## Facts

- Bermec Corporation operated a nationwide truck and tractor-trailer leasing business in the United States and Canada, with numerous maintenance terminals, substantial payroll, and thousands of shareholders.
- After several years of substantial operating losses, Bermec was insolvent and unable to meet its obligations.
- Bermec initially filed for relief under Chapter XI and later, with court permission, amended to proceed under Chapter X; trustees were appointed.
- Several secured creditors objected, arguing the Chapter X petition lacked “good faith” because it was unreasonable to expect an effective reorganization and because their collateral was rapidly depreciating.
- The district court appointed a special master, who conducted an evidentiary hearing and credited testimony that operational changes could improve results, including renegotiating unprofitable contracts, selling excess equipment, using escalation clauses, reducing fuel costs, and concentrating on profitable lines.
- The special master recommended approval, finding it was not unreasonable to expect a reorganization plan and that the petition was filed in good faith; the district court confirmed the report and approved the petition.

## Issues

1. Whether the Chapter X petition was filed in “good faith,” including whether it was unreasonable to expect that a plan of reorganization could be effected under the Bankruptcy Act.
2. Whether the district court erred in approving the Chapter X petition over secured creditors’ objections based on collateral depreciation and asserted need for immediate lien enforcement.

## Decision

- The court of appeals affirmed the order approving the Chapter X petition.
- The evidence supported the finding that the petition was filed in good faith.
- The record supported the finding that it was not unreasonable to expect that a reorganization plan could be effected.
- Secured creditors’ concerns about depreciating collateral did not, on this record, require dismissal at the petition-approval stage.

## Legal Principles

- A Chapter X petition should be approved if statutory requirements are met, material allegations are supported by proof, and the petition is filed in good faith.
- “Good faith” includes the requirement that it is not unreasonable to expect that a plan of reorganization can be effected; the standard requires a reasonable prospect, not certainty.
- A court may approve reorganization proceedings despite secured creditors’ preference for immediate payment or lien enforcement when credible evidence supports potential rehabilitation and interim protections for secured interests can be considered.

## Conclusion

The appellate court upheld approval of the Chapter X proceeding because the evidentiary record supported findings of good faith and a reasonable expectation that a reorganization plan could be developed, notwithstanding secured creditors’ depreciation-based objections.


In re Bermec Corp., 445 F.2d 367 (2d Cir. 1971)