Orbit Petroleum, Inc.

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UNITED STATES BANKRUPTCY COURT
DISTRICT OF NEW MEXICO
In re: 	ORBIT PETROLEUM, INC., 	No. 11-08-10408 MA
Debtor.
ORDER DENYING MOTION TO DISMISS OR CONVERT
THIS MATTER is before the Court on the Motion to Dismiss or Convert filed by
claimants, Tipton Enterprises, Inc., Jerel Tipton, Clay Tipton, Ryan Tipton, Chase Tipton, Tipton
Oil & Gas Acquisitions, Inc., TOGA Well Services, Inc., Gilvert Lease Services, Inc. and Black
Rock Transportation, Inc. (together, “Tipton Claimants”), by and through their counsel, Louis
Puccini, Jr. The Motion to Dismiss or Convert states that Patriot Pipe & Supply, Inc. (“Patriot”)
joined in the Motion to Dismiss or Convert, but counsel has not entered an appearance on behalf
of Patriot. (See Docket # 59 and Docket # 60). The Court held a final hearing on July 30, 2008,
continued the hearing on August 21, 2008, and took the matter under advisement. 	Based on the
evidence presented at the final hearing and on the record of this proceeding, including the
Debtor’s proposed Chapter 11 Plan and Disclosure Statement filed August 20, 2008, the Court
finds that there is a reasonable likelihood that a plan will be confirmed within a reasonable time
such that conversion or dismissal is not in the best interests of creditors and the estate. 	The
Court will, therefore, deny the Motion to Dismiss or Convert and in connection therewith
FINDS:
1. 	Orbit Petroleum, Inc. (“Orbit” or “Debtor”) filed a voluntary petition under Chapter
11 of the Bankruptcy Code on February 21, 2008. 	The amendments to the Bankruptcy Code
contained in the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005
(“BAPCPA”) apply to this proceeding.
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2. Orbit is not a small business as defined in 11 U.S.C. § 101(51D).
3. 	Tipton Claimants filed their Motion to Dismiss on May 22, 2008, alleging the
following deficiencies as cause for dismissal or conversion under 11 U.S.C. § 1112(b): 1) failure
to file monthly operating reports; 2) failure to file United States trustee reports and failure to pay
United States trustee’s fees; 3) failure to make payments due to secured creditors; 4) substantial
and continuing losses and diminution of the bankruptcy estate and the absence of a reasonable
likelihood of rehabilitation; 4) declining production due to insufficient cash flow; and 5) inability
to reorganize.
4. 	Debtor has since filed monthly operating reports for the months of March through
July 2008. 	The August monthly operating report has not been filed, but is not due until
September 15, 2008.
5. 	Debtor has paid United States trustee’s fees. See July 2008 Monthly Operating
Report (Docket # 140).
6. 	Debtor filed a plan of reorganization and disclosure statement on August 20, 2008.
(See Docket # 138 and Docket # 139).
7. The Disclosure Statement is currently out on notice for objections. Objections are due
by September 26, 2008, and a final hearing on the Disclosure Statement is set for October 6,
2008. (See Order and Notice of Hearing on Disclosure Statement Docket # 149).
8. The Monthly Operating reports reflect that Orbit is losing money. See June 2008
Monthly Operating Report, reflecting negative net cash flow of $22,000.00. (Docket # 1256);
July 2008 Monthly Operating Report, reflecting negative net cash flow of $2,171.00 (Docket #
140).
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1The OCD regulates oil, gas, and geothermal activity in New Mexico.
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9. Production on the Debtor’s wells is down. See Exhibit 6, reflecting declining
production form January through June 2008.
10. For the months of February and March 2008, the Debtor owes the following
severance taxes to the New Mexico Taxation and Revenue Department based on production:
$19,436.63 for February 2008; and $372.01 for March 2008. 	Testimony of Joan Ishimoto.
Since March 2008, the Debtor has remained current. Id.
11. 	The Debtor’s proposed plan of reorganization calls for a capital infusion of
$7,000,000.00 which will be used to pay all creditors in full as of the effective date of the plan.
See Plan of Reorganization, pp. 5 and 9, ¶ 4.1 (“On the Effective Date the Debtors [sic.] shall
pay in cash in full each class proposed to be paid at confirmation.”)(“This Plan is a re-
capitalization Plan. . . the Debtor will enter into a loan agreement with its parent company . . . for
the loan of $7,000,000 in cash . . . . Upon the Effective Date the funds will be distributed to the
claimants pursuant to the Plan . . .”).
12. There appear to be some issues concerning compliance with the regulations of the
Oil Conservation Division (“OCD”)1, a division of the Energy Minerals and Natural Resources
Department of New Mexico, including compliance with certain bonding requirements. Gail
MacQuesten, the attorney who represents the OCD, testified that the Debtor is not in compliance
with an Agreed Compliance Order the Debtor entered into with the OCD.
13. BAPCPA amended 11 U.S.C. § 1112(b) which governs motions to dismiss or
convert. That section now provides:
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Except as provided in paragraph (2) of this subsection, subsection (c) of this section, and
section 1104(a)(3), on request of a party in interest, and after notice and a hearing, absent
unusual circumstances specifically identified by the court that the requested conversion
or dismissal is not in the best interests of creditors and the estate, the court shall convert a
case under this chapter to a case under chapter 7 or dismiss a case under this chapter,
whichever is in the best interests of creditors and the estate, if the movant establishes
cause.
11 U.S.C. § 1112(b)(1).
The amendments to 11 U.S.C. § 1112(b) restrict the Court’s discretion, but the Court still enjoys
some degree of discretion to deny the relief requested. See In re Franmar, Inc., 361 B.R. 170,
180 (Bankr.D.Colo. 2006)(“[S]ection 1112(b) still provides the court with some discretion to
grant or deny the relief requested.”)(citations omitted); In re Gateway Access Solutions, Inc., 374
B.R. 556, 560 (Bankr.M.D.Pa. 2007)(“The amendments to § 1112 limit the Court’s discretion to
refuse to dismiss or convert a Chapter 11 case upon a finding of cause.”)(citations omitted).
14. 	“Cause” sufficient for conversion or dismissal is enumerated in a non-exclusive list
contained in 11 U.S.C. § 1112(b)(4), and includes the following: 1) “substantial or continuing
loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation”;
and 2) “unexcused failure to satisfy timely any filing or reporting requirement established by this
title or by any rule applicable to a case under this chapter.” 11 U.S.C. § 1112(b)(4)(A) and (E);
In re AmeriCERT, Inc., 360 B.R. 398, 401 (Bankr.D.N.H. 2007)(“The list [contained in §
1112(b)(4)] is not exhaustive, and a case may be dismissed for other causes, such as bad faith or
if the petition does not serve a bankruptcy purpose.”)(citations omitted).
15. “Cause” exists to dismiss or convert the Debtor’s case under 11 U.S.C. § 1112(b).
The Monthly Operating reports reflect that the Debtor is losing money. The Debtor admitted that
its oil production is down. See also, Exhibit 6. Debtor’s proposed plan of reorganization does
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2Section 1112(b)(2) provides:
The relief provided in paragraph (1) shall not be granted absent unusual
circumstances specifically identified by the court that establish that such relief is
not in the best interest of creditors and the estate, if the debtor or another party in
interest objects and establishes that --
(A) there is a reasonable likelihood that a plan will be confirmed within
the timeframes established in sections 1121(e)* and 1129(e)* of
this title, or if such sections do not apply, within a reasonable time;
and
(B) the grounds for granting such relief include an act or omission of the
debtor other than under paragraph (4)(A) --
(i) for which there exists a reasonable justification for the act or
omission; and
(ii) that will be cured within a reasonable period of time fixed by
the court.
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not propose to rehabilitate the Debtor and continue operating; rather it proposes a
recapitalization for the purpose of paying existing creditors in full. 	All shares of the Debtor will
be cancelled, and its remaining assets will revert to its parent company. See Plan of
Reorganization, ¶ 4.1. Thus, there is no demonstration or intent on the part of the Debtor to
rehabilitate itself through reorganization and continued operations.
16. 	Once “cause” has been demonstrated, the Court must convert or dismiss, unless the
Court specifically identifies “unusual circumstances . . . that establish that such relief is not in
the best interest of creditors and the estate.” 11 U.S.C. § 1112(b)(1). However, absent unusual
circumstances, the Court must not convert or dismiss a case if (1) there is a reasonable likelihood
that a plan will be confirmed within a reasonable time, (2) the “cause” for dismissal or
conversion is something other than a continuing loss or diminution of the estate coupled with a
lack of reasonable likelihood of rehabilitation; and (3) there is reasonable justification or excuse
for a debtor’s act or omission and the act or omission will be cured within a reasonable time. 11
U.S.C. § 1112(b)(2) 2; 7 Collier on Bankruptcy ¶ 1112.04[1] (Alan N. Resnick and Henry J.
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11 U.S.C. § 1112(b)(2).
*The timeframes contained in 11 U.S.C. § 1121(e) and 11 U.S.C. § 1129(e) pertain to small
businesses and are, therefore, not applicable to this proceeding.
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Sommer, eds., 15 th ed. rev. 2008).
17. 	The code does not define “unusual circumstances” within the meaning of 11 U.S.C.
§ 1112(b). See Gateway Access, 374 B.R. at 560 (acknowledging that the statute does not define
“unusual circumstances”); In re Fisher, No. 07-61338-11, 2008 WL 1775123, at *5
(Bankr.D.Mont. April 15, 2008)(“‘Although section 1112(b) does not define the phrase ‘unusual
circumstances,’ it clearly contemplates conditions that are not common in most chapter 11
cases.’”)(quoting 7 Collier on Bankruptcy, ¶ 1112.04[3], p. 1112-26 (15th
ed.rev.)).
Nevertheless, “the import of section 1112(b) is that, if cause exists, the case should be converted
or dismissed unless unusual facts or circumstances demonstrate that the purposes of chapter 11
would be better served by maintaining the case as a chapter 11 proceeding.” 7 Collier on
Bankruptcy ¶ 1112.04[3], p. 1112-26 (Alan N. Resnick and Henry J. Sommer, eds., 15th ed. rev.
2008).
18. 	In this case, because a plan has been filed which purports to pay all creditors in full
as of the effective date of the plan, neither conversion nor dismissal is in the best interest of the
creditors and the estate. 	A plan which proposes to pay all creditors in full on the effective date
is an unusual circumstance sufficient to deny conversion or dismissal even in the face of
demonstrated cause. Creditors and the estate will be far better off if the plan is confirmed than if
the case were dismissed or converted. 	By affording the Debtor an opportunity to confirm a plan
that proposes to pay all creditors in full, the purposes of the bankruptcy code to encourage
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3See AmeriCERT, 360 B.R. at 401 (“The purpose of the Bankruptcy Code is essentially
(1) to encourage financial restructuring and (2) payments to creditors, while (3) preserving jobs
and (4) shareholder interests.”)(citing In re Gonic Realty Trust, Inc. 909 F.2d 624, 627 (1st Cir.
1990)).
4Section 1112(b)(1) provides that, upon a showing of cause, the court must dismiss or
convert the cause, “[e]xcept as provided in . . . section 1104(a)(3). . .” 11 U.S.C. § 1112(b)(1).
Section 1104(a)(3) provides that the “court shall order the appointment of a trustee . . . if grounds
exist to convert or dismiss the case under section 1112, but the court determines that the
appointment of a trustee or an examiner is in the best interests of creditors and the estate.” 11
U.S.C. § 1104(a)(3).
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financial restructuring and facilitate payments to creditors is furthered. 3 And given that the final
hearing on the Debtor’s Disclosure Statement is not scheduled until October 6, 2008, the Court
finds that a reasonable time within which to confirm the Debtor’s plan is approximately four
months thereafter, until February 27, 2009.
19. 	In the event a plan is not confirmed by February 27, 2009, the Court finds that
dismissal, rather than conversion or the appointment of a chapter 11 trustee or examiner is in the
best interest of creditors and the estate. 4 The testimony of Gail MacQuesten indicates that there
may be compliance issues with the OCD as well as possible environmental issues. Given these
possible issues, the appointment of a trustee upon conversion to Chapter 7 or the appointment of
a chapter 11 trustee or examiner would further complicate rather than facilitate a swift
resolution. Dismissal, rather than conversion or the appointment of a chapter 11 examiner or
trustee, is in the best interest of creditors and the estate.
WHEREFORE, IT IS HEREBY ORDERED that the Motion to Dismiss or Convert is
DENIED, contingent upon Debtor’s confirmation of its plan no later than February 27, 2009.
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ORDERED FURTHER, that if no plan is confirmed by February 27, 2009, the Court will
DISMISS this case.
______________________________________________
MARK B. McFEELEY
United States Bankruptcy Judge
Date entered on docket: September 5, 2008
COPY TO:
Daniel J. Behles 	Louis Puccini, Jr.
Attorney for Debtor 	Attorney for Tipton Oil & Gas Company
7770 Jefferson NE, Suite 305 	PO Box 30707
Albuquerque, NM 87109 	Albuquerque, NM 87190-0707
Albuquerque, NM 87190
Office of the United States Trustee
PO Box 608
Albuquerque, NM 87103
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