Sample motion to dismiss adversary proceeding
95-595, 338 (1977) (the intent "to undo the bankruptcy case, as far as practicable, and to restore all property rights to the position in which they were found at the commencement of the case … does not necessarily encompass undoing sales of property from the estate to a good faith purchaser"). This power is particularly relevant in cases where the debtor's assets have been sold in a section 363(b) sale. However, because conditions may have changed such that a complete restoration of the status quo is difficult or impossible, section 349(b) permits the bankruptcy court, "for cause," to modify the ordinary "restorative consequences" of unconditional dismissal of the chapter 11 case. Dismissal of a case is intended to "undo the Bankruptcy case, as far as practicable, and to restore all property rights to the position in which they were found at the commencement of the case." H.R.
Section 349(b) of the Bankruptcy Code provides that, "nless the court, for cause, orders otherwise," the dismissal of a bankruptcy case (other than a case filed under the Securities Investor Protection Act) reinstates the status quo ante by, among other things, reinstating any prebankruptcy custodianship, vacating any bankruptcy court order avoiding a transfer or lien, and revesting property of the estate in the debtor. Yet outright dismissal of a chapter 11 case may not be the best course of action either, for several reasons.
The first two options commonly require significant time and administrative costs. Namely, the debtor can propose and seek confirmation of a liquidating chapter 11 plan, the case can be converted to a chapter 7 liquidation, or the case can be dismissed. Because chapter 11 cases can be prolonged and costly, prepackaged or prenegotiated plans and expedited asset sales under section 363(b) of the Bankruptcy Code have been increasingly used as methods to short-circuit the process, minimize expenses, and maximize creditor recoveries.Īfter a bankruptcy court approves the sale of substantially all of a chapter 11 debtor's assets under section 363(b), a number of options are available to deal with the debtor's vestigial property and claims against the bankruptcy estate, and to wind up the bankruptcy case. In a typical successful chapter 11 case, a plan of reorganization or liquidation is proposed, the plan is confirmed by the bankruptcy court, the plan becomes effective, and, after the plan has been substantially consummated and the case has been fully administered, the court enters a final decree closing the case. ere, the Debtors' request for structured dismissals fits neatly through that open door."
According to the court, " left the door open where such dismissals do not violate the absolute priority rule and otherwise comply with the applicable provisions of the Bankruptcy Code…. Bankruptcy Court for the Southern District of New York recently examined this issue in In re KG Winddown, LLC, 628 B.R. However, because the Court declined to express any "view about the legality of structured dismissals in general," the impact of the ruling on such relief remains an open question. Supreme Court held that the Bankruptcy Code does not allow bankruptcy courts to approve distributions to creditors in a "structured dismissal" of a chapter 11 case that violate the Bankruptcy Code's ordinary priority rules without the consent of creditors.