IN RE NATTCHASE ASSOCIATES, L.P., (Bankr.E.D.Va. 1994)

STEPHEN MITCHELL, Bankruptcy Judge

This matter is before the Court on the motion of the United States Trustee, filed January 11, 1995, to dismiss the debtor's chapter 11 case or convert it to a case under chapter 7. The hearing on the motion was continued several times and was argued on March 28, 1995, at which time the Court took the motion under advisement. This memorandum opinion constitutes the Court's findings of fact and conclusions of law as required by F.R.Bankr.P. 7052 and Fed.R.Civ.P. 52.

This chapter 11 case was commenced by the filing of an involuntary petition by one of the two general partners of the debtor limited partnership on January 31, 1994. The other general partner subsequently consented to the filing. The debtor's assets consisted of four tracts of land in Loudoun County, Virginia, with respect to which a first-lien deed of trust was held by CMF Loudoun, L.P., which had purchased the note from the Resolution Trust Corporation. On December 27, 1994, Judge David H. Adams of this Court, after finding that there was no equity in the property "and no reasonable possibility that Nattchase will be able to reorganize," granted CMF Loudoun relief from the automatic stay, and a foreclosure sale has been held. (Since the note was non-recourse, there is no deficiency claim.) The debtor has no assets, and while it submitted a draft plan of reorganization as an exhibit in the relief from stay hearing, that plan was predicated on the debtor's continued ownership of the real estate, and there is no plan of reorganization presently before the Court. The debtor asserts, however, that it has a viable claim against the Resolution Trust Corporation based on the refusal of the RTC to allow one of the debtor's partners to bid on the note which was ultimately sold to CMF Loudoun. A claim has been submitted to the Resolution Trust Corporation, and a court action cannot be brought until the administrative remedies are exhausted. There is no evidence before the Court as to the likelihood of success on the claim, the amount of the claim, or the timetable for its resolution. In addition, as articulated by debtor's counsel in argument, the claim appears to be one which properly belongs to the partner who unsuccessfully sought to bid on the note and not to the debtor itself. While the principals would, of course, be free to contribute any recovery to the debtor, there is no requirement that they do so. The debtor represents, and the United States Trustee does not dispute, that the debtor has filed its required monthly financial reports and paid the required quarterly fees to the Office of the United States Trustee. No creditors have appeared either to support or oppose the relief sought by the United States Trustee. Aside from the two partners, the only creditors consist of the obligee (Loudoun County) and sureties on two performance bonds totalling $845,777, and a land planning firm that is owed $2,853.64. Although a real estate tax debt of over $2,000,000.00 was listed on the schedules, those taxes were presumably paid in connection with the foreclosure, as required by 55-59.4(A)(3), Code of Virginia.

Under Section 1112(b) of the Bankruptcy Code, a chapter 11 case may, on request of a party in interest or the United States Trustee, and after notice and a hearing, be converted to a case under chapter 7 or dismissed, "whichever is in the best interest of creditors and the estate" for cause, including

(1) continuing loss to or diminution of the estate and absence of a reasonable likelihood of rehabilitation;

(2) inability to effectuate a plan;

* * *

In the case before the Court, the debtor's only significant assets have been foreclosed upon, the debtor has no employees, is conducting no business, and has what is at best a speculative claim against the Resolution Trust Corporation for damages which may take several years to resolve. Until the claim is resolved, the debtor has no basis for proposing a plan. The reorganization case has been pending in this Court for 15 months, and at this point the Court cannot conclude that there is any more a "reasonable likelihood of rehabilitation" or the ability to propose a confirmable plan than when Judge Adams granted relief from the automatic stay. Since, aside from the wholly speculative claim against the RTC, there are no assets to pay creditors, the administration of the case under chapter 7 would serve no purpose, and the interest of creditors and the estate would be better served by dismissal.

For the foregoing reasons, the motion of the United States Trustee to dismiss or convert is GRANTED and the debtor's chapter 11 case is hereby DISMISSED. The Clerk shall give notice of the dismissal to all creditors and parties in interest.