In Re Castleton Plaza, LP

George Broadbent owned Castleton Plaza, LP (Castleton) (debtor), which owned a shopping center. Castleton’s only secured lender, EL-SNPR Notes Holdings (creditor), held a $10 million note at 8.37 percent interest with additional security features. When the note matured, Castleton defaulted and filed for reorganization. Castleton proposed a reorganization plan that entailed paying the $10 million note down by $300,000, writing down the balance to $8.2 million, and treating the difference as unsecured. The loan would be extended for 30 years at 6.25 percent interest without additional security features, and Castleton would pay only 15 percent for unsecured claims. Technically George would retain no equity in the reorganized entity because 100 percent would go to his wife, Mary Clare Broadbent, for a $75,000 investment. Mary owned all the equity in The Broadbent Company, which would continue running Castleton under its management contract with George as chief executive officer drawing a $500,000 salary. The lender countered that the equity was worth more and offered $600,000 and to pay all creditors in full. Castleton rejected that proposal but increased Mary’s proposed investment to $375,000. The lender asked the bankruptcy judge to condition plan acceptance on Mary making the highest bid in open competition. The judge found competition unnecessary and approved the plan but certified a direct appeal to the Seventh Circuit.