College Columns June 2021 - Page 26

Doing the Splits continued from page 25
income was from a job as an employee . The court grouped the “ engaged in commercial or business activities ” and the 50 % of debt from these activities requirements and read them in tandem . Interpreting “ commercial or business activities ” as “ exceptionally broad ,” the court also found the term “ engaged in ” to mean “ that a person or entity is presenting doing something ,” thus requiring present activity . Specifically rejecting the rationale of Wright and factually distinguishing both Thurman and Johnson , the court found the requirement dictated that the debtor must be currently engaged in business or commercial activity as of the petition date , but found this requirement to be met through the debtor ’ s ownership of operating businesses , the supervision of wind down activities of a closed business , and as an employee of a commercial business . While the court recognized its reasoning opened the door for the filing under Subchapter V to all employees , the court relied on the 50 % or more of business debt requirement to limit this otherwise broad eligibility . In this case , the commercial debt requirement was found to be met because of the guarantees of company debt ( which the court said in and of itself was a commercial or business activity ).
Finally , In re Offer Space , LLC , Case No . 20-27480 ( Bankr . D . Utah . April 22 , 2021 ), the eligibility question came up for a debtor who had ceased operations and sold its primary asset prior to the filing of bankruptcy . The only assets the debtor had upon filing were bank accounts , accounts receivable , causes of action and stock ( the proceeds from the previous sale of the primary asset ). The debtor had no intention of resuming business , but only intended to liquidate the remaining assets for creditors . Rejecting the argument that the debtor had to be an operating business , the court did agree , however , that “ engaged ” means the debtor “ must be presently ‘ engaged in commercial or business activities ’ on the date of filing the petition for relief .” Using a “ totality of the circumstances approach ,” the court found that the statutory use of the word “ activities ” was broader than the word “ operations ,” and found that while the mere fact of engaging in the bankruptcy process was not a commercial or business activity , “ a debtor ’ s actions in winding down its business constitute ‘ commercial or business activities ’” as long as those wind down activities were not completed prior to filing bankruptcy . The court further noted that , in this case , unlike in Thurman and Johnson , it was the company itself , and not just the owners , who filed bankruptcy .
As the debate rages on , the courts can all agree that there must be a Ghost of Business Past for Subchapter V eligibility . Courts are split on the necessity for a Ghost of Business Present . And even though the legislative history talks about saving small businesses , there appears to be no requirement for a Ghost of Business Future .