a)(3). Pub. L. 98–353, § 505(a)(2), substituted ‘‘other than on’’ for ‘‘on other than’’. Subsec. (b)(5). Pub. L. 98–353, § 505(b)(1), inserted ‘‘a request made for’’ before ‘‘additional’’. Subsec. (b)(8). Pub. L. 98–353, § 505(b)(2), substituted ‘‘or’’ for ‘‘and’’. Statutory Notes and Related Subsidiaries EFFECTIVE DATE OF 2005 AMENDMENT Amendment by Pub. L. 109–8 effective 180 days after Apr. 20, 2005, and not applicable with respect to cases commenced under this title before such effective date, except as otherwise provided, see section 1501 of Pub. L. 109–8, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1994 AMENDMENT Amendment by Pub. L. 103–394 effective Oct. 22, 1994, and not applicable with respect to cases commenced under this title before Oct. 22, 1994, see section 702 of Pub. L. 103–394, set out as a note under section 101 of this title. EFFECTIVE DATE OF 1986 AMENDMENT Effective date and applicability of amendment by sec- tion 224 of Pub. L. 99–554 dependent upon the judicial district involved, see section 302(d), (e) of Pub. L. 99–554, set out as a note under section 581 of Title 28, Judiciary and Judicial Procedure. Amendment by section 256 of Pub. L. 99–554 effective 30 days after Oct. 27, 1986, but not applicable to cases commenced under this title before that date, see sec- tion 302(a), (c)(1) of Pub. L. 99–554. EFFECTIVE DATE OF 1984 AMENDMENT Amendment by Pub. L. 98–353 effective with respect to cases filed 90 days after July 10, 1984, see section 552(a) of Pub. L. 98–353, set out as a note under section 101 of this title. § 1113. Rejection of collective bargaining agree- ments (a) The debtor in possession, or the trustee if one has been appointed under the provisions of this chapter, other than a trustee in a case cov- ered by subchapter IV of this chapter and by title I of the Railway Labor Act, may assume or reject a collective bargaining agreement only in accordance with the provisions of this section. (b)(1) Subsequent to filing a petition and prior to filing an application seeking rejection of a collective bargaining agreement, the debtor in possession or trustee (hereinafter in this section ‘‘trustee’’ shall include a debtor in possession), shall— (A) make a proposal to the authorized rep- resentative of the employees covered by such agreement, based on the most complete and reliable information available at the time of such proposal, which provides for those nec- essary modifications in the employees benefits and protections that are necessary to permit the reorganization of the debtor and assures that all creditors, the debtor and all of the af- fected parties are treated fairly and equitably; and (B) provide, subject to subsection (d)(3), the representative of the employees with such rel- evant information as is necessary to evaluate the proposal. (2) During the period beginning on the date of the making of a proposal provided for in para- graph (1) and ending on the date of the hearing provided for in subsection (d)(1), the trustee shall meet, at reasonable times, with the au- thorized representative to confer in good faith in attempting to reach mutually satisfactory modifications of such agreement. (c) The court shall approve an application for rejection of a collective bargaining agreement only if the court finds that— (1) the trustee has, prior to the hearing, made a proposal that fulfills the requirements of subsection (b)(1); (2) the authorized representative of the em- ployees has refused to accept such proposal without good cause; and (3) the balance of the equities clearly favors rejection of such agreement. (d)(1) Upon the filing of an application for re- jection the court shall schedule a hearing to be held not later than fourteen days after the date of the filing of such application. All interested parties may appear and be heard at such hear- ing. Adequate notice shall be provided to such parties at least ten days before the date of such hearing. The court may extend the time for the commencement of such hearing for a period not exceeding seven days where the circumstances of the case, and the interests of justice require such extension, or for additional periods of time to which the trustee and representative agree. (2) The court shall rule on such application for rejection within thirty days after the date of the