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Chapter 11 SARE Case Dismissed With Prejudice By Delaware Bankruptcy Court

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On March 23, 2012, Judge Kevin Carey of the United States Bankruptcy Court for the District of Delaware (the “Court”) dismissed a single asset real estate (“SARE”) case pursuant to 11 U.S.C. § 1112 for the debtor’s failure to (i) file a confirmable plan of reorganization and (ii) comply with prior orders of the Court.

Riverbend Community, LLC (the “Debtor” or “Riverbend”), owner of a 176-lot subdivision in New Castle County, Delaware, filed for bankruptcy protection in June, 2011. The Debtor’s petition was filed just five days prior to and therefore halted its secured lender’s (the “Lender”) scheduled foreclosure sale. At the time of filing, the Debtor owed the Lender approximately $11.5 million on account of three mortgages. As a SARE Debtor, Riverbend was obligated to file a confirmable plan of reorganization within 90 days of the petition date pursuant to section 363(d)(3) and a corresponding order of the Court.

During the course of the case, the Debtor filed two sale motions. The first sale motion sought approval of a sale to an insider, a fact that was not disclosed in the motion. The second sought approval of a sale to a prospective homebuilder that ultimately withdrew its offer. In response to the botched sales, the Court entered an order granting prospective stay relief in favor of the Lender unless the Debtor remitted all post-petition interest payments and filed a confirmable plan by late 2011. The Debtor failed to make the required interest payments and did not file an amended plan.

In early 2012, the Lender and the Office of the United States Trustee separately moved for an order dismissing the Debtor’s chapter 11 case (the “Motions to Dismiss”). The Debtor responded by referencing two new sale agreements that it believed were capable of funding an amended plan. The first agreement, which subsequently fell through, was unsigned, contained a 90-day investigation period, and thereafter a closing period of one year. The second agreement called for the purchase of a mere ten lots by an insider of the Debtor. Having found no other reasonable prospect of rehabilitation, and considering the Debtor’s failure to comply with section 362(d)(3)’s SARE “confirmable plan” requirement and earlier orders, the Court granted the Motions to Dismiss and enjoined the Debtor from re-filing for bankruptcy protection before the Lender can proceed with its foreclosure sale.

A copy of the Court’s opinion can be found here.

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