6:31 am
Fair, 72°
     News Flash    Saturday, May 25, 2024
News Flash Subscribe to News Flash Emails
Bankruptcy Court rebukes John Coleman for "bad faith conduct" in his bankruptcy case

Thursday, January 13, 2022, 11:30 am News Flash Archive

The bankruptcy judge overseeing both Express Grain's bankruptcy, as well as its president John Coleman's personal bankruptcy case, has entered her order denying Coleman's request to dismiss his own personal case.

The court specifically found that Coleman had engaged in "bad faith conduct" during the bankruptcy case, and that he ought not to be allowed to benefit from said misconduct.

In the order, the judge describes in detail the objections that were filed by various parties to both cases, and concludes by appointing an Examiner to investigate Coleman's case.

The court's order may be seen here: Order appointing Examiner

As first reported by The Taxpayers Channel, John Coleman had refused to answer questions at the meeting of his creditors in his personal bankruptcy case, after he asked the court to dismiss his case: John Coleman refuses to answer questions at creditors meeting

But at the January 6th telephonic hearing of his motion to dismiss, the court issued a bench ruling denying that motion. See here: Judge orders appointment of Examiner in John Coleman's personal bankruptcy case

The Court observes in its written order that Mr. Coleman did not attend the hearing on his motion to dismiss his case.

According to the court's order, Craig Geno, who represents both John Coleman and Express Grain, argued that there was no real reason to continue Coleman's personal bankruptcy, now that the state court action filed by UMB Bank has been dismissed.

But the court recounts more details argued by Geno:

Additionally, Geno argued that the conduct of the Debtor supports dismissal: Coleman failed to file his required monthly operating reports in a timely manner, failed to pay the proper fees due to the United States Trustee, and behaved as a "reluctant or absent witness" in all matters and issues before the Court. Finally, Geno argued that Coleman has "very few assets" to benefit a chapter 11 reorganization and that, while Coleman owns a piece of real property as his former home, the Court has approved the sale of the real property pursuant to a prior Court Order. Upon closing the sale of this property, Geno stated, Coleman is willing to hand over the sale proceeds in the amount of $188,000.00 for the benefit of creditors in the Express Grain Terminals, LLC ("Express Grain") case.

The court cited other eye-opening arguments made by various creditors regarding why the case should not be dismissed. The court recounted:

Additionally, while the Farm Group appreciates that Coleman has agreed to pay Express Grain over $188,000.00 in proceeds from the sale of his property, there has been no similar pledge made with regard to attorney's fees paid by Express Grain on Coleman's behalf to his criminal defense attorney, John Colette, in the amount of approximately $50,000.00. The Farm Group argued that Express Grain's payment of attorney's fees on Coleman's behalf should be listed as a debt in Coleman's bankruptcy, thereby increasing the amount owed by Coleman to creditors. The Farm Group went on to state that other disbursements appear to have been made by Express Grain on the eve of its chapter 11 bankruptcy on behalf of Coleman, including payments for life insurance and credit cards, and that such funds should also be paid over to Express Grain as well. Finally, the Farm Group argued that the Motion to Dismiss should be denied because of the existence of claims by Express Grain against Coleman that should be conserved, such as claims for conversion, fraudulent conveyance, and breach of fiduciary duty.

According to the court's order, the Mississippi Department of Agriculture and Commerce is concerned that Express Grain may try to argue that the grain warehouse licenses now under dispute were actually issued to John Coleman instead of Express Grain, complicating adjudication of the license issue by the court and/or MDAC.

The court next recounts the objections made by the Production Lenders, who financed many of the crops and are awaiting payment from the farmers themselves who have yet to be paid by Express Grain. According to the court:

The Production Lenders, however, stated that, although cause may exist for dismissal because of Coleman's clear failure to satisfy his obligations as a Debtor in chapter 11, it would be improper to allow a debtor to voluntarily invoke the Bankruptcy Code's protections and then subsequently obtain bankruptcy dismissal by intentionally refusing to cooperate with the requirements necessary to comply with the Bankruptcy Code and Federal Rules of Bankruptcy Procedure. The Production Lenders provided examples of Coleman's intentional conduct, such as his failure to appear and cooperate at the Section 341 meeting of creditors, the deliberate avoidance of subpoenas, and his unwillingness to testify voluntarily at any hearing before the Court. This, coupled with the allegations made against Coleman of fraud and the conversion of assets, supports the Production Lenders' argument that dismissal under chapter 11 is not in the best interests of the creditors or the estate. Thus, maintaining jurisdiction over Coleman and his assets by converting his case to a chapter 7 proceeding, or through the appointment of a chapter 11 trustee or examiner, keeps him protected from creditors and other parties "racing to the courthouse" for judgment against Coleman outside of this Court.

The court found that it could dismiss Coleman's bankruptcy due to his misconduct:

... the Court finds that Coleman has engaged in bad faith conduct throughout the pendency of his bankruptcy by continuously and willfully failing to participate in Court proceedings, willfully failing to participate in a Section 341 creditors' meeting, and failing to timely file required monthly operating reports or pay fees due to the UST. Although Coleman did not appear at the telephonic hearing held on January 6, 2022 and, therefore, did not testify concerning his conduct during the pendency of his case, the Court is certainly aware of his behavior and is able to ascertain his bad faith conduct through the arguments of the parties and the administration of his bankruptcy case. In reaching its decision, the Court also considered all allegations made concerning the prepetition monetary disbursements and transfers made by Express Grain on behalf of Coleman.

In explaining the court's decision not to dismiss the case as Coleman requested, the court noted:

the Court will not allow Coleman to subvert the purpose of the Bankruptcy Code by willfully engaging in bad faith conduct to dismiss his own case for cause under Section 1112(b)(1). Further supporting this decision is the Debtor's repeated failure to appear before the Court to defend allegations made against him concerning potential fraud and misconduct, which leaves the Court with questions concerning the events that transpired prepetition and any potential misconduct on the part of the Debtor postpetition.

Because of these findings, the court determined to have an Examiner appointed, and assigned the Examiner's scope of investigation as follows:

Therefore, the Court believes that it is in the best interests of creditors and the estate to allow an examiner to conduct an investigation pursuant to Section 1104(c) of the Debtor, his assets, any and all payments made on behalf of the Debtor prepetition, and any other potential transfer of assets by the Debtor or on his behalf. Further, the examiner shall conduct an investigation as is appropriate considering the actions and conduct of the Debtor prepetition and postpetition.

John Pittman Hey
The Taxpayers Channel

News Flash Archive