3 ABR 251 UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF ALASKA

In re:	)
	)	Case No. A93-00065-DMD
ASKINUK CORPORATION,	)	Chapter 11
	)
Debtor.	)
_____________________________	)

MEMORANDUM REGARDING DISMISSAL AND SANCTIONS

     Askinuk Corporation is a Native village corporation formed pursuant to the Alaska Native Claims Settlement Act (ANCSA). It is an Alaska corporation whose shareholders consist of several hundred Native Alaskans residing in the village of Scammon Bay as of December 18, 1971, and their descendants. It operates a store and fuel depot in the village of Scammon Bay. It has also received the surface rights to certain trust lands which are utilized for subsistence.

     In an effort to establish low prices for its inventory of general store merchandise, Askinuk joined the Alaska Native Industries Cooperative Association, Inc. (ANICA) in 1980. ANICA members are generally Native village corporations. By pooling their resources, the members were able to obtain goods on credit and other advantages. Askinuk became concerned about ANICA's accounting practices in 1989. Askinuk and other Native corporations made inquiries concerning ANICA's practices. As a result of its inquiries, Askinuk was expelled from ANICA and forfeited a large capital account. ANICA sued Askinuk and Askinuk counterclaimed for damages resulting from its expulsion. After a trial in 1992, Superior Court Judge Karen Hunt awarded $1.00 to Askinuk and $231,000.00 to ANICA. The judgment was docketed on November 13, 1992. ANICA started execution on the judgment and tied up nearly $70,000.00 of Askinuk' s accounts.

     Askinuk filed a notice of appeal. Its attorney attempted to obtain a bond on appeal without success. A member of the board of directors attempted to contact a representative of Cook Inlet Region, Inc., in the hope of obtaining financial assistance. He was unsuccessful. Faced with continued executions, Askinuk filed for relief under chapter 11 of the Bankruptcy Code on January 27, 1993. At a bankruptcy court scheduling conference held February 19, 1993, Askinuk was directed

   3 ABR 252 to file a plan and disclosure statement by June 1, 1993.

     In its schedules the debtor listed assets of over $1 million and liabilities of approximately $400,000.00. The primary debts consisted of funds owing ANICA and a $181,603.00 debt to the Bureau of Indian Affairs (BIA) for fuel. The balance of the obligations were small trade creditors arising from debtor's store operations. The debtor's assets consisted of real estate of approximately $200,000.00, $100,000.00 in cash, with the balance in inventory, furniture, fixtures, equipment, and fuel tanks.

     Ak. LBR 60 (c) requires the filing of monthly financial reports by businesses in chapter 11. Askinuk filed its February 1993 report on May 11, 1993. No other reports were filed until after the hearing on August 24, 1993, when monthly reports for March through June were filed. These reports were in rough shape and appeared mutually inconsistent with one another. No disclosure statement and plan were filed by the June 1 deadline set by the court, nor any date thereafter. The debtor did file a request for an extension of time to file a disclosure statement and plan.

     The debtor has paid all prepetition creditors, except for ANICA and the BIA, in full. The BIA, however, did receive a $10,000.00 post-petition payment.

     ANICA seeks dismissal on the grounds of a bad faith chapter 11 filing. Many chapter 11 cases have resulted in relief from stay or dismissal when bad faith filings were found. In re Thirtieth Place, Inc., 30 B.R. 503 (9th Cir. B.A.P. 1983); In re Harvey, 101 B.R. 250 (Bankr. D. Nev. 1989); In re Holm, 75 B.R. 86 (Bankr. N.D. Cal, 1987); In re Karum Group, Inc., 66 B.R. 436 (Bankr. W.D. Wash. 1986). One of the leading cases in the area, Matter of Little Creek Development Co., 779 F.2d 1068, 1072-73 (5th Cir. 1986), formulated a list of factors to utilize when evaluating the good faith of a chapter 11 petition:

Determining whether the debtor's filing for relief is in good faith depends largely upon the bankruptcy court's on-the-spot evaluation of the debtor's condition, motives, and the local financial realities. Findings of lack of good faith in proceedings based on งง 362(d) or 1112(b) have been predicated on certain recurring but non-exclusive patterns, and they are based on a conglomerate of factors rather than on any single datum. Several,
3 ABR 253 but not all, of the following considerations usually exist. The debtor has one asset, such as a tract of undeveloped or developed real property. The secured creditors' liens encumber this tract. There are generally no employees except for the principals, little or no cash flow, and no available sources of income to sustain a plan of reorganization or to make adequate protection payments pursuant to 11 U.S.C. งง 361, 362(d)(1), 363(e), or 364(d)(1). Typically, there are only a few, if any, unsecured creditors whose claims are relatively small. The property has usually been posted for foreclosure because of arrearages on the debt and the debtor has been unsuccessful in defending actions against the foreclosure in state court. Alternatively, the debtor and one creditor may have proceeded to a stand-still in state court litigation, and the debtor has lost or has been required to post a bond which it cannot afford. Bankruptcy offers the only possibility of forestalling loss of the property. There are sometimes allegations of wrongdoing by the debtor or its principals. The "new debtor syndrome," in which a one-asset entity has been created or revitalized on the eve of foreclosure to isolate the insolvent property and its creditors, exemplifies, although it does not uniquely categorize, bad faith cases.

In this instance, the debtor has more than one asset. It had significant cash, inventory, real property, and accounts receivable. Except to the extent that ANICA obtained prepetition execution liens against the debtor's cash, there were no secured claims against the debtor. The debtor does have employees and a substantial cash flow. Although the financial statements are riddled with inconsistencies, the debtor appears to have sources of income with which to sustain a plan of reorganization and make adequate protection payments if necessary. There were a large number of small unsecured creditors and two very large unsecured creditors: the BIA, which holds a claim of $181,000.00, and ANICA, which holds a partially secured claim in excess of $200,000.00. There was no property posted for foreclosure in this case, save for the executions on cash. The debtor and ANICA did proceed to a standstill in state court litigation; the debtor lost at the trial level and has been unable to post a bond to stay the appeal. Bankruptcy appeared to be Askinuk's only possibility of forestalling the loss of its property in the absence of an application under Ak. R. App. P. 204(d). There was no "new debtor

   3 ABR 254 syndrome" in this case as the Native corporation made no attempt to assign its assets to a third party.

     A review of the Little Creek factors is inconclusive. The court must look to all the facts and circumstances surrounding the petition in order to make a finding of bad faith. In re Thirtieth Place, Inc., 30 B.R. at 505.

     A number of cases have arisen that deal specifically with cases where the debtor has filed chapter 11 to obtain a stay pending appeal after failing to file a supersedeas bond. I concur in the following language of In re N.R. Guaranteed Retirement, Inc., 112 B.R. 263 (Bankr. N.D. Ill. 1990), aff'd, 119 B.R. 149 N.D. Ill. 1990):

Although there was an apparent split of authority in the early decisions dealing with this situation, (see, In re Karum Group, Inc., 66 B.R. 436, 437 (Bankr. W.D. Wash. 1986)), there now appears to be a generally accepted rule:
[A] Chapter 11 filing is in good faith and may be used to replace an appeal bond if the judgment against the debtor is so large that the debtor faces severe disruption of his business if enforcement of the judgment is not stayed. However, if the debtor has the ability to satisfy the judgment from nonbusiness assets, then it is bad faith to attempt to use the bankruptcy laws to appeal without posting a bond.
In re Holm, 75 B.R. 86, 87 (Bankr. N.D. Cal. 1987). Accord, In re Davis, 93 B.R. 501, 503 (Bankr. S.D. Tex. 1987). This rule would be equally applicable to situations like that in the Manville litigation: if the debtor's business could continue unimpaired, without a bankruptcy filing, a creditor whose rights are impacted by the filing has "cause" for relief, independent of the other factors listed in the decisions on good faith in filing. (Footnotes omitted.)

However, this rule must be applied cautiously. The Bankruptcy Code generally requires no particular financial hardship to support a voluntary filing .... The court, in In re Holm, 75 B.R. 86, 87 (Bankr. N.D. Cal. 1987) reflected this concern by implicitly putting the burden of proof on the creditors: "[A] Chapter 11 proceeding 3 ABR 255 should be dismissed [due to its impact on nonbankruptcy rights] only if the debtor has the clear ability to survive without bankruptcy court protection."

In re N.R. Guaranteed Retirement, Inc., 112 B.R. at 272-73.

     I find that despite assets of over $1 million, Askinuk Corporation could not continue to do business facing the depletion of its cash and inventory by ANICA. All of the debtor's property is located in a remote area of Alaska where there is very little market economy. Loans and trade accounts from the corporation to its members may have little value. The only possible source of financing, other than inventory, would be from the sale of the store building and corporate office. There has been no demonstration of any ready market for such assets or that Askinuk Corporation would have the ability to function in the market without its current real property. Further, even though City of Nome v. Catholic Bishop of Northern Alaska, 707 P.2d 870 (Alaska 1985) and Alaska R. App. P. 204(d) allow the Superior Court discretion to set the amount of security required for a stay pending appeal, Askinuk would have been required to post a supersedeas bond nonetheless. Given the size of ANICA's judgment and Askinuk's lack of liquidity, Askinuk was in no position to rely upon Rule 204(d), particularly in light of continued executions.

     I conclude, therefore, that the chapter 11 petition of Askinuk Corporation was not filed in bad faith. This does not mean, however, that dismissal on other grounds is inappropriate.

     Askinuk has been delinquent in virtually every phase of the bankruptcy process. From filing monthly reports, to paying United States Trustee's Office trustee's fees, to filing a disclosure statement and plan, Askinuk's responses have either been extremely late or nonexistent. There is abundant cause for dismissal of this action due to the failure of Askinuk to diligently prosecute this chapter 11 case. Therefore, in accordance with 11 U.S.C. ง 1112, the chapter 11 petition of Askinuk Corporation should be dismissed for cause.

     This court having dismissed the Chapter 11 petition of Askinuk, the remaining motions of the debtor are moot.

          DATED: September 7, 1993.

	BY THE COURT
	DONALD MacDONALD IV
	United States Bankruptcy Judge