Cdex, Inc. (fka CDEX)

[Crow3]

CHAP 7 california TRUSTEE...."HEY, wait a minute"..



Dean T. Kirby, Jr. (SBN 090114)
James F. Lewin (SBN 140268)
KIRBY & McGUINN, A P.C.
707 Broadway, Suite 1750
San Diego, California 92101
Telephone: [phone]
Facsimile: [phone]
e-mail: [e-mail]
Attorneys for Nancy L. Wolf, Trustee of the Bankruptcy Estate
of Jeffrey K. Brumfield and Kathryn B. Brumfield
UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ARIZONA
In re
CDEX, INC.,
Debtor.
Case No. 4:12-bk-02402-JMM
Chapter 11
OBJECTION TO DISCLOSURE
STATEMENT
Date: July 16, 2012
Time: 10:45 a.m.
TO THE HONORABLE JAMES M. MARLAR, UNITED STATES BANKRUPTCY JUDGE:
Nancy L. Wolf, Trustee of the Bankruptcy Estate of Jeffrey K. Brumfield and Kathryn B.
Brumfield (“Trustee”) hereby objects to approval of the Disclosure Statement dated May 25,
2012(“DS”) filed by Debtor CDEX, Inc. (“Debtor”) as follows:
I. INTRODUCTION
Jeffrey K. Brumfield (“Brumfield”) is the Chairman and Chief Executive of the Debtor. Mr.
Brumfield also holds 4,988,426 common shares of the Debtor. See, Notice of Filing List of Equity
Security Holders filed February 10, 2012 as PACER Docket No. 3.
On or about December 29, 2010, Mr. Brumfield and his spouse Kathryn B. Brumfield filed a
voluntary petition for relief pursuant to the provisions of Chapter 7 of Title 11, United States
Bankruptcy Code, as case no. 10-22667-LA7 in the United States Bankruptcy Court for the Southern
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District of California (the “Brumfield Bankruptcy Case”). On or about that same date, the Trustee
was duly appointed as the acting Trustee of the Brumfield bankruptcy estate.
The Trustee discovered that on or after January 26, 2011, Brumfield transferred possession
of CDEX, Inc. Stock Certificate, Number 3566, dated August 13, 2010 which represents Four
Million Eight Hundred Fourteen Thousand One Hundred Thirty Three Shares of CDEX, Inc.
Common “A” Stock (the “CDEX Stock Certificate”) to a Creditor without the authorization,
knowledge, permission or consent of the Trustee. On or about February 9, 2011, the Trustee
demanded that Mr. Brumfield and/or the transferee creditor turnover possession of the CDEX, Inc.
Stock Certificate to the Trustee.
As a result of a settlement concluded after an adversary proceeding was filed in the
Brumfield Bankruptcy Case, the Trustee is in possession of the following CDEX, Inc. certificates
titled in the name of Jeffrey K. Brumfield for administration on behalf of the unsecured creditors of
the Brumfield bankruptcy estate.
Certificate No. `Date Number of Shares
3471 March 12, 2009 61,099
3565 August 13, 2010 4,814,133
3613 May 26, 2011 113,194
Mr. Brumfield scheduled unsecured nonpriorty claims in the amount of $5,430,803.22 in the
Brumfield Bankruptcy Case.
To the extent Mr. Brumfield’s percentage equity interest in CDEX appreciates in value after
the proposed Reverse Stock Split, the Trustee intends to liquidate Mr. Brumfield’s interest in the
New Common Stock for the benefit of the unsecured creditors of the estate.
II. THE LEGAL STANDARDS FOR APPROVAL OF THE DS
Complete and fully accurate disclosure of all material information is critical for approval of a
disclosure statement. Section 1125 of the Bankruptcy Code outlines the minimum information
requirements - a disclosure statement must contain information sufficient to enable the reasonable
hypothetical investor to make an informed judgment about the proposed plan. See 11 U.S.C. §
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1125(a)(1); see also In re Diversified Investors Fund XVII, 91 B.R. 559, 561 (Bankr. C.D. Cal.
1988) (primary purpose of disclosure statement to provide creditors necessary information to decide
whether to accept plan). A disclosure statement that omits material facts cannot be approved. See In
re Unichem Corp., 72 B.R. 95, 97-100 (Bankr N.D. Ill. 1987), aff'd, 80 B.R. 448 (N.D. Ill. 1987).
For a creditor to fairly evaluate the result of a proposed plan, the court must insure that a
disclosure statement sets forth “all those factors presently known to the plan proponent to bear upon
the success of failure or the proposals contained in the plan.” In re Jeppson, 66 B.R. 269, 292
(Bankr. D. Utah 1986) (quoting In re The Stanley Hotel, Inc., 13 B.R. 926, 929 (Bankr. D. Co.
1981)); see also In re Diversified Investors Fund, 91 B.R. at 561 (primary purpose of disclosure
statement is to provide creditors necessary information to decide whether to accept plan). Adequate
disclosure requires “sufficient financial and operating information to enable each participant to make
an ‘informed judgment’ whether to approve or reject the proposed plan.” In re Northwest
Recreational Activities, Inc., 8 B.R. 10, 11 (Bankr. N.D. Ga. 1980). “In short, a proper disclosure
statement must clearly and succinctly inform the average unsecured creditor what it is going to get,
when it is going to get it, and what contingencies there are to getting their [sic] distribution.” In re
Ferretti, 128 B.R. 16, 19 (Bankr. D. N.H. 1981).
Approval of a disclosure statement containing the necessary information is within the sound
discretion of the bankruptcy court. See In re Monroe Well Services, Inc., 80 B.R. 324, 331 (Bankr.
E.D. Penn. 1987). In exercising that discretion, courts will reject a disclosure statement if it contains
material misstatements and omissions or if the plan proposed thereby obviously cannot be
confirmed. See In re Unichem Corp., 72 B.R. at 97-100.
A. The DS Does Not Adequately Disclose Mr. Brumfield’s Percentage Interest in the
Debtor Or Whether Mr. Brumfield’s Percentage of New Common Stock Will Be Issued
In The Name of Nancy L. Wolf, Trustee of the Bankruptcy Estate of Jeffrey K.
Brumfield and Kathryn Brumfield
Paragraph 5.11 of the DS which is paragraph 3.11 of the proposed Plan states:
Class Eleven – Interest of Equity Holders
A. Classification: Class Eleven consists of the equity interest holders of the debtor.
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B. Impairment: Class Eleven is not impaired.
C. Treatment: The equity holders in the Debtor shall be allowed to retain their current
percentage of interest or a percentage thereof subject to the Reverse Stock Split as set forth in the
Plan.
Paragraph 5.8 of the proposed Plan States:
Authorized Share Capital: Upon consummation of the Plan, Debtor shall, without the need
for any further corporate act or other action under any applicable law, regulation, order or rule, have
300,000,000 shares of authorized New Common Stock, of which approximately 11,000,000 shall be
issued on or as soon as reasonably practicable after the Effective Date. Debtor reserves the right to
increase or amend the foregoing post-effective Date.
The DS fails to identify the equity holders, their percentage interests in CDEX and how their
percentage interests in CDEX will be affected by the Reverse Stock Split. Additionally, Mr.
Brumfield’s equity interest in CDEX is held by the Trustee. Therefore, all New Common Stock in
which Mr. Brumfield had an interest as of the date of filing of his personal bankruptcy petition is
required to be issued in the name of the Trustee.
III. THE DS REVEALS A PLAN WHICH IS NOT FEASIBLE
Title 11 U.S.C. §1129(a)(11) requires as a condition of confirmation that the court make a
finding that confirmation "is not likely to be followed by the liquidation, or the need for further
financial reorganization, of the debtor or any successor to the debtor under the plan, unless such
liquidation or reorganization is proposed in the plan." In determining whether a Plan meets the
requirements of Section 1129(a)(11 ), "the bankruptcy court has an obligation to scrutinize the plan
carefully to determine whether it offers a reasonable prospect of success and is workable." In re
Pizza of Hawaii, Inc., 761 F.2d 1374, 1382 (9th Cir. 1985). To establish feasibility, the plan
proponent must demonstrate concrete evidence of a sufficient cash flow to fund and maintain both
its operations and obligations under the Plan. S&P. Inc. v. Pfeifer, 189 B.R. 173, 183 (N.D.
1995)(quoting In re SM 104 Ltd., 160 B.R. 202, 234 (Bankr. S.D. Fla 1993)).
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In the present case, the Debtor has disclosed insufficient financial information for creditors to
determine whether the proposed Chapter 11 Plan is feasible. For example, in Exhibit “D”, Debtor
forecasts the ability to raise $700,000 in September of 2012 but fails to support this claim with any
evidence. As it not possible for Creditors to realistically assess the feasibility of this speculative
Plan, the Disclosure Statement should not be approved.
IV. CONCLUSION
For the foregoing reasons, the Trustee respectfully requests that approval of the DS be denied
and for such other and further relief as is just and proper.
Dated: July , 2012 Respectfully submitted,
KIRBY & McGUINN, A P.C.
By: /s/James F. Lewin
James F. Lewin
Attorneys for Nancy L. Wolf, Trustee
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