Oct. 3, 2007 — U.S. Bankruptcy Court Judge Judith K. Fitzgerald ordered Jeffrey Prosser, former CEO of Innovative Communications Corp., into Chapter 7 bankruptcy Wednesday, a shift that would force the rapid sale of his assets to satisfy creditors.
The decision is limited to Prosser's personal bankruptcy.
Fitzgerald said in the order that Prosser does not have sufficient income to cover his debts, and the bitter history of the case leaves little hope that reorganization of Prosser's debts is possible.
"This bankruptcy case is now over 14 months old and there is no likelihood of a reasonable prospect of rehabilitation of Debtors financial affairs in a Chapter 11," Fitzgerald wrote in the eight-page order.
Prosser had previously been in Title 11 bankruptcy, also known as reorganization, which allows a debtor to continue to control his properties while efforts are made to settle the debts. Under Title 7, or liquidation, a debtor must turn over all his or her assets to a bankruptcy trustee who distributes the cash value of the assets among the creditors.
Fitzgerald also cited the rancor between the creditors — the Greenlight Companies and the Rural Telephone Finance Cooperative (RTFC) — and debtors and the cost of that bitterness as another reason for her decision.
"The cost of litigation will be less in a Chapter 7 because, in light of the acrimony between the RTFC and Greenlight on the one hand and Debtor on the other, a Chapter 7 Trustee as an independent fiduciary will be better able to assess what is in the best interests of the estate," she wrote.
In January, the Source reported that legal fees for Prosser alone had reached nearly $1 million. (See "Heavy Legal Fees in Prosser Cases Becoming Cause for Concern").
Fitzgerald's order also has the effect of changing the date for creditors to file claims, which may include the IRS.
"The Examiner discovered that Debtor did not list the IRS as a creditor and the docket reflects that the IRS did not get notice of the proof of claim bar date and, therefore, the Chapter 7 Trustee will be required to ensure that the IRS gets proper notice of the Chapter 7 claims bar date in the event that the IRS has a claim," Fitzgerald stated.
In his report, examiner Steven A. Felsenthal, a former chief judge of the U.S. Bankruptcy Court, said that some $156 million in forgiven loans to Prosser and his holding company, New ICC, might be subject to taxes and those taxes might not have been paid. (See "Report Details Prosser's Troubled Finances, Tax Issues).
Fitzgerald's order will give the IRS and any other creditors another chance to get on the list if they haven't already.
Fitzgerald also cited the failure of Prosser's wife, Dawn Prosser, to cooperate in the Chapter 11 plan as yet another reason for the conversion. The judge also stated that along with his own substantial debts, Prosser "contributes to the payment of his nondebtor wife's debts."
In a hearing earlier this year, Fitzgerald commented that Jeffrey and Dawn Prosser's assets were so intermingled that she wasn't sure Jeffrey Prosser knew what was his and what wasn't.
Fitzgerald, in making her decision, also pointed out that while there is a possibility Prosser will be employed in some other fashion in the future, he is not now working. He lost his income when he was fired as CEO of Innovative Communications Corporation in September.
Fitzgerald wrote, "In light of Debtors loss of income, the fact that liabilities exceed assets, that his nondebtor wife may have claims against assets he proposes to use to fund a liquidating plan …, " that the court has found cause to call for the conversion .
Fitzgerald ordered that a Chapter 7 trustee be appointed "immediately."
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