In re Cold Harbor Assocs., L.P.

ALI, Inc. (creditor) filed an involuntary-bankruptcy petition against Cold Harbor Associates, L.P. (Cold Harbor) (debtor) pursuant to § 303(b) of the Bankruptcy Code, which allowed a single creditor to file an involuntary petition against a creditor if there were fewer than 12 other unsecured creditors of the debtor. Cold Harbor moved to dismiss the involuntary petition on the basis that there were more than 12 other unsecured creditors. In support of its argument, Cold Harbor relied on each of its limited partners as constituting an unsecured creditor. Each limited partner contributed funds to Cold Harbor in an amount proportional to his ownership interest, and each limited partner also received a promissory note for the amount contributed. The funds were used to pay an outstanding mortgage secured by real estate owned by Cold Harbor. The promissory notes had no security mechanism and entitled the limited partners to a fixed rate of interest, 6 percent, which was equal to the prime rate at the time. The promissory notes also allowed for the reimbursement the attorney’s fees of the limited partners in the event of default. However, the promissory notes had no defined due date and no payment schedule, and no limited partner made any demand for payment on them. ALI argued that the limited partners could not be considered unsecured creditors, because their contributions had to be considered equity.