In re Ascher

Walter Ascher (debtor) owned All-American Laundry Service, Inc. (All-American). In 1988, All-American acquired the assets of Royal Laundry Systems (Royal) and began operating Royal’s commercial laundry facility (the laundry). The Commercial National Bank of Berwyn (the bank) lent All-American $668,000 to finance the Royal purchase. As security for the loan, the bank held liens on all of Royal’s real and personal property. As additional security, Ascher pledged stock in All-American, and other individuals (the movants) pledged stock in United Parcel Service (UPS). All-American subsequently defaulted on the loan, and the bank attempted to sell the UPS stock. When the movants learned of the attempted sale, they paid the balance due on the loan in exchange for the original note and liens from the bank. The movants then ousted Ascher from the laundry and took physical possession and control of the premises. Ascher subsequently filed for Chapter 11 bankruptcy. At the time of the bankruptcy filing, the secured debt due to the movants was either $855,774.12 or $1,018,553.43, depending on how interest was calculated. The movants sought relief from the Bankruptcy Code’s automatic stay, seeking to stay in possession of the laundry so they could sell the laundry and realize the value of their security interest. At the time of the movants’ motion, Ascher and the bankruptcy trustee had not shown a reasonable prospect of a reorganization plan or the laundry’s necessity for Ascher to successfully reorganize. As part of the proceedings on the movants’ motion, the bankruptcy court needed to determine the laundry’s value. Testimony indicated that the laundry’s net profits for the first half of 1992 were $90,732. Evidence further showed that the laundry’s income was not likely to increase and operating expenses were not likely to decrease. However, there was evidence of some environmental, regulatory, and other risks in continuing the laundry’s commercial business. Expert testimony revealed that (1) an equity investor that financed 55 percent of an acquisition of the laundry would require a 25 percent return on investment, and (2) a lender that financed 45 percent of an acquisition of the laundry would require a 12 percent return. Based on those figures, the court calculated a 19 to 19.5 percent capitalization rate for the laundry.