In re: Saguaro Ranch Development Corporation, No. 4:09-bk-02492-JMM (Bankr. D. Ariz., June 1, 2011).
In a recent Arizona bankruptcy decision, a bankruptcy court assessed whether or not the debtor's proposed Chapter 11 reorganization plan was confirmable. It held that it was not.
The debtors in the case owned over 1,000 acres of land in the Tortolita Mountains outside of Tucson. They had borrowed $50 million from Kennedy Funding Inc. in 2005 to finance developments to the land in the hopes of creating a luxury community. When the economy soured, the debtors' project did as well, and they filed for Chapter 11 bankruptcy.
The debtors proposed two different plans, which were objected to by Kennedy Funding. At this stage, the debtors proposed a third plan, but the court denied its confirmation as well. The third plan proposed to pay Kennedy Funding $17.25 million over 5 years, and then the rest of the $28 million at the end of seven years. The funds were supposed to come from lot sales.
In a Chapter 11 confirmation hearing, the debtors bear the burden by preponderance of the evidence of demonstrating that their plan meets all the confirmation requirements of section 1129 of the bankruptcy code. The plan must, over all, be feasible, and fair and equitable.
The debtors' third plan was denied confirmation because their projected earnings were too tentative. The amount to be made on the lots in question was hard to predict, and the debtors did not propose to pay minimum payments to Kennedy Funding. The plan deprived Kennedy Funding of many rights without providing compensation, and this was not fair and equitable.
