June Edition 2023

87 Weiss, who, in addition to his position as the manager of the lessee and hotel operator, is also the indirect 50% shareholder of the Debtor, challenged the involuntary petition, urging the Court to either dismiss it or abstain from taking the case.1 Weiss’s challenge hinged on (i) whether the bondholders were really involved in a two-party dispute with Weiss and therefore should be required to enforce their remedies in New York State courts, and (ii) whether the bankruptcy case is in the overall best interests of creditors and the Debtor. On January 17, 2023, the Honorable Martin Glenn, Chief Bankruptcy Judge for the Southern District of New York, held an evidentiary hearing on Weiss’s challenge. At the conclusion of evidence, Judge Glenn ruled from the bench, and later issued a memorandum opinion, denying Weiss’ challenge to the involuntary petition. Following his bench ruling, Judge Glenn entered an order for relief, allowing the bankruptcy case to move forward. THE COURT RULED AGAINST DISMISSAL AND ABSTENTION In its decision in favor of the Petitioning Creditors, the Court found that the filing of the involuntary petition was proper, on the basis that (i) the Petitioning Creditors were not a party to any dispute with Weiss and therefore the filing was not, in reality, a “two-party dispute,” (ii) the Petitioning Creditors met the numerosity requirement for filing an involuntary petition against a debtor with more than twelve creditors2 and (iii) seeking bankruptcy jurisdiction over the Debtor and the claims of its various creditors would promote a more equitable recovery for the various parties in interest. In short, the factors supporting the adjudication of the claims against the Debtor in bankruptcy outweighed any factors that supported dismissal. Chief Judge Glenn’s ruling is an important decision that both affirms the rights of unsecured creditors to seek a bankruptcy proceeding when they satisfy the requirements of the bankruptcy code vis-àvis unsecured claims and demonstrates that parties challenging such petitions will be held to their evidentiary burden. 1 See 11 U.S.C. §§ 1112(b) and 305(a), respectively. 2 Mishmeret, as trustee for the bond claims against the Debtor, filed the petition on behalf of the holders of bond claims, as well as on its own behalf. The other Petitioning Creditors, as holders of bond claims, were able to participate in the filing of the involuntary petition on their own behalf. Mishmeret’s presence as trustee did not deprive them of individual standing.