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In re Bernhard Steiner Pianos USA, Inc.

292 B.R. 109 (2002)

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In re Bernhard Steiner Pianos USA, Inc.

United States Bankruptcy Court for the Northern District of Texas

292 B.R. 109 (2002)

Facts

Bernhard Steiner Pianos USA, Inc. (Bernard) (debtor) sold new and consigned pianos. Ivan Kahn was the company’s founder and principal. Bernard filed for reorganization under chapter 11 of the bankruptcy code and remained open during the proceedings. The creditors were divided into classes. One group contained piano consignors and another group contained floor-plan lenders. Both groups held general unsecured claims against Bernard. Bernard submitted a reorganization plan that placed the piano consignors and the floor-plan lenders into different classes. Under the plan, the piano-consignor class was to be paid before the floor-plan lenders. The floor-plan lenders objected to the plan. The lenders argued that the lenders and the consignors should be placed in the same class because both groups were general unsecured creditors. Bernard claimed that a good business reason existed for prioritizing the unpaid consignor claims over the lenders’ claims. Kahn testified that a thriving consignment business was critical to the success of the reorganization, that consignments had suffered and would continue to suffer because prior consignors had not been paid, and that priority payment was necessary to improve Bernard’s reputation.

Rule of Law

Issue

Holding and Reasoning (Hale, J.)

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