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Matter of Saybrook Manufacturing Co.

United States Court of Appeals for the Eleventh Circuit
963 F.2d 1490 (1992)


Facts

Saybrook Manufacturing Co., Inc. and affiliated companies (collectively, Saybrook) (defendant) filed a Chapter 11 bankruptcy petition on December 22, 1988. At the time of filing, Saybrook owed Manufacturers Hanover (Hanover) (defendant) approximately $34 million. The debt to Hanover was collateralized to an amount less than $10 million. Thus, approximately $24 million of the debt to Hanover was unsecured. On December 23, 1988, upon Saybrook’s motion, the bankruptcy court entered an emergency financing order that would allow Saybrook to take on additional, secured debt. The order provided that, in exchange for a $3 million postpetition loan to Saybrook, Hanover would receive a security interest in all of Saybrook’s prepetition and postpetition property. The security interest would also apply to Hanover’s prepetition debt. Thus, one effect of this “cross-collateralization” was to fully secure Hanover’s $24 million of prepetition debt that had previously been unsecured. Two unsecured creditors of Saybrook, Seymour and Jeffrey Shapiro (plaintiffs), objected to the financing order. The bankruptcy court overruled their objection and also refused to stay the order pending appeal. The district court held that the Shapiros’ appeal was moot pursuant to 11 U.S.C. § 364(e). The Shapiros appealed.

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Holding and Reasoning (Cox, J.)

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