## Facts

- Charles Malkus and his wife owned and operated Malkus, Inc. (the debtor), which operated a motel.
- The motel’s business struggled: it was terminated from one franchise agreement and later received a very low quality rating from its current franchisor.
- In 1998, the debtor obtained a first mortgage loan secured by the motel property; LaSalle held the first mortgage.
- The LaSalle loan documents prohibited the debtor from obtaining junior financing.
- In 2000, despite that restriction, the debtor obtained a second mortgage from First Community Bank.
- The debtor defaulted on the LaSalle note in October 2002.
- LaSalle began a state-court foreclosure action in February 2003.
- In July 2003, the debtor filed a Chapter 11 petition on the same day as the foreclosure action’s summary-judgment proceeding.
- After the petition date, the debtor and LaSalle entered into a stipulation agreement governing the debtor’s postpetition operations and payments.
- The stipulation included an operating budget for the motel and required the debtor to remit its net cash to LaSalle monthly, along with meeting other financial requirements.
- The debtor failed to operate within the stipulated budget, failed to meet the stipulation’s other financial requirements, and failed to make the required payments to LaSalle.
- The bankruptcy court entered an order requiring the debtor to comply with the stipulation, but the debtor still did not comply.
- The debtor proposed a Chapter 11 plan of reorganization, and creditors objected that the plan was not feasible under 11 U.S.C. § 1129(a)(11).

## Issues

1. Whether the debtor carried its burden to prove that its proposed Chapter 11 plan was feasible under 11 U.S.C. § 1129(a)(11).

## Decision

- The bankruptcy court denied confirmation of the debtor’s Chapter 11 plan.
- The court found that the debtor did not prove feasibility under § 1129(a)(11), relying on the debtor’s operating results and its repeated failures to meet the stipulation’s budgeting and payment requirements.

## Legal Principles

- A Chapter 11 plan may be confirmed only if it satisfies all requirements of 11 U.S.C. § 1129(a), including feasibility under § 1129(a)(11).
- Feasibility under § 1129(a)(11) requires a showing that confirmation is not likely to be followed by liquidation or the need for further financial reorganization.
- The debtor bears the burden of proving feasibility.
- In evaluating feasibility, the court may consider the debtor’s historical performance and conduct during the bankruptcy case, including compliance (or noncompliance) with court-approved budgets and payment arrangements.
- A plan is not feasible when it rests on speculative expectations that the debtor can make promised payments despite a demonstrated inability to meet similar obligations during the case.

## Conclusion

In *In re Malkus, Inc.*, 2004 WL 3202212 (Bankr. M.D. Fla. 2004), the bankruptcy court refused to confirm a motel operator’s Chapter 11 plan because the debtor failed to prove feasibility under § 1129(a)(11), as shown by its poor operating history and repeated postpetition defaults under a stipulation requiring compliance with a budget and monthly remittance of net cash to the senior mortgagee.


In re Malkus, Inc., 2004 WL 3202212 (2004)