## Facts

- Five related Chapter 11 debtors proposed a single consolidated plan of reorganization: Thomas Fay Oil Sales, Inc. (Fay Oil), Merrimack Valley Oil Company, Inc. (Merrimack), The Fay Group, Inc., and Mary and Thomas Fay (collectively, the Fay operations).
- The Fays owned and operated the businesses as an integrated petroleum distribution operation; Fay Oil was the parent of Fay Group and Merrimack.
- After filing, the debtors continued operating as debtors-in-possession.
- Post-petition, the Fay operations incurred approximately $400,000 in debt; about $390,000 of that amount was owed to Global Petroleum Corporation (Global).
- Global held a security interest in the Fay operations’ assets and supported the proposed plan.
- Belcher New England, Inc. (Belcher) was the largest unsecured creditor, asserting roughly $2 million in unsecured claims, and objected to confirmation.
- The plan left secured claims and administrative expense claims unimpaired (to be paid in full).
- The plan provided general unsecured creditors a 35% distribution on allowed claims over time; Belcher would receive 40% on its allowed claims over time.
- Evidence presented at confirmation estimated the present value of plan payments at approximately 29% for general unsecured creditors and 32% for Belcher.
- Total plan payments to unsecured creditors were projected to be about $1.5 million.
- For the “best interests of creditors” comparison, evidence showed liquidation value of inventories and assets of about $1.6 million; secured and priority claims totaled about $950,000, leaving less than $650,000 for unsecured creditors in a Chapter 7 liquidation.

## Issues

1. Did the consolidated Chapter 11 plan satisfy 11 U.S.C. § 1129(a)(7) by providing the dissenting unsecured creditor at least as much value as it would receive in a hypothetical Chapter 7 liquidation?  
2. Was the plan feasible under 11 U.S.C. § 1129(a)(11), meaning confirmation was not likely to be followed by liquidation or further reorganization not contemplated by the plan?  
3. Did the plan’s different percentage treatment of Belcher versus other unsecured creditors bar confirmation as unfair discrimination or otherwise fail Chapter 11 confirmation standards?

## Decision

- The bankruptcy court confirmed the consolidated Chapter 11 plan over Belcher’s objection.
- The court found § 1129(a)(7) satisfied because the present value of the plan’s distributions to unsecured creditors exceeded what unsecured creditors would receive in a Chapter 7 liquidation, given the court’s liquidation valuation and the priority of secured and priority claims.
- The court found the plan feasible based on the evidentiary record supporting the debtors’ ability to perform the plan.
- The court did not treat the plan’s more favorable payout percentage to Belcher (40% versus 35% for other unsecured creditors) as a confirmation bar on the facts presented.

## Legal Principles

- Under 11 U.S.C. § 1129(a)(7) (the “best interests of creditors” test), if an impaired class has not accepted the plan, each dissenting holder must receive or retain value under the plan that is not less than what the holder would receive in a Chapter 7 liquidation.
- The § 1129(a)(7) comparison is made by estimating liquidation proceeds, subtracting secured and priority claims, and comparing the resulting Chapter 7 distribution to the present value of the plan’s proposed payments to the creditor.
- Feasibility under 11 U.S.C. § 1129(a)(11) requires evidence supporting a reasonable likelihood that the debtor can make the promised payments; it does not require a guarantee of success.
- A bankruptcy court has an independent obligation to determine that the plan satisfies the confirmation requirements of § 1129, including § 1129(a)(7), based on the record developed at the confirmation hearing.

## Conclusion

The court confirmed the Fay operations’ consolidated Chapter 11 plan because the record showed that unsecured creditors, including the dissenting Belcher, would receive more value under the plan (as discounted to present value) than they would receive in a Chapter 7 liquidation after payment of secured and priority claims, and because the evidence supported that the debtors could carry out the plan’s payment obligations.


In re Merrimack Valley Oil Co., 32 B.R. 485 (1983)