## Facts

- Aurora Memory Care, LLC (AMC) operated a memory-care/healthcare facility in Aurora, Illinois.
- AMC was owned by Aurora Real Estate and Property Investments, LLC, which was owned by Chicago immigration lawyer Taher Kameli.
- Kameli created investment funds tied to several healthcare facilities and raised money from foreign nationals seeking immigration benefits through an investor-based immigration program.
- In April 2017, the U.S. Securities and Exchange Commission filed a civil enforcement action against Kameli and others for alleged federal securities-law violations tied to that fundraising structure and named AMC as a “relief defendant” (not accused of wrongdoing but joined to recover funds).
- AMC also borrowed about $6.5 million from West Suburban Bank in 2015 and later defaulted.
- The Bank filed an Illinois foreclosure action, and a state-court receiver was appointed for the facility.
- AMC became the subject of an involuntary Chapter 11 petition filed by a creditor (Meridian Senior Living, LLC); AMC later consented to an order for relief and the case proceeded under Chapter 11.
- In the bankruptcy case, the receiver remained in control after the court excused turnover under 11 U.S.C. § 543(d)(1).
- AMC repeatedly filed required schedules and statements late, and it never filed the required monthly operating reports.
- AMC did not file a Chapter 11 plan. Instead, it told the court it intended to refinance the Bank’s debt through a post-petition loan from T2 (also referenced as T2 Investments/T2 Capital).
- The only support for the refinancing was a nonbinding letter of intent with conditions, including dismissal of AMC from the SEC case; that dismissal had not occurred.
- AMC’s schedules reflected inconsistent facility valuations (about $10 million in one filing and $16 million in later amended schedules), and although AMC referenced an appraisal, it did not produce it.
- The amended schedules listed total secured debt of roughly $8.561 million (about $8.4 million owed to the Bank) and unsecured debt of roughly $13.206 million, most owed to entities connected to Kameli.
- Evidence about operations and feasibility showed severe cash-flow constraints: Kameli acknowledged debt service on the proposed refinancing could require roughly $70,000–$80,000 per month and that occupancy would have to rise materially, while the receiver’s projections suggested far less net income available for debt service even at full occupancy.

## Issues

1. Whether “cause” existed under 11 U.S.C. § 1112(b) to dismiss or convert AMC’s Chapter 11 case based on AMC’s failures to file required reports and its lack of a realistic path to rehabilitation or plan confirmation.
2. If cause existed, whether conversion to Chapter 7 or dismissal was in the best interests of creditors and the estate.

## Decision

- The court found “cause” under § 1112(b) because AMC failed to file monthly operating reports and failed to move the case toward a confirmable Chapter 11 outcome.
- The court determined AMC’s asserted refinancing strategy was speculative: it depended on a nonbinding letter of intent and multiple conditions outside AMC’s control, including removal of AMC from the SEC action.
- The court found no realistic likelihood of rehabilitation given the operational numbers in the record, including projected cash flow and the debt-service demands AMC described for the contemplated refinancing.
- The court granted the Bank’s § 1112(b) motion and converted the case to Chapter 7, even though the Bank preferred dismissal.
- The court concluded conversion better served creditors and the estate because there appeared to be meaningful equity in the facility and a Chapter 7 trustee could investigate value, scrutinize insider claims, and administer any surplus for the benefit of the creditor body as a whole.

## Legal Principles

- Under 11 U.S.C. § 1112(b), once cause is shown, the court must dismiss or convert a Chapter 11 case (absent unusual circumstances and satisfaction of statutory conditions that justify continuing the case).
- “Cause” includes failure to file information required by the Bankruptcy Code or court order (including monthly operating reports) and other case-management defaults that prevent meaningful oversight of the debtor’s finances.
- “Cause” also exists when there is continuing loss to or diminution of the estate and no reasonable likelihood of rehabilitation, including when a debtor’s proposed financing and reorganization concept rests on contingencies and lacks credible evidence of feasibility.
- After finding cause, the court must choose between dismissal and conversion based on the best interests of creditors and the estate, considering factors such as potential equity for unsecured creditors, the need for a neutral fiduciary to investigate claims and transactions, and the likely outcomes of liquidation inside versus outside bankruptcy.

## Conclusion

The bankruptcy court found cause under § 1112(b) because AMC provided no monthly operating reports and offered no viable Chapter 11 route beyond a contingent, nonbinding refinancing proposal tied to unresolved SEC litigation and uncertain operating performance. Concluding that the facility appeared to have equity and that creditor interests were better protected through supervised administration and investigation, the court converted the case to Chapter 7 rather than dismissing it.


In re Aurora Memory Care, LLC, 589 B.R. 631 (2018)