Charlotte Bankruptcy Lawyer Bryan W. Stone of Arnold & Smith, PLLC answers the question “What is Chapter 11 Bankruptcy?”
A Texas bankruptcy court ruled late last month on two issues that commonly arise in business reorganization bankruptcies—also known as Chapter 11 actions.
The issues concerned the notice due to putative creditors who are doing business with a company at or shortly before the time a company enters bankruptcy, as well as the effect a subsequent bankruptcy discharge has on claims later brought by creditors.
The case involved a plumbing company named AMPAM Power Plumbing L.P. The company filed for bankruptcy in 2003 and sought to reorganize its business under Chapter 11 of the Bankruptcy Code. Chapter 11 reorganizations must be approved by a bankruptcy court. AMPAM’s reorganization was confirmed on July 30, 2004.
Before AMPAM’s bankruptcy confirmation, the company entered into a contract with Capstone Building Corporation. Capstone hired AMPAM to provide plumbing services on a construction project at a university. The work was largely complete by August 2004, and Capstone issued a certificate of substantial completion.
Nearly seven years later, on February 16, 2011, Capstone became aware of issues related to AMPAM’s plumbing work on the project. It sued AMPAM in state court, seeking contractual indemnity and contribution, or reimbursement for damages it paid out on claims that it alleged resulted from AMPAM’s work.
AMPAM reopened its 2003 bankruptcy case and sought to enforce the discharge. In general, a bankruptcy discharge permanently bars creditors from taking any collection actions on discharged debts. Not all debts are discharged, and whether a specific debt is discharged depends on the nature of the debt and upon the nature of the bankruptcy action.
In the AMPAM case, since Capstone’s claims technically arose before AMPAM’s July 30, 2004 bankruptcy confirmation, the company’s claims were so-called “future claims,” or those that arose before a debtor’s bankruptcy petition but which did not manifest until after the confirmation.
In determining whether Capstone had a “claim” against AMPAM that was subject to discharge, the bankruptcy court had to resolve exactly when Capstone’s claim against AMPAM arose. Since work pursuant to its contract with AMPAM was largely complete by the time of AMPAM’s confirmation, Capstone’s claim against the company was subject to the bankruptcy discharge.
In making this determination, the bankruptcy court concluded that prepetition conduct—AMPAM’s conduct before it entered bankruptcy—was subject to the bankruptcy discharge.
Capstone argued to the bankruptcy court that it was unaware of any problems with AMPAM’s work at the time of the bankruptcy discharge, so its claim against AMPAM should not have been discharged.
AMPAM argued, on the other hand, that it provided Capstone with actual notice of its bankruptcy, and Capstone was therefore aware of the effect a discharge would have on any potential claims brought pursuant to its contract with AMPAM.
The bankruptcy court sided with AMPAM, holding that Capstone was not denied due process even though, at the time it received notice of AMPAM’s bankruptcy, it was unaware of any injury resulting from AMPAM’s work under the contract.
Observers note that the result may have been different if AMPAM had not provided Capstone with actual notice of its bankruptcy.
If you find yourself needing the services of a Charlotte, North Carolina bankruptcy attorney, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with the best advice for your particular situation.
About the Author
Bryan Stone is a Partner with Arnold & Smith, PLLC, where he focuses his practice on all aspects of bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
A native of Macon, Georgia, Mr. Stone attended the University of Georgia, where he earned a BBA in Banking and Finance, and Wake Forest University School of Law, where he obtained his law degree.
Following law school, Mr. Stone relocated to Charlotte, where he currently serves as Chair of “Bravo!” – a young professionals organization associated with Opera Carolina – and founded the University of Georgia Alumni Association of Charlotte.
In his spare time, Mr. Stone enjoys perfecting his barbeque skills for the annual “Q-City BBQ Championship” and playing softball in the Mecklenburg County Bar softball league.
Photo by Roger McLassus
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