In re: Carlos L. Beltran Rodriguez; Ines Gonzalez Rosado; dba Las Piedras Service Station; Juncos Service Station

Opinion

FOR THE DISTRICT OF PUERTO RICO 2 IN RE: : CASE NO. 09-06437 : 4 : CARLOS L. BELTRAN RODRIGUEZ; : □□ 5 [INES GONZALEZ ROSADO; DBA : “11m & ENTERED LAS PIEDRAS SERVICE STATION; : SiLED 2 ENT EREU 6 |JUNCOS SERVICE STATION : CHAPTER 11 7 Debtors : APE 200

9 11 Before the court is Toral Petroleum Corporation’s (hereinafter referred to as the “Creditor”) motion to convert this chapter 11 case to a chapter 7 pursuant to 11 U.S.C. 1112(b)(4)()), that is, for B “failure to file a disclosure statement or to file or confirm a plan, within the time fixed by this title 14 by order of the court;” and also for inability to effectuate a plan and unreasonable delay by the 15 debtor that is prejudicial to creditors. On January 21, 2010 Carlos L. Beltran Rodriguez and Ines 16 Gonzalez Rosado (hereinafter referred to as the “Debtors”) filed their opposition to Creditor’s motion 17 |[to convert to chapter 7 and request for hearing. An evidentiary hearing was held on February 1, 2010. 18 For the reasons set forth below the motion to convert this chapter 11 case to a chapter 7 is hereby 19 denied. . 0 Facts and Procedural Background 1 Debtors filed a bankruptcy petition under Chapter 11 of the Bankruptcy Code on August 4, » 2009. The 341 meeting of the creditors was initially scheduled for September 11, 2009 (Docket No. 3 7), and rescheduled to October 5, 2009 (Docket No. 17), and subsequently continued on November 4 3, 2009 (Docket No. 51), December 11, 2009 (Docket No. 68), and thereafter continued sine die 5 (Docket No. 78). On March 12, 2010, the United States Trustee filed notice for the continuance of the 341 creditors’ meeting for April 7, 2010 (Docket No. 104). 7 On September 22, 2009, a status conference was held in which the Debtors proffered and the ag established that the disclosure statement and plan of reorganization would be filed by December 5, 2009 (Docket No. 22). The court was aware that the one-hundred twenty days (120) from the order

1 relief fell on December 2, 2009 but allowed the Debtors to file the same on Saturday, December 2 2009. On December 7, 2009, Debtors requested a sixty (60) day extension to file the plan of 3 |[reorganization with an incorporated memorandum of law (Docket No. 72). The court on December 4 2009 granted Debtors’ request for a sixty (60) day time extension to file the plan of reorganization 5 |(Docket No. 74). On December 16, 2009, Banco Popular de Puerto Rico filed a “Motion Seeking 6 ||Order Regarding Debtors’ Extension of Time To File Payment Plan” requesting the court to take note 7 Debtors’ noncompliance with the additional information requested by the United States Trustee 8 jlat the 341 meeting of creditors and that no additional extensions of time to file the disclosure 9 |\statement and plan of reorganization should be afforded to the Debtors since continuance of the 341 10 |imeeting of creditors does not constitute cause to postpone the filing of the disclosure statement and 11 plan of reorganization (Docket No. 77). On December 18, 2009, the court denied Banco Popular 12 Puerto Rico’s motion and stated the following: “[t]he court notes that the exclusivity period has 13 been enlarged and that the extension of time does not preclude any party in interest to move for 14 dismissal of the case for cause.'” (Docket No. 79). 15 On January 8, 2010, Creditor filed a motion to convert the current chapter 11 case to a chapter 16 case pursuant to 11 U.S.C. 1112(b)(4)() and for inability to effectuate a plan; and unreasonable 17 by the debtor that is prejudicial to creditors. Creditor’s motion is based on the following 18 allegations: (4) “Debtors’ initial Schedules showed total assets of approximately $37, 796,000.00 and 19 liabilities of approximately $14, 427, 365.00. See docket entry 26, debtors’ September 24, 2009 20 Schedules. Two months later, by November 20, 2009, debtors’ Schedules revealed total assets of 21 |$37,881,000 (an increase of approximately $85,000.00, and this without including the $80,000.00 yet 22 |jto be added as the value of debtors’ luxury boat and automobile collection) and total liabilities of 23 11$13,564,697.71 (a decrease of $862,667.29).” (Docket No. 82, paragraph 5); (ii) Debtors have not 24 ||been able to conclude their 341 meeting of the creditors nor have they filed adequate Schedules and/or 25 ||Statement of Affairs or presented a confirmable plan due to their own failure to provide accurate 26 0 □□□□□□□□□□□□□□□□□□□□□□□□□□ 'The order mistakenly states that the Debtors’ request for extension of time was denied but 28 || what was denied was Banco Popular de Puerto Rico’s motion.

1 disclosure of their assets and liabilities; (iii) Debtors through the operation of various gas stations 2 ||generate hundreds of thousands of dollars in cash on a monthly basis which is evidenced in their 3 monthly Operating Reports (Docket No. 82, paragraphs 6 &7); (iv) “[a] cash flow of this magnitude 4 |[requires an adequate system of controls, checks and balances to ensure that the in-coming cash is 5 |properly channeled to cover creditors’ claims and debtors’ legitimate business expenses” (Docket No. 6 paragraph 6); (v) “[g]iven the debtor’s proven pattern of evasion, lack of candor, the unending 7 |jsaga of continuance upon continuance of the 341 meeting of creditors, the serial amendments to the 8 Schedules and Statements of Affairs, the debtors’ failure to extend the exclusivity period, and the 9 |\debtors’ failure to file a timely Disclosure Statement and proposed Plan of Reorganization” (Docket 10 82, paragraph 13); and (vi) “Toral Petroleum understands that it has shown cause and that 11 |jconversion is proper under this Court’s equitable powers based on the ground that there has been 12 |funreasonable delay that is prejudicial to creditors” (Docket No. 82, paragraph 17). On January 11, 13 the court issued an order and notice setting for February 1, 2010, a hearing regarding Creditor’s 14 |motion to convert to chapter 7 pursuant to 11 U.S.C. §1112(b)(4) (Docket No. 84). 15 On January 29, 2010, Debtors filed their Disclosure Statement and their Plan of 16 |Reorganization (Docket Nos. 91 &92). Also, on this same date the parties filed the Joint Pre-Trial 17 |Report (Docket No. 93). Subsequently, an evidentiary hearing was held on February 1, 2010, 18 |regarding Creditor’s request for conversion to Chapter 7 or dismissal of the instant case. During the 19 |hearing, the U.S. Trustee clarified that thus far, three (3) 341 meeting of the creditors have taken 20 The U.S. Trustee stated that the first two (2) meetings took longer because one of the creditors 21 |jrequested that the meeting be conducted in the English language and Debtors choose to use the 22 |\translation service provided by the Office of the U.S. Trustee. The third meeting was held in the 23 ||Spanish language. The U.S. Trustee explained that Debtors have numerous real properties that require 24 certain clarifications and that it agrees with Creditor’s position that it has not been able to ascertain 25 |jthe true and exact financial condition of Debtors and their assets. The U.S. Trustee also stated that 26 were certain inconsistencies in Debtors’ testimonies which were given at the 341 creditors 27 |meetings which needed to be clarified. However, the U.S. Trustee indicated that it will like to benefit 28 this hearing in order to take its final position on this matter.

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1 The only witness called upon by Creditor to testify was the Debtor, Carlos L. Beltran 2 |[Rodriguez. Creditor’s direct interrogatory consisted in asking Debtor Carlos L. Beltran Rodriguez to 3 all of the real properties (parcels) it owns and whether the same are mortgaged and the 4 |lapproximate date of the last mortgage payment Debtor made to the mortgagee or secured creditor. 5 |/Debtor Carlos L. Beltran Rodriguez in a nutshell proceeded to list all of the real properties (parcels) 6 ||he owns and whether the same were mortgaged. Debtor Carlos L. Beltran Rodriguez testified that he 7 not made any mortgage payments on the mortgaged properties in approximately 1-2 years. He 8 testified that he is currently not making any mortgage payments and that he is depositing certain 9 |monies into an account. Debtor stated the reason he stopped making the mortgage payments was 10 |Ibecause there was a decrease in his volume of business, namely the number of gallons sold decreased 11 approximately 600,000 to 300,000 gallons of gasoline on a monthly basis. Debtor testified that 12 summation of the monthly mortgage payments amounted to approximately $75,000.00-80,000.00. 13 |/Debtor also testified that the IRS had seized approximately $200,000.00 from his bank accounts due 14 a debt originating from his own personal social security taxes as well as his employees’ social 15 |security taxes. After these monies were seized by the IRS, Debtor choose not to accept credit cards 16 his business because he could no longer afford the same. Lastly, Debtor testified that if he sells two 17 or three (3) of his properties he will be able to pay off all of his creditors. 18 Applicable Law and Analysis 19 |Cause for Conversion or Dismissal pursuant 11 U.S.C. $1112(b)(4) 20 Section 1112(b) of the Bankruptcy Code mandates the bankruptcy court after notice and a 21 ||hearing to convert or dismiss a chapter 11 case, whichever is in the best interests of creditors and the 22 |estate, if the movant establishes cause and the case is devoid of unusual circumstances pursuant to 23 U.S.C. §1112(b)(2). 11 U.S.C. §1112(b)1). The initial burden is on the movant to argue and 24 ||present evidence by a preponderance of the evidence standard to prove its position that there is cause 25 either conversion or dismissal of the chapter 11 case, whichever is in the best interests of creditors 26 |jand the estate. See Alan N. Resnick & Henry J. Sommer, 7_Collier on Bankruptcy 1112.04[4] (16 27 |jed. 2009). “Thus, until the movant carries the burden, the statutory direction that the court ‘shall 28 |iconvert the case to a case under chapter 7 or dismiss the case’ is not operative.” Id. However, after

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1 |finding cause, the court has broad discretion to determine whether conversion or dismissal is in the 2 best interest of creditors and the estate. See Gilroy v. Ameriquest Mortg. Co. (In re Gilroy), 2008 3 |/Bankr. Lexis 3968 (B.A.P. 1* Cir. 2008). However, Section 1104(a)(3) provides that, “on request of 4 |la party in interest or the United States trustee, and after notice and a hearing, the court shall order the 5 llappointment of a trustee if grounds exist to convert or dismiss the case under section 1112, but the 6 determines that the appointment of a trustee or an examiner is in the best interests of creditors 7 the estate.” 11 U.S.C. §1104(a)(3). Section 1112(b)(4) of the Bankruptcy Code fails to define 8 the term “cause” means but provides a laundry list of circumstances which constitute “cause” 9 |for conversion or dismissal. This list of causes is nonexhaustive, thus a case may be converted or 10 |idismissed for other causes. See AmeriCERT, Inc. v. Straight Through Processing, Inc. □□□ □□ 11 ||AmeriCERT, Inc.), 360 B.R. 398, 401 (Bankr. D. N.H. 2007). 12 Section 1112(b)(4)(J) specifically establishes that cause to dismiss or convert a chapter 11 13 |icase includes, “failure to file a disclosure statement, or to file or confirm a plan, within the time fixed 14 Ilby this title or by order of the court.” 11 U.S.C. §1112(b)(4)J). However, only mandatory deadlines 15 |lestablished by the court or the Bankruptcy Code constitute cause under 11 U.S.C. §1112(b)(4)(J). See 16 N. Resnick & Henry J. Sommer, 7 Collier on Bankruptcy §1112.04[6][j] (16" ed. 2009). The 17 of exclusivity the debtor has to file the plan pursuant to 11 U.S.C. §1121(b) does not constitute 18 jla mandatory deadline for purposes of Section 1112(b)(4)(J). Id. (“Although the exclusive period of 19 |filing a plan provided by section 1121(d) may provide some weight in determining the ‘reasonable 20 of time’ under section 1112(b)(2)(A) in defense of a motion to dismiss or convert, the time 21 |llimitation upon the privilege of exclusivity is not a ‘time fixed’ or deadline for purposes of section 22 1112(b)(4)J)”’). After Debtors’ exclusivity period lapsed on December 5, 2009, no creditor filed a 23 of reorganization. In the instant case, Debtors filed their Disclosure Statement and Plan of 24 ||Reorganization on January 29, 2010 (Docket Nos. 91&92), almost six (6) months after they filed 25 |Itheir bankruptcy petition. Thus, this court finds that Creditor’s argument under 11 U.S.C. 26 §1112(b)(4)() is unfounded, given that Debtors’ exclusivity period is not considered a mandatory 27 |\deadline and Debtors’ filed their disclosure statement and plan of reorganization within a reasonable 28 IItime.

1 The second argument Creditors present for conversion of Debtors’ chapter 11 bankruptcy 2 |Ipetition to be converted chapter 7 is the inability to effectuate a plan. Prior to the Bankruptcy Abuse 3 Prevention and Consumer Act of 2005, Pub. L. No. 109-8, 119 Stat. 23 (2005) (““BAPCPA”), 4 “inability to effectuate a plan” was a cause for conversion or dismissal under former 11 U.S.C. 5 §1112(b)(2). BAPCPA deleted this particular “cause” from its enumerated list of causes pursuant to 6 |11 U.S.C. §1112(b)(4). However, the closest analogue to former §1112(b)(2) (or inability to 7 \leffectuate a plan) is 11 U.S.C. §1112(b)(4)(A) which provides that cause includes, “substantial or 8 llcontinuing loss to or diminution of the estate and the absence of a reasonable likelihood of 9 rehabilitation.” 11 U.S.C. §1112(b)(4)(A); See In re DCNC N.C. I, LLC, 407 B.R. 651, 664 (Bankr. 10 JE.D. Pa. 2009). At this juncture, Creditor has simply not presented any evidence which would 11 |lsupport this contention. 12 Lastly, Creditor argues that “cause” to convert to chapter 7 exists because there has been an 13 unreasonable delay by the Debtors that is prejudicial to creditors. According to Creditors this 14 lunreasonable delay consists in Debtors’ amending their Schedules and including additional assets 15 |;whose value is approximately $165,000.00 and the fact that the 341 creditor’s meeting has not been 16 |iclosed. This court notes that an increase in assets of $165,000.00 is immaterial considering that the 17 |lassets of the estate as per Schedules A & B amount to $37,881,000.00. The Office of the U.S. Trustee 18 jin the evidentiary hearing held on February 1, 2010 provided some insight as to why the 341 meeting 19 creditors had not been closed, namely because in two (2) of the three (3) meetings that were held, 20 translation services were employed and the U.S. Trustee decided to postpone the scheduling of 21 continuance of the 341 creditors’ meeting until after the evidentiary hearing on the motion to 22 ||lconvert to chapter 7 had taken place. Creditor also presented its concern that Debtors’ businesses are 23 |jcash basis and as such require an adequate system of controls and checks and balances to ensure that 24 incoming cash is properly channeled to cover creditors’ claims and Debtors’ legitimate business 25 |lexpenses. However, Creditor did not present any evidence to sustain that Debtors had an inadequate 26 |lsystem of controls or that there was any type of gross mismanagement of the estate. At this juncture, 27 |\this court finds that Creditor has not sustained its burden of proving that there has been unreasonable 28 by the Debtors that is prejudicial to creditors to the extent that conversion to chapter 7 is

1 |warranted. 2 Conclusion 3 In view of the foregoing, the court concludes that Creditor has failed to meet its burden that 4 |Ithere is cause to convert this case to chapter 7 pursuant to 11 U.S.C. §1112(b)(4)(J) or for inability 5 |Ito effectuate a plan; and unreasonable delay by the debtor that is prejudicial to creditors. 7 In San Juan, Puerto Rico, this Ge day of April, 2010. 8

ENRIQUE S.LAMOUTTE 10 ¥.S. Bankruptcy Judge 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28