The debtor failed to comply with terms of its confirmed Chapter 11 plan applicable to one secured creditor. After extensive litigation, the bankruptcy court ruled in the creditor's favor in part, but denied its request to force the debtor to sell certain vehicles, finding that the plan did not include the vehicles among the assets the debtor had agreed to liquidate to pay this creditor's claim.
The creditor then filed a motion seeking derivative standing to prosecute claims on behalf of the bankruptcy estate concerning the allegedly fraudulent transfer of the vehicles and unauthorized use of cash collateral. The debtor did not object or appear at the hearing on the motion, although one of the debtor's members did appear without counsel. The bankruptcy court granted the motion for derivative standing.
Members of the debtor then filed a motion to reconsider or amend the order, which is what the court addressed here.
First, the court granted the motion to reconsider its order granting the creditor derivative standing, despite the court's observation that the matter had either been waived or raised by parties who lacked authority to assert it, because standing is a jurisdictional prerequisite that courts are obligated to examine.
Second, the court granted the motion to amend its order concerning standing, finding that the creditor had not established either element necessary under § 1123(b)(3). The debtor did not reserve under the terms of the confirmed plan, to itself or its designee, the right to bring Chapter 5 enforcement actions, nor can the creditor establish it is acting as a representative of the estate to benefit unsecured creditors. Instead, the court found, the moving creditor would be the only creditor to benefit from the litigation.
Accordingly, the court vacated its order granting derivative standing and denied the creditor's motion.