Nicola v. Sigarms, Inc. (In re Omaha Midwest Wholesale Distributors, Inc.)

94 B.R. 160, 1988 Bankr. LEXIS 2695
CourtUnited States Bankruptcy Court, D. Nebraska
DecidedDecember 19, 1988
DocketBankruptcy No. BK86-2775; No. A88-5
StatusPublished
Cited by2 cases

This text of 94 B.R. 160 (Nicola v. Sigarms, Inc. (In re Omaha Midwest Wholesale Distributors, Inc.)) is published on Counsel Stack Legal Research, covering United States Bankruptcy Court, D. Nebraska primary law. Counsel Stack provides free access to over 12 million legal documents including statutes, case law, regulations, and constitutions.

Bluebook
Nicola v. Sigarms, Inc. (In re Omaha Midwest Wholesale Distributors, Inc.), 94 B.R. 160, 1988 Bankr. LEXIS 2695 (Neb. 1988).

Opinion

MEMORANDUM

TIMOTHY J. MAHONEY, Chief Judge.

An evidentiary hearing was held on November 3, 1988, on the amended complaint of the trustee seeking to avoid a transfer of certain firearms and related equipment from debtor to defendant. Christopher Connolly of Thompson, Crounse, Pieper & Brumbaugh, Omaha, Nebraska, appeared for the trustee; Timothy J. Pugh of McGrath, North, Mullin & Kratz, Omaha, Nebraska, appeared for Sigarms, Inc. This memorandum constitutes the Court’s findings of fact and conclusions of law pursuant to Bankr.R. 7052.

Statement of Facts

On September 25, 1986, several creditors filed an involuntary Chapter 7 petition against debtor. On November 25, 1986, at 4:20 p.m., debtor filed a voluntary petition under Chapter 11. The Court granted an order for relief under Chapter 11 on consideration of the petition filed on September 25, 1986.

In addition, on November 25, 1986, a transfer of firearms and related equipment was made from debtor to defendant for credit. There was testimony that the goods were picked up from debtor before the voluntary petition was filed and the order for relief was granted.

Defendant shipped $80,234.14 worth of firearms and related equipment to debtor after September 25, 1986. Debtor paid for this merchandise by transferring to defendant $60,163.99 worth of firearms on November 25, 1986.

Discussion

Plaintiff argues that the voluntary Chapter 11 case is a separate case from the involuntary Chapter 7 since no order for relief had been entered and no conversion had been effected. Plaintiff contends that the November 25, 1986, transfer can be avoided by the trustee either under 11 U.S.C. § 547 as a preference, or under 11 U.S.C. § 549 as an unauthorized transfer occurring after the commencement of the case, depending on when the transfer took place vis á vis the Chapter 11 petition filing.

[162]*162Defendant argues that the filing of the voluntary Chapter 11 petition was a conversion of the involuntary Chapter 7 case under 11 U.S.C. § 706. Therefore, says defendant, under 11 U.S.C. § 348 the commencement date of the voluntary Chapter 11 would relate back to September 25, 1986, the date of the involuntary Chapter 7 petition, so the transfer was not a preference. In addition, defendant contends that the transfer was made before the voluntary petition was filed and the order for relief was granted, so the transfer is protected under 11 U.S.C. § 549(b).

At least one commentator has discussed the issue of debtor’s right to convert in a pending involuntary case under a different chapter.

Under section 706(a), a debtor has one absolute right of conversion to Chapter 11, 12 or 13 in both voluntary and involuntary Chapter 7 liquidations!1! ... In situations where a debtor has had an involuntary liquidation case commenced against him, section 706 gives him the opportunity of converting that case to a case under Chapter 11,12, or 13 and thus affords him the chance to effect a plan for the repayment of his debts.... [Sjection 706(a) provides that the debtor may convert the Chapter 7 case “at any time.” This means that he may make the conversion either before or after an order for relief has been entered in the liquidation proceeding.

2 Collier on Bankruptcy II 706.01, at 706-2 (15th ed.1987).

However, “a voluntary petition for an order for relief under Chapter 11 is not a conversion of an involuntary Chapter 7 case.” Id. at n. 2a. Bankruptcy R. 1017(d) provides that conversion pursuant to Section 706(a) shall be accomplished by motion and service as required by Bankr.R. 9013. Bankruptcy R. 9013 requires a written motion but does not require notice for any such motion which may be considered ex parte. In addition, Bankr.R. 1017(d) provides that a proceeding to convert a case to another chapter, pursuant to Section 706(a) (among others) is not governed by Bankr.R. 9014 and thus a hearing is not required for conversion pursuant to Section 706(a).2

On November 25, 1986, debtor filed a voluntary petition under Chapter 11 with an involuntary Chapter 7 case pending, which generally as stated above, does not effect a conversion. A Notice of Chapter 11 Filing dated November 25, 1986, read:

NOTICE OF CHAPTER 11 FILING
TO: CREDITORS AND OTHER PARTIES IN INTEREST:
Please take notice that Omaha Midwest Wholesale Distributors, Inc., this day filed its voluntary petition under Chapter 11, Title 11, United States Code as contemplated at 11 U.S.C. § 706.
DATED this 25th day of November, 1986.

(emphasis added).

The Notice also was served upon counsel of record. From the Notice it is clear that the debtor intended to convert the case to a voluntary case under Chapter 11. The Bankruptcy Court assigned the number originally given to the involuntary Chapter 7 case, (BK86-1775), to the voluntary Chapter 11 case.3 This Court entered an order for relief under Chapter 11, dated November 25, 1986, “on consideration of the petition filed on 9-25-86.” It appears to the Court that the petition and the Notice were effectively the same as a motion to convert, [163]*163that the requirements, both by statute and by rule, for converting, have been met. The Court finds that debtor did effect a conversion of the involuntary Chapter 7 case to a voluntary Chapter 7 case under Chapter ll.4

Conversion of a ease from one chapter to another “constitutes an order for relief under the chapter to which the case is converted,” but the date of the filing of the petition, the commencement of the ease, and the order for relief are generally unaffected by conversion. 11 U.S.C. § 348(a). “Conversion of a pending liquidation does not create any breach in the case, on the contrary, continuity is preserved, so that the date of the original Chapter 7 petition is the date of cleavage for the determination of such questions as the avoidance of preferences ..., etc. 4 Collier on Bankruptcy ¶ 706.01 at 706-3 (15th ed. 1987).” “The reorganization or repayment plan case is deemed to have been originally commenced as of the date of the filing of the first petition initiating a case under the Code.” (footnotes omitted). Id. Since this Court has determined that debtor effected a conversion of its pending liquidation, the date of the original Chapter 7 petition is the date the Chapter 11 ease is deemed to have been commenced.

The November 25,1986, transfer, then, is a post-petition transfer. Thus it is not a preference and may not be avoided under 11 U.S.C. §

Related

In Re Premier General Holdings, Ltd.
427 B.R. 592 (W.D. Texas, 2010)
Curry v. Wojcik (In re Knoth)
225 B.R. 117 (D. South Carolina, 1997)

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Bluebook (online)
94 B.R. 160, 1988 Bankr. LEXIS 2695, Counsel Stack Legal Research, https://law.counselstack.com/opinion/nicola-v-sigarms-inc-in-re-omaha-midwest-wholesale-distributors-inc-nebraskab-1988.