In re Merrimack Valley Oil Co.

Five bankruptcy debtors proposed a consolidated reorganization plan under Chapter 11 of the Bankruptcy Code (the code). The debtors were Thomas Fay Oil Sales, Inc. (Fay Oil), Merrimack Valley Oil Company, Inc. (Merrimack), the Fay Group, Inc., and Mary and Thomas Fay, a married couple (the Fays) (collectively, the Fay operations) (debtors). The Fays operated all three businesses. Fay Oil was the parent company to Fay Group and Merrimack. After the bankruptcy petitions were filed, the Fays continued to operate the businesses as debtors-in-possession. The Fay operations incurred about $400,000 in debt after the petitions were filed. About $390,000 was owed to Global Petroleum Corporation (Global) (creditor). Global held a security interest in the Fay operations’ assets. Belcher New England, Inc. (Belcher) (creditor) was the largest unsecured creditor. Belcher asserted claims of about $2 million and opposed the proposed reorganization plan. The plan left the claims of the secured creditors and claims for administrative expenses unimpaired. Unsecured creditors would get 35 percent on their claims, except for Belcher, which would receive 40 percent of its allowed claims. Evidence showed that the present value of these payments was 29 percent to the unsecured creditors and 32 percent to Belcher. The total payments under the plan would amount to about $1.5 million. Section 1129(a)(7) of the code provided that unless a plan was accepted unanimously by each class, the plan could be confirmed only if creditors were to receive as much or more under the plan than they would have received if the business were liquidated under Chapter 7. To determine the value of the business in liquidation, the court considered exhibits as well as the testimony of management and accountants. The evidence showed that the Fay operations’ inventories and assets were worth about $1.6 million. However, secured and priority claims totaling about $950,000 would have been paid out of that amount. Therefore, the net value of the Fay operations in liquidation was less than $650,000.