"Although a company need not be insolvent to file in Chapter 11, the reorganization can be dismissed if the primary purpose is to obtain an unfair advantage in shareholder litigation, U.S. District Judge Sim Lake in Houston ruled on July 21.
The bankruptcy judge had confirmed a Chapter 11 plan. On an appeal taken by shareholders, the district judge reversed the confirmation order approving the Chapter 11 plan and remanded the case so the bankruptcy judge could decide whether to appoint a Chapter 11 trustee or dismiss the case.
After a hearing following remand, the bankruptcy judge concluded that the Chapter 11 petition was designed “to gain an unfair advantage in the shareholder litigation.” The bankruptcy judge also determined from the facts that there was “the absence of any clear need for financial reorganization.”
The bankruptcy judge dismissed the case, and Lake affirmed based on the conclusion that the Chapter 11 filing was not in good faith.
Although the Bankruptcy Code does not have a specific requirement that a bankruptcy filing must be in good faith, courts traditionally rule that a bankruptcy case can be dismissed for lack of good faith.
The case is Antelope Technologies Inc. v. Lowe (In re Antelope Technologies Inc.), 10-0205, U.S. District Court, Southern District Texas (Houston)."
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