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In re Nite Lite Inns
United States Bankruptcy Court for the Southern District of California
17 B.R. 367 (1982)
Nite Lite Inns (Nite Lite) (debtor) owned hotels in Ontario, San Diego, and National City, California. Nite Lite and individuals and entities related to Nite Lite (the Grosvenors) (debtors) filed Chapter 11 bankruptcy petitions in 1979 and 1980. The bankruptcy court consolidated Nite Lite’s and the Grosvenors’ bankruptcy cases for administrative purposes. Nite Lite and the Grosvenors submitted a proposed reorganization plan that contemplated using surplus operating revenues to make a 100-percent payout plus interest to creditors over a 36-month period. The plan provided that if Nite Lite and the Grosvenors defaulted on the plan’s payment scheme, the San Diego hotel would be liquidated to cover any remaining obligations to creditors. The liquidation would undisputedly generate enough value to cover all of Nite Lite’s and the Grosvenors’ outstanding debts. After voting, one class of claims—Class 8, consisting of unsecured creditor Burke Investors—did not accept the plan. Nite Lite and the Grosvenors asked the bankruptcy court to cram down the plan, i.e., confirm the plan over Burke Investors’ objection. Burke Investors asserted that the proposed plan was not feasible because the plans’ anticipated future operating revenues were not realistic. Burke Investors also contended that the plan was not fair and equitable and was not in creditors’ best interests. Burke Investors had unsuccessfully tried to structure a tax-free transaction with Nite Lite prior to the bankruptcy and thus faced a tax liability. Burke Investors contended that if Nite Lite and the Grosvenors liquidated, Burke Investors would be able to pay its tax liability, but Burke Investors would be unable to meet the tax liability if it received a payout over time. The court considered whether to confirm the plan over Burke Investors’ objections.
Rule of Law
Holding and Reasoning (Katz, J.)
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