MEMORANDUM AND ORDER ON MOTION TO CONVERT OR DISMISS CHAPTER 11 CASE
ALAN H.W. SHIFF, Bankruptcy Judge.
The United States Trustee, joined by Scandia Down Corporation, moves pursuant to Bankruptcy Code § 1112(b)(2)
for
an order converting this case to a case under chapter 7 or, in the alternative, dismissing the case. While a number of issues have been raised, the sole question decided here is whether the debtor’s franchise agreement (Agreement) with Scandia remains executory despite Scandia’s pre-pe-tition notice of termination for failure to make required royalty payments. If the Agreement is not executory, it may not be assumed and the debtor’s “prospects for prompt rehabilitation” will fade.
See A. Illum Hansen, Inc. v. Tiana Queen Motel, Inc. (In re Tiana Queen Motel, Inc.),
749 F.2d 146, 151 (2d Cir.1984),
cert. denied,
471 U.S. 1138, 105 S.Ct. 2681, 86 L.Ed.2d 699 (1985).
Cf United Savings Assoc, of Tex. v. Timbers of Inwood Forest Assoc., Ltd.,
484 U.S. 365, 108 S.Ct. 626, 98 L.Ed. 2d 740 (1988) (“[Tjhere must be ‘a reasonable possibility of a successful reorganization within a reasonable time.’ ”). Under those circumstances conversion would be warranted.
I.
On August 23, 1984, the debtor entered into the Agreement with Scandia. Under the Agreement, the debtor was to operate a retail outlet store for Scandia merchandise under the trade name “Scandia Down Shop”. Section 4.01(b) of the Agreement provided for monthly royalty payments of four percent of the debtor’s gross revenues.
Section 14.01(b) gave Scandia the right to terminate the Agreement upon notice if the debtor failed to make the required payments and did not cure that default within the notice period.
Connecticut General Statutes § 42-133f(a), which preempts the notice period in the Agreement, requires,
inter alia,
a sixty day notice period prior to termination of a franchise agreement.
See
Conn.Gen.Stat.Ann. 42-133f(f) (West 1987) (“Any waiver of the rights of a franchisee under sections 42-133f or 42-133g which is contained in any franchise agreement entered into or amended on or after June 12,1975, shall be void.”).
The debtor failed to make royalty payments due in March and April, 1988, and by a letter dated May 26, 1988, Scandia gave the debtor the required sixty days notice of termination. On June 30, 1988, the debtor filed a petition under chapter 11 of the Bankruptcy Code.
ii.
At the outset, it must be determined whether the Agreement was still executory at the commencement of this case and therefore assumable under Bankruptcy Code § 365.
Scandia contends that since all that remained tó complete the termination of the Agreement was the passage of time, it had been effectively terminated and was no longer executory when the petition was filed. The authority relied upon by Scandia, however, is distinguishable in that in each case cited there was no right to cure under the contract or applicable law when the petition was filed.
Moody v. Amoco Oil Co.,
734 F.2d 1200, 1212-14 (7th Cir.1984),
cert. denied,
469 U.S. 982, 105 S.Ct. 386, 83 L.Ed.2d 321 (1984);
Edwin M. Lipscomb Farms, Inc. v. Michigan Millers Mut. Ins. Co. (In re Edwin M. Lipscomb Farms, Inc.),
90 B.R. 422 (Bankr.W.D.Mo.1988);
In re Crabb,
48 B.R. 165 (Bankr.D.Mass.1985);
D.C. Films, Inc. v. Best Film & Video Corp. (In re Best Film & Video Corp.),
46 B.R. 861 (Bankr.E.D.N.Y.1985);
Lauderdale Motorcar Corp. v. Rolls-Royce Motors, Inc. (Matter of Lauderdale Motorcar Corp.),
35 B.R. 544 (Bankr.S.D.Fla.1983);
Shell Oil Co. v. Anne Cara Oil Co., Inc. (In re Anne Cara Oil Co., Inc.),
32 B.R. 643 (Bankr.D.Mass.1983);
New Media Irjax, Inc. v. DC Comics, Inc. (Matter of New Media Irjax, Inc.),
19 B.R. 199 (Bankr.M.D.Fla.1982);
Matter of Benrus Watch Co., Inc.,
13 B.R. 331 (Bankr.S.D.N.Y.1981). In sharp contrast, this debtor’s right to cure under the Agreement as modified by state law had not elapsed when the petition was filed, and the Agreement was therefore still executory.
See Moody, supra,
734 F.2d at 1216;
In re Round Hill Travel, Inc.,
52 B.R. 807, 810 (Bankr.D.Nev.1985);
Electronic Realty Assoc., Inc. v. ERA Central Regional Serv., Inc. (In re ERA Central Regional Serv., Inc.),
39 B.R. 738, 741 (Bankr.C.D.Ill.1984).
The question evolves, how much time did the debtor have to cure the default after the commencement of the case. Under a § 108(b)
analysis, employed by some courts, the debtor’s right to cure and therefore its right to assume would have expired sixty days after the filing of the petition.
See, e.g., Counties Contracting and Constr. Co. v. Constitution Life Ins. Co.,
855 F.2d 1054, 1059-61 (3rd Cir.1988). I conclude, however, in accord with what I
find to be more persuasive authority from the Seventh Circuit, that § 365, which gives debtors the right to cure executory contracts at any time before confirmation, governs.
Moody, supra,
734 F.2d at 1215-16.
See also In re Henke,
84 B.R. 693, 697 (Bankr.D.Mont.1988);
In re Round Hill Travel, Inc., supra,
52 B.R. at 809.
First, as a rule of statutory construction, it is observed that where two provisions apply, the more specific governs.
Edwin C. Levy Co., Inc. v. McLouth Steel Corp. (Matter of McLouth Steel Corp.),
20 B.R. 688, 690 (Bankr.E.D.Mich.1982);
International Playtex, Inc. v. Rapino (In re Rapino),
11 B.R. 651, 657 (Bankr.E.D.N.Y.1981). Applying that analysis, § 365(d)(2), which specifically governs the cure of defaults in executory contracts, should govern rather than § 108(b), which generally governs post-petition extensions of time to cure defaults.
Moody, supra,
734 F.2d at 1215;
Matter of Dunes Casino Hotel,
63 B.R. 939, 949 n. 4 (D.N.J.1986);
In re Memphis-Friday’s Assoc.,
88 B.R. 830, 839 (Bankr. W.D.Tenn.1988);
In re Round Hill Travel, Inc., supra,
52 B.R. at 808-09;
Edwin C. Levy Co., Inc., supra,
20 B.R. at 690.
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MEMORANDUM AND ORDER ON MOTION TO CONVERT OR DISMISS CHAPTER 11 CASE
ALAN H.W. SHIFF, Bankruptcy Judge.
The United States Trustee, joined by Scandia Down Corporation, moves pursuant to Bankruptcy Code § 1112(b)(2)
for
an order converting this case to a case under chapter 7 or, in the alternative, dismissing the case. While a number of issues have been raised, the sole question decided here is whether the debtor’s franchise agreement (Agreement) with Scandia remains executory despite Scandia’s pre-pe-tition notice of termination for failure to make required royalty payments. If the Agreement is not executory, it may not be assumed and the debtor’s “prospects for prompt rehabilitation” will fade.
See A. Illum Hansen, Inc. v. Tiana Queen Motel, Inc. (In re Tiana Queen Motel, Inc.),
749 F.2d 146, 151 (2d Cir.1984),
cert. denied,
471 U.S. 1138, 105 S.Ct. 2681, 86 L.Ed.2d 699 (1985).
Cf United Savings Assoc, of Tex. v. Timbers of Inwood Forest Assoc., Ltd.,
484 U.S. 365, 108 S.Ct. 626, 98 L.Ed. 2d 740 (1988) (“[Tjhere must be ‘a reasonable possibility of a successful reorganization within a reasonable time.’ ”). Under those circumstances conversion would be warranted.
I.
On August 23, 1984, the debtor entered into the Agreement with Scandia. Under the Agreement, the debtor was to operate a retail outlet store for Scandia merchandise under the trade name “Scandia Down Shop”. Section 4.01(b) of the Agreement provided for monthly royalty payments of four percent of the debtor’s gross revenues.
Section 14.01(b) gave Scandia the right to terminate the Agreement upon notice if the debtor failed to make the required payments and did not cure that default within the notice period.
Connecticut General Statutes § 42-133f(a), which preempts the notice period in the Agreement, requires,
inter alia,
a sixty day notice period prior to termination of a franchise agreement.
See
Conn.Gen.Stat.Ann. 42-133f(f) (West 1987) (“Any waiver of the rights of a franchisee under sections 42-133f or 42-133g which is contained in any franchise agreement entered into or amended on or after June 12,1975, shall be void.”).
The debtor failed to make royalty payments due in March and April, 1988, and by a letter dated May 26, 1988, Scandia gave the debtor the required sixty days notice of termination. On June 30, 1988, the debtor filed a petition under chapter 11 of the Bankruptcy Code.
ii.
At the outset, it must be determined whether the Agreement was still executory at the commencement of this case and therefore assumable under Bankruptcy Code § 365.
Scandia contends that since all that remained tó complete the termination of the Agreement was the passage of time, it had been effectively terminated and was no longer executory when the petition was filed. The authority relied upon by Scandia, however, is distinguishable in that in each case cited there was no right to cure under the contract or applicable law when the petition was filed.
Moody v. Amoco Oil Co.,
734 F.2d 1200, 1212-14 (7th Cir.1984),
cert. denied,
469 U.S. 982, 105 S.Ct. 386, 83 L.Ed.2d 321 (1984);
Edwin M. Lipscomb Farms, Inc. v. Michigan Millers Mut. Ins. Co. (In re Edwin M. Lipscomb Farms, Inc.),
90 B.R. 422 (Bankr.W.D.Mo.1988);
In re Crabb,
48 B.R. 165 (Bankr.D.Mass.1985);
D.C. Films, Inc. v. Best Film & Video Corp. (In re Best Film & Video Corp.),
46 B.R. 861 (Bankr.E.D.N.Y.1985);
Lauderdale Motorcar Corp. v. Rolls-Royce Motors, Inc. (Matter of Lauderdale Motorcar Corp.),
35 B.R. 544 (Bankr.S.D.Fla.1983);
Shell Oil Co. v. Anne Cara Oil Co., Inc. (In re Anne Cara Oil Co., Inc.),
32 B.R. 643 (Bankr.D.Mass.1983);
New Media Irjax, Inc. v. DC Comics, Inc. (Matter of New Media Irjax, Inc.),
19 B.R. 199 (Bankr.M.D.Fla.1982);
Matter of Benrus Watch Co., Inc.,
13 B.R. 331 (Bankr.S.D.N.Y.1981). In sharp contrast, this debtor’s right to cure under the Agreement as modified by state law had not elapsed when the petition was filed, and the Agreement was therefore still executory.
See Moody, supra,
734 F.2d at 1216;
In re Round Hill Travel, Inc.,
52 B.R. 807, 810 (Bankr.D.Nev.1985);
Electronic Realty Assoc., Inc. v. ERA Central Regional Serv., Inc. (In re ERA Central Regional Serv., Inc.),
39 B.R. 738, 741 (Bankr.C.D.Ill.1984).
The question evolves, how much time did the debtor have to cure the default after the commencement of the case. Under a § 108(b)
analysis, employed by some courts, the debtor’s right to cure and therefore its right to assume would have expired sixty days after the filing of the petition.
See, e.g., Counties Contracting and Constr. Co. v. Constitution Life Ins. Co.,
855 F.2d 1054, 1059-61 (3rd Cir.1988). I conclude, however, in accord with what I
find to be more persuasive authority from the Seventh Circuit, that § 365, which gives debtors the right to cure executory contracts at any time before confirmation, governs.
Moody, supra,
734 F.2d at 1215-16.
See also In re Henke,
84 B.R. 693, 697 (Bankr.D.Mont.1988);
In re Round Hill Travel, Inc., supra,
52 B.R. at 809.
First, as a rule of statutory construction, it is observed that where two provisions apply, the more specific governs.
Edwin C. Levy Co., Inc. v. McLouth Steel Corp. (Matter of McLouth Steel Corp.),
20 B.R. 688, 690 (Bankr.E.D.Mich.1982);
International Playtex, Inc. v. Rapino (In re Rapino),
11 B.R. 651, 657 (Bankr.E.D.N.Y.1981). Applying that analysis, § 365(d)(2), which specifically governs the cure of defaults in executory contracts, should govern rather than § 108(b), which generally governs post-petition extensions of time to cure defaults.
Moody, supra,
734 F.2d at 1215;
Matter of Dunes Casino Hotel,
63 B.R. 939, 949 n. 4 (D.N.J.1986);
In re Memphis-Friday’s Assoc.,
88 B.R. 830, 839 (Bankr. W.D.Tenn.1988);
In re Round Hill Travel, Inc., supra,
52 B.R. at 808-09;
Edwin C. Levy Co., Inc., supra,
20 B.R. at 690.
That result is consistent with the rationale underlying a debtor’s right under § 365 to assume executory contracts at any time before the confirmation of a plan. One of the principal objectives of bankruptcy policy is to provide honest debtors with a reasonable opportunity for a fresh economic start.
See NLRB v. Bildisco & Bildisco,
465 U.S. 513, 527, 104 S.Ct. 1188, 1196, 79 L.Ed.2d 482 (1984). Toward that end, chapter 11 debtors are given a wide variety of advantages to facilitate their rehabilitation efforts. For example, debtors are permitted to remain in possession and manage their property,
see
11 U.S.C. §§ 1107, 1108; they are given a 120 day exclusive period to file a plan, which for cause may be extended,
see
11 U.S.C. § 1121(b), (d); impairment of a class of claims is defined, with some exceptions, to exclude accelerated claims,
see
11 U.S.C. § 1124(2); holders of unimpaired claims are deemed to have accepted the plan,
see
11 U.S.C. § 1126(f); and confirmation of a plan is allowed over the objection of dissenting classes of claims or interests if certain conditions are met. That policy is better served by the flexible time constraints permitted by § 365(d)(2) than by the rigid time permitted by § 108(b).
See Moody, supra,
734 F.2d at 1216 (“To interpret the Code so as to minimize flexibility and rush the debtor into what may be an improvident decision does not further the purposes of the reorganization provisions.”).
Scandia’s objection to the applicability of § 365(d)(2) is muted by the fact that that subsection permits any party to seek an order that the debtor determine whether to assume or reject the contract within a specified time. Scandia has not sought any such order, and is therefore in part responsible for any uncertainty as to the status of the franchise.
III.
I conclude that the intervention of bankruptcy within the statutory cure period preserved the executory nature of the Agreement notwithstanding Scandia’s pre-petition notice of termination for failure to make required royalty payments, that the United States Trustee’s motion to dismiss or convert on that ground is DENIED, and
IT IS SO ORDERED.