In a reopened Chapter 11 case, the debtor must file quarterly reports and pay quarterly United States Trustee (UST) fees. I’m leading with the conclusion with the hope that this post shows-up in a search engine where and when you need it most. After all, sometimes you just need a quick answer to a mundane question. This is that post.
This issue came up for us after we had reopened one of six jointly-administered Chapter 11 cases so that we could file a post-confirmation adversary proceeding. Honestly, I had not considered the issue of reporting and fees. However, a month after we reopened, our client forwarded two week’s worth of email exchanges between the debtor’s controller and the UST’s Office. Basically, “You’re missing a report for the last month of the case before you closed it and you’re past due on monthly reports and fees owing for the periods after you reopened.”
With more research than should have been necessary, I “determined” that, in a reopened Chapter 11 case, for which there is a confirmed plan and a final decree, the debtor owes quarterly reports and fees. I say “determined” because very little has been written about this issue. As Judge Humrickhouse put it in In re Barbetta, it is “not evident from the express language of § 1930(a)(6) that the payment of quarterly fees is required in a reopened chapter 11 case which was closed after the entry of a final decree. Furthermore, no cases specifically addressing the issue could be found.”
Is a reopened Chapter 11 debtor required to pay quarterly fees? Yes.
First, let’s start with the express language of 28 U.S.C. § 1930(a)(6): “In addition to the filing fee paid to the clerk, a quarterly fee shall be paid to the United States trustee, for deposit in the Treasury, in each case under chapter 11 of title 11 for each quarter (including any fraction thereof) until the case is converted or dismissed, whichever occurs first.”
Second, Judge Humrickhouse tells us that, prior to 1996, § 1930(a)(6) provided that quarterly fees were owing until the earlier of plan confirmation, case conversion, and case dismissal. However, in 1996, Congress amended § 1930(a)(6) so that it reads as quoted above and, thus, requires quarterly fees even in those post-confirmation cases that tend to linger open. It did so because the “U.S. trustee’s office was faced with declining filings and thus a decline in fees, although a significant number of chapter 11 cases remained open post-confirmation.”
Third, Judge Humrickhouse relies on In re Wren, 315 B.R. 921 (Bankr. M.D. Ga. 2004), wherein our very own Judge Laney contemplated, but ultimately did not reach, the “issue of whether [debtors] are in fact required to file monthly reports and pay U.S. Trustee quarterly fees after the case is closed if it is re-opened to allow [debtors] to file an adversary proceeding.” Judge Laney did, however, suggest the outcome for Barbetta:
Withholding Trustee’s fees does not further the Bankruptcy Code. “These fees bear no relation to particular services performed by the Trustee. Indeed, the legislative history of the amendment to § 1930 makes it clear that the fees are used to offset other expenditures in the federal budget and that the amendment was added to increase the revenue raised from these fees.”
Therefore, concludes Judge Humrickhouse, “it is the use of the system that invokes the fee, not the specific duties imposed upon the U.S. Trustee or Bankruptcy Administrator in a particular case.”
Finally, Judge Humrickhouse moves to the immediate issue of whether UST fees are owing in reopened Chapter 11 cases. Under § 350 of the Code, a “case may be reopened in the court in which such case was closed to administer assets, to accord relief to the debtor, or for other cause.” On the one hand, she points out, “closure of a debtor’s chapter 11 case” relieves the debtor of its “duty to pay quarterly fees.” After all, the existence of a case is the “statutory precondition” to the assessment of fees. On the other hand, the “bankruptcy court retains the jurisdiction to reopen the case for cause.” The debtor is “again responsible for the payment of quarterly fees” when a case is reopened because, “pursuant to § 1930(a)(6), quarterly fees are required ‘in each case under chapter 11’ . . . and a reopened case is, in fact, a case under Chapter 11.”
Judge Humrickhouse also points that a reopened case, like any other case, is “subject to conversion or dismissal for cause” pursuant to § 1112(b)(1) of the Code. In turn, § 1112(b)(4)(K) provides that a ground for conversion or dismissal is the debtor’s failure to pay UST fees. Therefore, a “reopened case is again a case in existence under Chapter 11 and subject to conversion or dismissal for failure to pay quarterly fees. “If a case is subject to dismissal for failure to pay quarterly fees, it follows that such fees are due.” The fact that the UST “may not have significant involvement in the administration of the case at this juncture is not relevant since the assessment of quarterly fees is not contingent upon nor related to the services performed by” the UST.
Is a reopened Chapter 11 debtor only required to file quarterly reports? Yes.
At least in Region 21, where we practice, the UST Guidelines suggest that quarterly, not monthly, reports are required in reopened cases:
Debtors have a continuing obligation to file monthly operating reports until the court confirms the plan of reorganization. After confirmation, debtors are required to file a quarterly post confirmation operating report. . .These reports must be filed quarterly until the court enters a final decree, dismisses the case, or converts the case to another chapter in bankruptcy.
Our guidelines are similar to the guidelines for other Regions. See, e.g., the Region 2 Guidelines (covering New York). Therefore, a debtor must file monthly operating reports until plan confirmation. Upon confirmation, the debtor switches to the quarterly post confirmation operating report. The debtor must file those reports until the court enters a final decree, dismisses the case, or converts the case. Admittedly, the analysis becomes circular if you let it. That is, MORs are cutoff by plan confirmation. Quarterly reports are cutoff by the final decree. Therefore, in a reopened case, one might argue that confirmation excuses the MOR requirement while the final decree excuses the quarterly report requirement.
Practically, though, the UST has to have the ability to calculate UST fees using a distribution report of some kind. Thus, the better approach is to treat the MOR responsibility as having terminated upon confirmation, with the quarterly, distribution-focused, report applying in reopened cases.
And as famously said, “that’s all I have to say about that.”
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