Ginko Associates

UNITED STATES BANKRUPTCY COURT
FOR THE EASTERN DISTRICT OF PENNSYLVANIA
In re 	: 	Chapter 11
GINKO ASSOCIATES, L.P. 	:
Debtor 	: 	Bankruptcy No. 05-19436bf
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STATEMENT OF REASONS IN SUPPORT OF ORDER
.................................................
AND NOW, upon motion of the above-captioned chapter 11 debtor for the
entry of a final decree pursuant to Fed. R. Bankr. P. 3022,
And upon consideration of the opposition of the Commonwealth of
Pennsylvania thereto,
And the debtor filed this chapter 11 case on July 11, 2005,
And on May 17, 2006, the debtor’s modified second amended plan was
confirmed. This plan was to be funded by the sale of the debtor’s real properties. See
Confirmed Plan, ¶ 5.8. The debtor also promised:
In connection with the Plan and all instruments issued and
distributions made pursuant to the Plan, the Debtor will
comply with all withholding and reporting requirements
imposed by any federal, state, local or foreign taxing authority
and all distributions made pursuant to the Plan will be subject
to any such withholding and reporting requirements.
Confirmed Plan, ¶ 13.7,
And the confirmed plan further provided:
Unfiled Tax Returns. On or before June 8, 2006, the debtor,
Moondance Partners, Skylark Property, and Mortar, Inc. shall
file all unfiled state and federal tax returns. Until such returns
are filed, the Disbursing Agent may only make disbursements
to Class 1 to 5. If the unfiled returns are not filed by June 8,
2006, the Disbursing Agent shall pay $10,000 to the
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Commonwealth of Pennsylvania for deposit towards taxes of
Mortar, Inc. and then to Wilson O. Rigdon, Jr. and Wilson O.
Rigdon, III. If the returns are not filed by July 8, 2006, an
additional $10,000 shall be paid to the Commonwealth to be
applied as set forth above. Commencing on August 8, 2006
and continuing monthly until the returns are filed the
Disbursing Agent shall deposit $15,000 with the
Commonwealth. These deposits shall be first applied to any
taxes from the entities to the Commonwealth, then to taxes
due from the individuals to the Commonwealth with any
excess returned to the individuals.
Confirmed Plan, ¶ 4.3,
And finally, the approved plan contained a provision regarding the entry of
a final decree:
After final distributions are made, the Disbursing Agent shall
file a Motion to close the case and request that a final decree
be issued. Debtor shall file all interim and final plan
implementation reports and pay any fees to the Office of the
U.S. Trustee.
Confirmed Plan, ¶ 5.5,
And it is agreed that the debtor has tendered all distributions required under
the confirmed plan, has submitted all interim and final plan implementation reports, paid
all quarterly fees due to the United States trustee, and has filed all unfiled tax returns due
under paragraph 4.3 of the confirmed plan. Thus, consistent with paragraph 5.5 of the
confirmed plan, the debtor now seeks the entry of a final decree, which relief is
unopposed by the United States trustee,
And such final decree is opposed by the Commonwealth of Pennsylvania
solely on the basis that the debtor “has not filed its 2007 and 2008 state tax returns (Form
PA-20S/PA-65),
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This form is styled “PA S CORPORATION/PARTNERSHIP1
INFORMATION RETURN.” See www.revenue.state.pa.us/revenue/lib/revenue/
2007pa-20s-pa-65.pdf.
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And these missing tax returns are filed for informational purposes and do
not result in any tax liability for the debtor. 	See Commonwealth’s Memorandum, at 4,1
And the Commonwealth acknowledges that the confirmed modified second
amended plan “did not include any language requiring the Debtor to stay current on the
filing of its post-petition/post-confirmation Pennsylvania tax returns.” Commonwealth’s
Memorandum, at 3,
And Fed. R. Bankr. P. 3022 provides:
After an estate is fully administered in a chapter 11
reorganization case, the court, on its own motion or on motion
of a party in interest, shall enter a final decree closing the
case.
And the Advisory Committee Note to Rule 3022 states in relevant part:
Entry of a final decree closing a chapter 11 case should not be
delayed solely because the payments required by the plan
have not been completed. Factors that the court should
consider in determining whether the estate has been fully
administered include (1) whether the order confirming the
plan has become final, (2) whether deposits required by the
plan have been distributed, (3) whether the property proposed
by the plan to be transferred has been transferred, (4) whether
the debtor or the successor of the debtor under the plan has
assumed the business or the management of the property dealt
with by the plan, (5) whether payments under the plan have
commenced, and (6) whether all motions, contested matters,
and adversary proceedings have been finally resolved.
Advisory Committee Notes (1991),
And the Sixth Circuit Court of Appeals has observed:
Bankruptcy Rule 3022 is intended to allow bankruptcy courts
flexibility in determining whether an estate is fully
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The Commonwealth suggests the counter-intuitive argument that a dispute2
whether a final decree should be entered means that all contested matters have not been finally
resolved.
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administered. . . . A court should review each request for entry
of a final decree on a case-by-case basis and analyze the
factors set forth in Rule 3022, along with any other relevant
factors, in determining whether an estate has been fully
administered. . . . However, not all the factors set forth in the
Advisory Committee Note need to be present to establish that
a case is fully administered for final decree purposes.
In re Federated Department Stores, Inc., 43 Fed. Appx. 820, 822 (6th Cir. 2002) (citations
omitted),
And all factors just mentioned have occurred in this chapter 11 case (except
for #2, as no deposits were required), 2
And the Commonwealth contends that confirmation of a chapter 11 plan
does not exonerate a debtor from compliance with state law obligations. Nevertheless,
the Commonwealth has its own measures to compel the filing of postconfirmation state
tax returns, which measures would be unaffected by the entry of a final decree. See id. at
822 (final decree was appropriate as the chapter 11 case was fully administered;
unresolved personal injury claims can be determined in a non-bankruptcy forum),
And, as all creditors have been paid and the debtor has complied with all of
the terms of its confirmed plan, the entry of a final decree is appropriate as this case has
been fully administered. See Westridge v. Chestnut Street Condominiums, Inc., 169 B.R.
594, 596 (E.D. La. 1994) (“The record discloses that the Plan was carried out and all
creditors under the Plan were paid 100% of amounts due them, including Westridge.
Therefore, the Bankruptcy Court did not err in granting Debtor’s Motion for Final
Decree.”),
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The Commonwealth relies upon Holywell Corp. v. Smith, 503 U.S. 47 (1992).3
That decision concerned “whether a trustee appointed to liquidate and distribute property as part
of a Chapter 11 bankruptcy plan must file income tax returns and pay income tax under the
Internal Revenue Code.” Id., at 50. The confirmed plan contained no express requirement that
“the trustee had to file income tax returns or pay any income tax due.” Id., at 51.
In Holywell, after the trustee sold real property belonging to the debtor in
accordance with the confirmed plan, a dispute arose whether the debtor or the trustee was
responsible for payment of the capital gains tax arising from the sale. Id., at 51. The trustee
“sought a declaratory judgment from the Bankruptcy Court that he had no duty to file income tax
returns or pay income tax under the federal income tax laws. The United States and the debtors
opposed the action.” Id., at 51.
This Holywell decision resolving a tax liability dispute initiated in bankruptcy
court between a bankruptcy trustee and a debtor is not apposite. Here, the debtor does not
dispute its state law obligation to file informational tax returns. The issue posed is whether this
bankruptcy case must remain open, despite the compete administration of this chapter 11 case, to
enable the Commonwealth to enforce that obligation in this court rather than through a state
administrative or court process.
Similarly, the Commonwealth’s reliance upon 11 U.S.C. § 1112(b)(4)(I) is
unpersuasive. That provision, which states that cause to convert or dismiss a chapter 11 case
may arise owing to the debtor’s “failure timely to pay taxes owed after the date of the order for
relief or to file tax returns due after the date of the order for relief,” was effective October 17
2005, after this bankruptcy case commenced, and thus is not applicable. Furthermore,
application of section 1112 prior to its amendment in October 2005 was understood to be
discretionary. See, e.g., In re American Capital Equipment, LLC, 2008 WL 4597221, at *2 (3d
Cir. 2008) (non-precedential); In re PPI Enterprises (U.S.), Inc., 324 F.3d 197, 211 (3d Cir.
2003). Generally, a court should consider the “totality of the circumstances” in considering relief
under section 1112(b). See Perlin v. Hitachi Capital America Corp., 497 F.3d 364, 372 (3d Cir.
2007). As noted above, the Commonwealth is free to enforce state tax law after the final decree
has been entered.
Finally, the Commonwealth’s reliance upon chapter 13 reorganization cases is
inapplicable. The structure of chapter 13 and chapter 11 are significantly different and thus only
chapter 11 cases result in final decrees. Compare Rule 3022 with Rule 5009; see generally In re
Johnson, 402 B.R. 851, 854 (Bankr. N.D. Ind. 2009) (discussing differences between chapter 13
and chapter 11 cases and noting the “long-standing policy of closing Chapter 11 cases soon after
confirmation”).
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Accordingly, an order constituting a final decree shall be entered. 3
BRUCE FOX
United States Bankruptcy Judge
Dated: June 25, 2009
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