Case Summary:
Upon the court’s grant of the Debtor’s motion to convert this involuntary chapter 7 case to chapter 11, the Debtor in Possession (“DIP”) moved to enlarge the exclusivity period. One of the original petitioning creditors, a defendant in a preference action brought by the DIP, opposed the Motion. The adversary proceeding arises from the creditor’s proof of claim for a state court judgment lien purportedly secured by, among other things, the DIP’s interest in a limited partnership. The creditor objected to the requested extension, arguing that the DIP was engaging in dilatory conduct or otherwise trying to coerce an advantageous settlement of the preference action which his involuntary chapter 7 petition sought to preserve. Emphasizing that not all litigation must be resolved before a debtor can propose a plan, the court found that the adversary proceeding may have a drastic impact on assets available to fund reorganization and the allocation of payments to creditors. The court concluded that the DIP met its burden to show sufficient cause for the requested extensions, finding the creditor’s concerns to be “vague.” The court further noted the clear possibility that the adversary may be resolved in a short time and that the action to avoid the allegedly preferential security interest stood to directly benefit the entire pool of general unsecured creditors rather than only the DIP, in allowing the requested three-month extension.

Statute/Rule References:
11 U.S.C. § 547 -- Preferences
11 U.S.C. § 1107(a) -- Powers of a Debtor in Possession
11 U.S.C. § 1121(b) -- Exclusivity Period
11 U.S.C. § 1121(c) -- Party in Interest’s Right to File a Plan
11 U.S.C. § 1121(d) -- Extensions of the Exclusivity or Acceptance Periods

Key Terms:
Debtor in Possession
Exclusivity Period
Individual Chapter 11
Involuntary Petition
Judgment Lien
Limited Partnership
Plan of Reorganization
Proof of Claim