SYROCO INC

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IN THE UNITED STATES BANKRUPTCY COURT FOR
THE DISTRICT OF PUERTO RICO
IN RE:
CASE NO. 07-04091 (BKT)
SYROCO INC. 	Chapter 11
FILED & ENTERED ON 08/22/2007
Debtor
OPINION AND ORDER
I. 	Facts
The debtor filed a voluntary petition for relief on July 23, 2007, under Chapter 11 of Title 11
of the United States Bankruptcy Code (See Dkt. No 1). The debtor has continued to operate its
business as debtor-in-possession (hereinafter “DIP”).
On July 23, 2007, the DIP filed a Motion for Entry of (A) Bridge Order and (B) Final Order
(i) Prohibiting utilities from discontinuing, altering or refusing service, (ii) establishing procedures
for providing deposits to utilities, (iii) deeming utilities to have adequate assurance of payment, and
(iv) establishing procedures for resolving requests for additional assurance pursuant to 11 U.S.C.
§105(A) & §366 (hereinafter “Utilities Motion”) (Dkt. No. 7). The DIP in its Utilities Motion
provides all of their utility companies with a security deposit equal to the current average cost of two
weeks service.
On July 30, 2007 and August 10, 2007, respectively, National Grid USA and City of Siloam
Springs filed objections to DIP’s Utilities Motion. Both of these objections have since been resolved.
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In the Utilities Motion, DIP requests that an order be entered establishing that the two weeks
deposit offered be deemed as adequate assurance for the remaining utility companies that failed to
reply or object to the motion.
This Court set a final hearing on DIP’s Utilities Motion for August 21, 2007.
II. 	Discussion
The main issue this Court must decide is if the injunction created by Section 366(c)(2) can be
continued by DIP’s Utilities Motion against the utility companies that failed to reply or object to
DIP’s proffer. In other words, whether the failure to reply, object or counter-demand by the rest of
the utility companies can be considered a tacit acceptance of DIP’s proposed cash deposit as
adequate assurance of payment satisfactory to the utility according to Section 366(c)(2).
The only published case found to have interpreted this code section is In re Lucre, Inc., 333
B.R. 151 (Bkrtcy.W.D.Mich., 2005). That case held that a Bankruptcy Court had no discretion, under
BAPCPA, to continue for more than thirty days after the petition date, the automatic injunction
against utility providers' termination of their service to the DIP, simply because providers had failed
to respond to the DIP’s offers of adequate assurance of payment. Furthermore, the court stated:
“… subsection (c)(3) does give the trustee or debtor in possession the right to
have the adequate assurance payment modified by the court. This right arises only
after the adequate assurance payment has been agreed upon by the parties. In other
words, the trustee or debtor in possession has no recourse to modify the adequate
assurance payment the utility is demanding until the trustee or debtor in possession
actually accepts what the utility proposes.” In re Lucre, at 154.
We decline to follow the Lucre case because it is unreasonable to conclude that is what
Congress intended the result to be. Aroostook Band of Micmacs v. Ryan 484 F.3d 41, *61 (1 st cir.,
2007), citing Cf. Griffin v. Oceanic Contractors, 458 U.S. 564, 575 (1982), (“Interpretations of a
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statute which would produce absurd results are to be avoided if alternative interpretations consistent
with legislative purpose are available.”).
The legislative history of Section 366 establishes that the enactment of this section was to
protect debtors form a cut-off of service by a utility because of the filing of the petition. H. Rept. No.
95-595 to accompany H.R. 8200, 95th Cong., 1st Sess. (1977) p. 350). The clear language of the
amendments to Section 366 and the brief legislative history1 does not prohibit the bankruptcy court
from entering orders continuing the injunction in favor of debtors when the utility companies failed
to reply or affirmatively accept what the DIP proposed as satisfactory assurance of payment. A
contrary interpretation would make it impossible for the DIP to satisfy Section 366 prior to the
termination of the injunction period, when a utility company maintains silence.
It is a well recognized legal concept that silence can be interpreted as acquiescence.
Especially, where the debtor has given notice of its emergency Utilities Motion to all creditors and
parties in interest, notice of the emergency hearing thereon, notice of the Bankruptcy Court’s interim
order and notice of the final hearing. Therefore, it would not be an unreasonable interpretation of
Section 366(c) to conclude that the lack of objection, response or counter-demand by certain utility
companies prior to the expiration of the thirty-day injunction, is acceptance of the DIP’s offer as
1 Act April 20, 2005: Utility Service. Section 417 amends section 366 of the Bankruptcy Code to provide that
assurance of payment, for purposes of this provision, includes a cash deposit, letter of credit, certificate of deposit,
surety bond, prepayment of utility consumption, or other form of security that is mutually agreed upon by the debtor
or trustee and the utility. It also specifies that an administrative expense priority does not constitute an assurance of
payment. With respect to chapter 11 cases, section 417 permits a utility to alter, refuse or discontinue service if it
does not receive adequate assurance of payment that is satisfactory to the utility within 30 days of the filing of the
petition. The court, upon request of a party in interest, may modify the amount of this payment after notice and a
hearing. In determining the adequacy of such payment, a court may not consider: (1) the absence of security before
the case was filed; (2) the debtor's timely payment of utility service charges before the case was filed; or (3) the
availability of an administrative expense priority. Notwithstanding any other provision of law, section 417 permits a
utility to recover or set off against a security deposit provided prepetition by the debtor to the utility without notice
or court order. (H. Report No. 109-31 to accompany S. 256, 109th Cong., 1st Sess. (2005) p.89; available at 2005
U.S.C.C.A.N. 88, at 155.) BKRSERVICE § 21:715.
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satisfactory. It is noteworthy that any utility company subject to this opinion and order still has the
ability to request modification of the amount of assurance of payment at any time upon a request
after notice and a hearing, pursuant to Section 366(c)(3)(A).
It is our interpretation that congress did not intend to make the DIP lose the protection created
by the injunction of Section 366 merely by the utility companies failing to respond or affirmatively
accept the offer of adequate assurance of payment presented by the DIP.
III. 	Conclusion
Therefore, proper notice having been given and no objection or counter-demand having been
filed, the proposed amount by DIP as adequate assurance is granted as being satisfactory to the silent
utility companies pursuant to Section 366(c)(2).
SO ORDERED.
San Juan, Puerto Rico, this 22nd day of August, 2007.
BRIAN K. TESTER
U.S. Bankruptcy Judge
C: 	ALL CREDITORS
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