Opinion
Case No. 87-01697-8-JRL.
June 11, 2008
ORDER
This case is before the court on the debtor's motion for return of unclaimed funds. On June 5, 2008, the court conducted a hearing on this matter in Wilmington, North Carolina. Conner Corporation did not attend the hearing.
On July 2, 1987, the debtor filed for relief under Chapter 11 of the Bankruptcy Code. On the date of the petition, the debtor was a publicly traded corporation, with publicly traded stock and shareholders numbering in the tens of thousands. The order confirming the debtor's Chapter 11 plan was entered on June 12, 1990 and the final decree closing the case was entered on February 9, 2006. At present, $51,015.07 remains held on deposit with the clerk, representing distributions unclaimed by creditors of the debtor. Omega Consulting, by virtue of an assignment granted by the president, director, and shareholder of Conner Corporation, Wallace J. Conner, moves the court for entry of an order for return of the unclaimed funds held on deposit in the court's registry pursuant to 11 U.S.C. §§ 347(b) and 1143.
Section 347(b) of the Bankruptcy Code provides that:
Any security, money or other property remaining unclaimed at the expiration of the time allowed in a case under Chapter 9, 11, or 12 of this title for the presentation of a security or the performance of any other act as a condition to participation in the distribution under any plan confirmed under 943(b), 1129, 1173, 1225 of this title, as the case may be, becomes the property of the debtor or of the entity acquiring the assets of the debtor under the plan, as the case may be.
Section 1443 provides:
If a plan requires presentment or surrender of a security or the performance of any other act as a condition to participation in distribution under the plan, such action shall be taken not later than five years after the date of the entry of the order of confirmation. Any entity that has not within such time presented or surrendered such entity's security or taken any such other action that the plan requires may not participate in distribution under the plan.
In this case, more than five years have elapsed since the order confirming the debtor's Chapter 11 plan was entered on June 12, 1990. The original amount deposited by the trustee into the court registry pursuant to Section 347 was $54,705.70. However, on February 12, 2008, the court entered an order releasing $3,690.63 to creditor Citicorp Acceptance Co., Inc. Currently, $51,015.07 remains unclaimed on deposit with the court. The debtor contends that Sections 347 and 1443 stand for the proposition that unclaimed funds automatically become property of the debtor and that these sections "function akin to a statute of limitations designed to provide repose after passage of a reasonable time for action." 3 Collier on Bankruptcy P. 347.01. The debtor also contends that these sections may not be modified by court order. Here, the debtor asserts that the plan of reorganization made no provision for the disposition of unclaimed funds later deposited with the court by the trustee and that nothing in the plan barred the debtor from obtaining entry of an order for payment of unclaimed funds to it pursuant to Sections 347 and 1143. The debtor argues that once the funds were deposited into the court registry, they were no longer governed by or subject to the plan, and the trustee was relieved of his obligation to receive and distribute any of the funds to creditors or other parties under the plan.
The trustee objects to the debtor's motion. The trustee argues that the confirmed final amended plan of reorganization provided in Article IV(C)(5) that the equity security holders would receive no distribution under the plan until all higher priority class claims were paid in full. The confirmed plan also provided in Article XVI that confirmation of the plan would cancel the publicly held stock and would constitute a dismissal of the debtor's board of directors. Further, the plan stated in Article XVII that, upon consummation of the plan, the closing of the case, and entry of a final decree, the debtor corporation "shall be dissolved, without any further action, notwithstanding any provisions of state law to the contrary." The Secretary of State of North Carolina has administratively dissolved Conner Corporation, with the dissolution being a matter of public record. A public notice of the termination of all officers and directors was filed with the office of the Secretary of State on June 3, 1992. The trustee therefore contends that Wallace J. Conner, as former director, officer, or shareholder of the debtor, has no right to assign any interest in the debtor to Omega Consulting.
The issue presented here is whether the debtor, or an assignee of the debtor, is entitled to the unclaimed funds held in the court registry, despite the provision in the confirmed plan that prohibits equity security holders from receiving a distribution until all higher priority classes are paid. This issue was recently decided by the Bankruptcy Appellate Panel for the Eight Circuit in Omega Consulting v. Edwards (In re Future Trust, Inc.), 2008 Bankr. LEXIS 1343. In that case, the court affirmed the denial of Future Trust's request for payment of unclaimed funds from the debtor's Chapter 11 case. As in the instant case, Future Trust's confirmed plan of reorganization expressly provided that there would be no successors, officers, or directors of the debtor and that holders of equity interests in the debtor would not receive any distribution under the plan. Based on this express provision in the plan, the court upheld the bankruptcy court's decision that any distribution of unclaimed funds to the debtor, or an assignee of the debtor, was expressly prohibited. A similar result was also reached by the Bankruptcy Court for the Northern District of Ohio in In re Entire Supply Inc., 2008 Bankr. LEXIS 345.
This court agrees with the decision reached in In re Future Trust and In re Entire Supply Inc. and denies the debtor's motion to release funds. The debtor's confirmed plan of reorganization clearly states that shareholders of the debtor are not entitled to distribution until all prior classes are paid in full, despite any state law to the contrary. Any unclaimed funds must be distributed to the creditor classes ahead of the equity security holders until paid in full. The unclaimed funds here are insufficient to satisfy the large deficiency owing to the other creditor classes. Furthermore, Wallace Conner's ability to take any action on behalf of the debtor was clearly and unequivocally extinguished by the confirmed plan. Therefore, the movant is not entitled to distribution of the unclaimed funds held in the court's registry.
Accordingly, the court DENIES the motion for release of funds. The court directs that the funds be surcharged for the trustee's reasonable attorney's fees and expenses in defending this motion and the prior motion to release funds filed by Omega in this case in 2006.