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In re Gannon International, Ltd.

United States District Court, E.D. Missouri, Eastern Division

March 26, 2015



RONNIE L. WHITE, District Judge.

This matter is before the Court on Appellant Robert P. Greene's Appeal of the Bankruptcy Court's Order granting U.S. Bank's Motion to Dismiss and dismissing the Debtor's Chapter 11 case, Case No. 13-46321. Upon careful consideration of the briefs, the Court will affirm the bankruptcy court's order dismissing the Chapter 11 case.

Procedural Background[1]

Debtor Gannon International, Ltd.'s ("Debtor") bankruptcy case commenced on July 9, 2013 upon the filing of an involuntary Chapter 7 petition in the United States Bankruptcy Court for the Eastern District of Missouri. (Chapter 7 Involuntary Petition, ECF No. 1) Three independent creditors, Connell Brothers Co., Ltd. ("Connell Brothers"), R.S. Bacon Veneer, Inc. ("R.S. Bacon"), and Robert P. Greene ("Greene") filed the petition based on each party's independent judgment against Debtor. (Id.) Debtor initially opposed involuntary bankruptcy proceedings and sought dismissal of the involuntary petition, which the court denied after a hearing. (Mot. to Dismiss, ECF No. 22; Order Denying Mot. to Dismiss, ECF No. 33) Debtor then filed a motion to reconsider the court's denial of the motion to dismiss, and the court also denied that motion on October 22, 2013. (Mot. to Alter or Amend Order, for Relief from Order and for Reconsideration, ECF No. 37; Order Denying Motion, ECF No. 41) Debtor later consented to the entry of an order for relief on the condition that the court convert the case to a Chapter 11 proceeding, which the court then converted on October 31, 2013. (Request for Conversion to Chapter 11, ECF No. 46; Order, ECF No. 50)

On January 30, 2014, Greene filed a Motion to Convert the Case to Chapter 7 and also requested an expedited hearing. (Mot. to Convert, ECF No. 97; Mot. to Expedite Hearing, ECF No. 99) The court granted the motion to expedite the hearing and set the hearing for February 18, 2014. (Order Granting Mot. to Expedite Hearing, ECF No. 101) Debtor objected to the motion and asked that the court appoint an Examiner to investigate Debtor and its assets. (Debtor's Objection to Mot. to Convert, ECF No. 110; Debtor's Plan of Reorganization, ECF No. 111) On February 25, 2014, the court granted the request for an order appointing an Examiner and accepted the offer to pay the Examiner's fees by Debtor's principal, William Franke ("Franke"). (Order Granting Request for an Order Appointing an Examiner, ECF No. 114) The court also continued the hearing on the Motion to Convert until March 26, 2014. (Id.) The bankruptcy court further ordered the Examiner to investigate "any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity in the management of the affairs of the Debtor...." (Id.) This investigation included Debtor's subsidiaries and affiliates, including but not limited to, companies and assets located in Asia. (Id.)

On March 3, 2014, the court appointed Steven E. Holtshouser as the Examiner in the case. (Order Approving Appointment of Chapter 11 Examiner, ECF No. 118) The Examiner presented a fee estimate, and on March 26, 2014, the court ordered Mr. Franke to transfer funds to the Examiner's trust account. (Examiner's First Reasonable Estimate of Fees, ECF No. 127; Order, ECF No. 130) Mr. Franke did not comply with the court's order, and after a hearing held on April 2, 2014, the court ordered a payment schedule for Mr. Franke to deposit funds into the Examiner's trust account. (Order, ECF No. 138) The order further stated that if Mr. Franke did not timely comply with the funding schedule, the Examiner would notice the court and parties, and the court would set Greene's motion to convert for a hearing date and time on an expedited basis. (Id.)

On April 9, 2014, the Examiner notified the court that Mr. Franke failed to comply with the payment schedule, although the Examiner indicated he had made significant progress in the investigation. (Examiner's Notice, ECF No. 141) The following day, Creditor U.S. Bank filed a Motion to Dismiss and Motion to Expedite Hearing, indicating that dismissal was preferred to a conversion to Chapter 7 because it was in the best interests of creditors. (Mot. to Dismiss, ECF Nos. 142, 143) On April 14, 2014, the court held a hearing on Greene's Motion to Convert from Chapter 11 to Chapter 7, the Examiner's notices regarding wire transfers, and Creditor U.S. Bank's Motions to Expedite Hearing and to Dismiss. (Transcript of 4/14/14, ECF No. 160) After hearing oral arguments, the court orally granted the motion to dismiss and denied the motion to convert. ( Id. at p. 40) Specifically, the court stated:

The outline of the case that was given is correct. There was vigorous opposition by the debtor initially to being in bankruptcy, then they consented to the bankruptcy and converted to Chapter 11.
Mr. Franke said that he would fund the examiner, and the creditors were all in agreement except for Mr. Greene. The Greene parties brought the agreement to the Court, including Mr. Franke's agreement to fund the examiner, and I entered an order regarding that agreement.
Mr. Franke didn't live up to his agreement to fund the examiner. And then I attempted to rework the funding agreement. Again, Mr. Franke could not live up to that, as well.
I'll also note for the record that there are no creditors that are willing to fund the investigation of assets by the examiner or by a Chapter 7 trustee. Therefore, I will grant the motion to dismiss the case and deny the motion to convert the case.

( Id. at pp. 39-40) The attorney for Greene responded that some creditors may be willing to fund a trustee, but the court noted that no one stepped up to the plate. The court continued:

Nobody stepped up to the plate. If somebody's stepping up to the plate - I don't mean to be ugly, Mr. Hall. You know I served as a Chapter 7 trustee, so I know what it's like to have a case and there appear to be some assets out there, and you can't find them, and there's no money to fund them.
But I have a hard time in a case like this, where we know there are foreign assets, appointing one of our fine trustees from our Chapter 7 panel to kind of run with nothing ...

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