Rhodes unit creditor requests conversion of case to Chapter 7 to secure better plan treatment

By Caroline Salls

Pittsburgh, Feb. 8 - Rhodes, Inc. creditor Heilig-Meyers Co. requested Rhodes' Chapter 11 bankruptcy case be converted to Chapter 7 bankruptcy for liquidation purposes as a result of its proposed plan of liquidation treatment as the only creditor of Rhodes Holdings II, according to a Tuesday filing with the U.S. Bankruptcy Court for the Northern District of Georgia.

According to the motion, Rhodes' second amended plan of liquidation attempts to substantively consolidate the assets of all of the debtors into one.

Heilig-Meyers said despite the consolidation of Rhodes Holdings II's assets with Rhodes' assets, under the distribution scheme proposed in the plan, Rhodes' creditors are to be paid in full before Heilig-Meyers can share in any distributions.

"Thus, through their second amended plan, the debtors are attempting to utilize the assets of Holdings II to fund a distribution to the creditors of Rhodes, instead of properly using these assets to fund distributions to the creditors of Holdings II," Heilig-Meyers said in the motion.

As a result, Heilig-Meyers said the plan fails to comply with bankruptcy code because if Holdings II were liquidated in Chapter 7 rather than substantively consolidated with Rhodes, only Heilig-Meyers would receive the benefit of the assets of Holdings II.

"Clearly, Heilig-Meyers would receive a far better treatment in Chapter 7," the motion said. "The inability of the second amended plan to satisfy the 'best interests' test constitutes cause for conversion to Chapter 7."

In addition, Heilig-Meyers said the plan also proposes the appointment of a liquidating agent who would be unable to fulfill his fiduciary duties to the creditors and estate of Holdings II.

Heilig said in the motion that creditors of Holdings II should be granted the power to make the final decisions regarding the assets of Holdings II.

A plan confirmation hearing is scheduled for Feb. 15.

Rhodes, an Atlanta-based furniture retailer, filed for bankruptcy on Nov. 4, 2004. Its Chapter 11 case number is 04-78434.

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