Rochelle's Daily Wire

Affirming the Bankruptcy Appellate Panel, the Ninth Circuit held that a trustee in possession under Subchapter V of chapter 11 is not a “receiver” that the court is prohibited from appointing under Section 105(b).

The corporate debtor had elected treatment under Subchapter V of chapter 11. When it appeared that the debtor had not obtained insurance, among other shortcomings, Bankruptcy Judge Denis Montali of San Francisco removed the debtor as a debtor in possession under Section 1185(a). Consequently, the Subchapter V trustee, appointed by the U.S. Trustee, assumed the operation of the business and the other duties imposed by Section 1183(b)(5).

On motion by the Subchapter V trustee, Judge Montali sold some estate property and, later, converted the case to chapter 7. After conversion, the debtor filed a motion for relief from the conversion motion under Rule 60(b), made applicable by Bankruptcy Rule 9024.

After Judge Montali denied the Rule 60(b) motion, the debtor appealed, but the BAP affirmed. The debtor appealed to the circuit.

In a nonprecedential, per curiam opinion on March 15, the Ninth Circuit quickly dispensed with the appeal based on Rule 60(b), saying that the rule may not be used in lieu of an appeal. Even if the debtor could have attacked the conversion order under Rule 60(b), the circuit court said that the debtor’s arguments lacked merit.

Primarily, the debtor relied on Section 105(b), which says that “a court may not appoint a receiver in a case under this title.” To the debtor’s way of thinking, the Subchapter V trustee became a receiver when the trustee took possession.

First, the appeals court said that the Subchapter V trustee had been appointed by the U.S. Trustee, not by the court. Of more significance, the circuit court said “that a bankruptcy trustee is not a receiver.”

The circuit court explained that receivers and trustees have “very different roles, duties and loyalties.” A bankruptcy trustee represents the estate, while a “‘receiver, on the other hand, is appointed by the court as a representative of the court to manage, control and deal with the property that is the subject matter of a controversy.’ In re Halvorson, 607 B.R. 680, 685 (Bankr. C.D. Cal. 2019) (citations omitted).” [Emphasis in original.]

The circuit court affirmed the BAP for upholding the conversion order.

Observation

The Ninth Circuit’s affirmance is three pages, excluding the title page. The BAP opinion was 19 pages, covering every conceivable issue that the debtor might raise on taking an appeal to the circuit.

The BAP opinion in this case is typical. It reads like a bench memorandum written by a circuit court clerk and goes far beyond whatever discussion the BAP would have written just to affirm the bankruptcy court.

This case is an example showing how the Ninth Circuit BAP makes life easy for the Ninth Circuit.

By the way, the Ninth Circuit issued its opinion two days after the appeal was submitted. The judges on the BAP panel were Scott H. Gan, Julia Brand and Gary Spraker.