## Facts

- Cheerview Enterprises, Inc. owned a gas station and convenience store in Lansing, Michigan.
- In 2015, Cheerview’s new owner, Mohamad Berro, formed Mikey’s Fuel Mart, Inc. to operate the station and store.
- Berro was rarely on site and did not initially realize employees were stealing from the business; after discovering the theft, he fired the employees.
- Berro brought in his friend Hassan Ouza, who had substantial gas-station experience, to help address the business’s problems, but their efforts did not stop the losses.
- During 2016, when the station was operating, it sold about 35,000 gallons of gasoline per month on average.
- Mikey’s continued losing money and could not pay creditors, and the station and store ultimately shut down.
- Cheerview filed a Chapter 11 petition and filed multiple disclosure statements and plans; the dispute centered on Cheerview’s third amended plan and related disclosure statement.
- The third amended plan proposed reopening the station and funding creditor payments from anticipated operating revenue tied to agreements with gas supplier RPF Oil Company.
- The RPF agreements required minimum monthly gasoline sales of 70,000 gallons and allowed RPF to terminate the agreements if Cheerview failed to meet that minimum.
- Cheerview’s projections estimated monthly sales of about 54,000 gallons—below the RPF minimum—and contained internal inconsistencies and assumptions not aligned with the RPF agreements (including payroll-related assumptions).
- Two creditors, U.S. Oil and Stockbridge Acquisitions, LLC, objected to confirmation, arguing the plan was not feasible; Stockbridge, a secured creditor with a lien on the property, also sought relief from the automatic stay.
- The bankruptcy court held an evidentiary hearing addressing final approval of the disclosure statement, confirmation of the third amended plan, and Stockbridge’s stay-relief request.

## Issues

1. Whether Cheerview’s disclosure statement contained “adequate information” under 11 U.S.C. § 1125(a)(1).
2. Whether the third amended Chapter 11 plan satisfied confirmation requirements, including feasibility under 11 U.S.C. § 1129(a)(11).
3. If confirmation required cramdown, whether the plan complied with the absolute priority rule under 11 U.S.C. § 1129(b)(2)(B).
4. Whether Stockbridge was entitled to relief from the automatic stay under 11 U.S.C. § 362(d)(1) or § 362(d)(2).

## Decision

- The court approved the disclosure statement as containing adequate information under § 1125(a)(1).
- The court denied confirmation of the third amended plan, holding the plan was not feasible under § 1129(a)(11).
- The court also concluded the plan could not be confirmed over objection because it violated the absolute priority rule where equity would retain ownership while unsecured creditors were not paid in full and no sufficient new-value contribution was shown.
- The court granted Stockbridge relief from the automatic stay under § 362(d)(1) and § 362(d)(2).

## Legal Principles

- A disclosure statement can satisfy § 1125(a)(1) if it provides enough detail for a typical creditor to make an informed judgment about the plan, even if the plan later proves unconfirmable.
- Feasibility under § 1129(a)(11) requires more than hope; the debtor must show a reasonable likelihood the plan will work, supported by credible projections and objective facts.
- A plan may be infeasible when it depends on sales or revenue levels far above the debtor’s operating history and when key contracts necessary to the plan (such as a supply agreement) can be terminated if projected performance is not met.
- Internally inconsistent projections, or projections that conflict with required terms in essential third-party agreements, weigh against feasibility.
- Under the absolute priority rule in § 1129(b)(2)(B), if an impaired class of unsecured creditors does not accept the plan, junior equity generally cannot retain property “on account of” its prior interests unless unsecured creditors are paid in full or equity contributes qualifying new value (money or money’s worth) that is substantial and necessary.
- Relief from stay may be granted for “cause” under § 362(d)(1), including lack of adequate protection, and must be granted under § 362(d)(2) when the debtor lacks equity in the property and the property is not necessary to an effective reorganization that is realistically in prospect.

## Conclusion

In In re Cheerview Enterprises, Inc., the bankruptcy court allowed solicitation by granting final approval of Cheerview’s disclosure statement, but denied confirmation because the reopening plan depended on unrealistic gasoline-sales projections that did not meet the minimum-volume requirements in the RPF agreements and because equity retention over unpaid unsecured creditors failed the absolute priority rule; with no confirmable plan and no effective reorganization shown, the court also lifted the automatic stay to permit Stockbridge to proceed against its collateral.


In re Cheerview Enterprises, Inc., 586 B.R. 881 (2018)