United States Bankruptcy Court, D. Utah.

Bankruptcy No. 82M-00778.

In re COLONIAL FORD, INC., Debtor.

Nov. 29, 1982.

Kim R. Wilson, Bryee D. Panzer, Snow, Christensen & Martineau, Salt Lake City, Utah, for Ford Motor Credit Co.

David E. Leta, Roe & Fowler, Salt Lake City, Utah, for debtor.

MEMORANDUM OPINION

RALPH R. MABEY, Bankruptcy Judge.

INTRODUCTION AND BACKGROUND

The Bankruptcy Code contains several provisions which promote the private, coop­erative, negotiated rebuilding of financially distressed debtors. One of these measures, 11 U.S.C. Section 305(a)(1), is the subject of inquiry in this case. The facts relevant to this inquiry, briefly summarized, are as fol­lows.

In January, 1977, Colonial Ford, Inc., the debtor, ceased operation as an automobile dealership. Since May, 1975, it has been embroiled in litigation with Ford Motor Company, Ford Motor Credit Company, the United States Small Business Administra­tion, and other creditors. This litigation embraces three lawsuits, one of which has journeyed to the Tenth Circuit Court of Appeals and back and resulted in a judg­ment for $2,897,125 in favor of Ford Credit and against Colonial. Execution on this judgment and liquidation of the former dealership site, which Colonial continues to hold and lease to others, was enjoined by the district court pending resolution of these cases.

In July, 1981, Colonial and its creditors settled their differences.1 The agreement, in essence, accomplished two objectives. First, with the exception of a single cross-­claim, it concluded all three lawsuits. Second, creditors reduced their claims and gave Colonial nine months to sell or refi­nance the dealership site; if this did not occur, a decree of foreclosure would be en­tered. Creditors, in other words, were will­ing to take less in exchange for an end to the litigation and swifter realization on their claims.2

Colonial was unable to sell or refinance the property and filed a petition under Chapter 11 on March 30,1982. Ford Credit filed a motion to abstain pursuant to Sec­tion 305(a)(1) on June 1. This was heard July 15. The court ruled from the bench August 24. An order was entered Septem­ber 27. This memorandum decision elabo­rates the basis for that ruling.3

THE POLICY OF ENCOURAGING WORKOUTS

Section 305(a)(1) reflects a policy, embod­ied in several sections of the Code, which favors “workouts”: private, negotiated ad­justments of creditor-company relations.4 Congress designed the Code, in large meas­ure, to encourage workouts in the first in­stance, with refuge in bankruptcy as a last resort. As noted in the legislative history: “Most business arrangements, that is, ex­tensions or compositions (reduction) of debts, occur out-of-court. The out-of-court procedure, sometimes known as a common law composition, is quick and inexpensive. However, it requires near universal agree­ment of the business’s creditors, and is lim­ited in the relief it can provide for an overextended business. When an out-of-­court arrangement is inadequate to rehabil­itate a business, the bankruptcy laws pro­vide an alternative. An arrangement or reorganization accomplished under the Bankruptcy Act binds nonconsenting credi­tors, and permits more substantial restruc­turing of a debtor’s finances than does an out-of-court work-out.” H.R.Rep. No. 95-­595, 95th Cong., 1st Sess. 220 (1977), U.S. Code Cong. & Admin.News 1978, pp. 5787, 6179-6180. The reasons for blessing the workout are at least threefold.

First, the workout is expeditious. Debt­ors and creditors, unbridled by bankruptcy, enjoy a flexibility conducive to speed. By contrast, the “bankruptcy machinery [of] today,” may be “a very time-consuming and hydraheaded kind of delaying structure” which “frequently works to the detriment of creditors.” Hearings on S. 2266 and H.R. 8200 Before the Subcomm. on Improve­ments in Judicial Machinery of the Senate Comm, on the Judiciary, 95th Cong., 1st Sess. 599 (1977). Indeed, it has been noted, appropos the settlement in this case, that “delay .... is the most costly element in any bankruptcy proceeding and particularly in a business reorganization. The same amount of money received by the senior creditors 4 years from now is worth proba­bly less than half of what would be an amount of money received today. In other words, if [a creditor] can anticipate, after this elaborate procedure, [that he] will re­ceive $1 million, then he would be well-ad­vised and usually is anxious to take $500,-­000 today because it’s worth more to him. He has to consider the investment value and the ravages of inflation. This is worth more than the prospect of getting $1 million 4 years from now.” Id. at 490. Many provisions in the Code were fashioned in response to this testimony and as induce­ments to alacrity in reorganization, includ­ing the expansive jurisdiction of the court, the opportunity for creditors to file plans, and modification of the absolute priority rule, to name three.5 The assist to work­outs complements these features of the Code.

Second, workouts are economic. Econo­my, of course, is improved through expedi­tion, as noted above. But the workout is economic because it avoids the superstruc­ture of reorganization: trustees, commit­tees, and their professional representatives. These and other costs of administration push junior interests “under water,” and because they must be paid at confirmation, diminish prospects for a plan. Moreover, bankruptcy may shipwreck relationships necessary to keep a business afloat. Cus­tomers are reluctant to deal with the manu­facturer who may not survive to honor the warranty of his product or with the lessor who cannot guarantee the habitability of his premises. The cost of overcoming this reluctance, through marketing campaigns and the like, may be high. Sales will be difficult; prices may be low. Suppliers may dwindle. Costs of credit may increase. “[W]hen word of financial difficulty spreads, the debtor’s own debtors often de­cline to pay as they would have in the ordinary course, suddenly reporting that the dresses were the wrong size, were the wrong color, or were not ordered.” Coogan, Broude and Glatt, “Comments on Some Re­organization Provisions of the Pending Bankruptcy Bills,” 30 Bus.Law. 1149, 1155 (1975). Likewise, “accounts receivable can deteriorate to an unbelievable extent as soon as word gets around that the debtor is headed for the cemetery.” Hearings on H.R. 31 and H.R. 32 Before the Subcomm. on Civil and Constitutional Rights of the House Comm, on the Judiciary, 94th Cong., 1st Sess., Ser. 27, pt. 1, at 483 (1975). These circumstances, among others, handcuff a debtor doing business in Chapter 11.

Third, the workout is sensible. Workouts contemplate, indeed depend upon, participa­tion from all parties in interest, good faith, conciliation, and candor. The alternative is litigation and its bedfellows — bluff, petti­foggery, and strife. Moreover, the parties who are “on-site,” and prepared by educa­tion or experience, are more able than a judge, ill-equipped in resources and train­ing, to rescue a beleagured corporation. “The courtroom,” after all, “is not a board­room. The judge is not a business consult­ant.” In re Curlew Valley Associates, 14 B.R. 506, 511 (Bkrtcy.D.Utah 1981). The problems of insolvency, for the most part, are matters for extra-judicial resolution, calling for “business not legal judgment.” Id.

With these advantages in mind, the au­thors of the Code encouraged workouts in at least two ways.

First, the Code, “[l]ike a ‘fleet-in-being’ ... may be a force towards mutual accom­modation,” and as such, sets parameters for negotiations preceding a workout. Hear­ings on H.R. SI and H.R. 32 Before the Subcomm. on Civil and Constitutional Rights of the House Comm, on the Judici­ary, 94th Cong., 1st Sess., Ser. 27, pt. 1, at 396 (1975). Thus, for example, a creditor may be chary of dictating terms where this might result in the subordination of his claim. Cf. Douglas-Hamilton, “Creditor Liabilities Resulting From Improper Inter­ference with the Management of a Finan­cially Troubled Debtor,” 31 Bus.Law. 343, 347-352 (1975); In re American Lumber Co., 5 B.R. 470 (D.Minn.1980). A creditor must weigh the possibility that execution on a judgment will be effort wasted if bankruptcy ensues and his preference is avoided, see, e.g., Hearings on H.R. 31 and H.R. 32 Before the Subcomm. on Civil and Constitutional Rights of the House Comm, on the Judiciary, 94th Cong., 1st Sess., Ser. 27, pt. 1, at 394-397 (1975), or that foreclo­sure will be for naught if the property must be turned over to the trustee, see, e.g., id. at 490-491. A debtor, likewise, may not break faith with creditors by preferring some over others, or by secreting assets, lest they file an involuntary petition.

Second, the Code, in several specific re­spects, contemplates that workouts will be a prelude to, yet consummated in, bankrupt­cy. Thus, for example, 11 U.S.C. Section 1102(b)(1), under certain circumstances, al­lows the continuation, as the official credi­tors committee, of a prepetition creditors committee. Similarly, 11 U.S.C. Section 1126(b), in some instances, validates prepet-­ition acceptances of a plan. “Congress,” according to one authority, “rejecting the opposition of the Securities and Exchange Commission, has provided a flexible reorga­nization procedure which accommodates pre-­filing reorganization procedures for both public and private corporations. A plan may be filed with the petition commencing a Chapter 11 case or at any subsequent time. Acceptances obtained before the commencement of the filing may be count­ed in the voting if there was adequate prepetition disclosure and, if necessary, ‘compliance with any applicable nonbank-­ruptcy law .... governing the adequacy of disclosure.’ ” Trost, “Business Reorgani­zations Under Chapter 11 of the New Bank­ruptcy Code,” 34 BUS.LAW. 1309, 1325 (1979). Indeed, incentives to use “prepack­aged plans” are “written all through the new Act.” They lead to a “revolving door” in and out of Chapter 11. Aaron, “The Bankruptcy Reform Act of 1978: The Full-­Employment-for-Lawyers Bill: Part V: Business Reorganization,” 1982 Utah L.Rev. 1, 38.6

SECTION 305(a)(1) AND THE POLICY OF ENCOURAGING WORKOUTS

Thus, the Code encourages workouts out­side, or concluded inside, Chapter 11. En­couragement on both fronts is necessary because dissent from a workout may as­sume a variety of shapes. Creditors who would otherwise pursue their rights under state law are kept in tow because prefer­ences may be undone following a petition in bankruptcy. Others may be bound, assum­ing a consensus in number and amount, through confirmation of a plan. What, however, of the maverick who threatens prematurely to disrupt out-of-court negotia­tions by an involuntary petition, or the par­ty, creditor or debtor, who has “buyer’s remorse” and seeks a recapitulation of the settlement in bankruptcy? This form of dissent is the target of Section 305(a)(1) which provides:

(a) The Court, after notice and a hearing, may dismiss a case under this title, or may suspend all proceedings in a case under this title, at any time if—

(1) The interests of creditors and the debtor would be better served by such dismissal or suspension.

Section 305(a)(1) evolved from Section 4-­208(a) of the Commission proposal which permitted dismissal of an involuntary, but not a voluntary, petition which was not in the “best interests of the debtor and its creditors.”7 The Commission relaxed the standards for involuntary bankruptcy in the belief that early, albeit involuntary, relief against marginal enterprises would increase dividends available to creditors. Section 4-­208(a) was the counterweight to this re­form, safeguarding against the precipitate or malicious involuntary petition.8

Congress realized, however, at some point in the study and revision of the Commission bill, that abuse could occur in connection with voluntary as well as involuntary peti­tions. Hence, it rewrote Section 4-208(a) and moved it to Section 305(a)(1).9 More­over, it added Section 305(c) which makes any decision under Section 305(a)(1) nonap-­pealable. This measure insulates the work­out from time-consuming and expensive lit­igation and thus underscores the role of Section 305(a)(1) in furthering out-of-court solutions to the rehabilitation of debtors.10

APPLICATION OF SECTION 305(a)(1) IN THIS CASE

Colonial questions the applicability of Section 305(a)(1) in voluntary cases, and whether dismissal, under the circumstances of this case, “better serves” the interests of creditors and the debtor.11

The Applicability of Section 305(a)(1) in Voluntary Cases

Section 305(a)(1) applies in any case, voluntary or involuntary, “under this title.” This is consistent with the evolution of the statute, noted above, beginning as a bylaw in Section 4-208(a), and moving to general applicability in Chapter 3 of the Code.12 Moreover, this reading is consistent with the policy to encourage workouts. It would be anomalous to protect workouts from in­voluntary petitions while leaving them vul­nerable to voluntary petitions. Creditors would be protected from the renegades in their number who sought involuntarily to commit a debtor to bankruptcy, but they would have no similar check against debtors who compose their debts with the promise that matters will be left out of court and then stage an ambush in Chapter 11.

Whether the Interests of Creditors and the Debtor are Better Served by Dismissal

Section 305(a)(1) permits dismissal where it will “better serve” the interests of credi­tors and debtors. The statute affords no guidance in defining the “interests” to be considered, nor does it delineate criteria for determining when parties will be better served in or out of bankruptcy.13 Given the policies underlying Section 305(a)(1), how­ever, the standards for dismissal may in­clude speed, economy, and freedom from litigation. Other considerations may be fairness, priorities in distribution, capacity for dealing with frauds and preferences, and the importance of a discharge to the debtor. Cf. Kennedy, “The Commencement of a Case Under the New Bankruptcy Code,” 36 Wash. & Lee L.Rev. 977, 1023 (1979). Not all of these factors will be involved, nor will they assume equal impor­tance, in every case. Hence, Congress in­tended the court to exercise considerable discretion in sifting and weighing grounds for dismissal under Section 305(a)(1). See, e.g., H. Miller and M. Cook, A Practical Guide to the Bankruptcy Reform Act 79 (1979). Cf. Cook, “Involuntary Bankruptcy and the Proposed Bankruptcy Act of 1973: Reform at Last,” 20 N.Y.L.F. 97, 117, 119 (1974); Note, “Involuntary Bankruptcy Un­der the Proposed Bankruptcy Act,” 63 Geo. L.J. 187, 198-201 (1974) (critical of broad discretion and “substantial unresolved poli­cy questions for judicial determination”).14

The Interests of Creditors

In this case, the interests of credi­tors are better served by dismissal. They agreed to a workout because it ended the litigation, and although they compromised their claims, the present value of the amounts to be realized at payout or foreclo­sure exceeded what they might have gained over time. This was not a workout where debt is rolled over with an eye to recovery, while recognizing the possibility of bank­ruptcy. Nor was it a workout where a deal was struck prepetition to be confirmed un­der the auspices of Chapter 11. Here the out-of-court composition was comprehen­sive, including virtually all creditors and the debtor. It was also final. A business which had lain dormant for years was not to be revived without the elimination of prior debt and the infusion of fresh capi­tal.15

The Interests of Colonial

Colonial argues that its interests are bet­ter served in Chapter 11; otherwise it would not have filed a petition. This argu­ment, however, may be astigmatic for at least two reasons.

First, it ignores the question of who is the debtor for purposes of Section 305(a)(1). If the case is in Chapter 11, for example, the debtor will be a debtor in possession, and hence the trustee or fiduciary for the es­tate. The interests of the debtor, under these circumstances, are coincidental with the interests of creditors. Indeed, no debt- or is an island, self-existent apart from its creditors who supply the capital, goods, and services necessary to his survival. This idea finds expression, not only in the construct of a debtor in possession, but also at com­mon law where insolvent entities became funds managed in trust for the benefit of creditors. From this standpoint, the inter­ests of creditors receive double weight un­der Section 305(a)(1), once from a partisan and again from a fiducial perspective.16 In any event, the corporate debtor will be a complex of constituencies, including not only creditors but also a board of directors, management, and shareholders. These par­ties may be divided on some issues; even when united, their views may change from circumstance to circumstance, or from time to time. To say, with Colonial, that the debtor speaks with one voice on all occa­sions, and that its interests are circum­scribed in the management’s act of filing a petition, is oversimple.17

Second, it overlooks the benefits which debtors in general may derive from out-of-­court workouts and which Colonial in par­ticular obtained in this settlement. The choice to settle out of court rather than to file for reorganization, more often than not, will be enlightened; Management eager for asylum in bankruptcy may pause if faced with displacement by a trustee. Shareholders likewise must reckon with the prospect of a creditor’s plan, wresting con­trol of the business and eliminating their interest. Moreover, their equity, already thin or nonexistent, may not survive the burden of administrative debt. Debtors, as well as creditors, are familiar with the old saw that a “good” liquidation out of court is better than a “bad” reorganization in Chap­ter 11. Since the odds are stacked against obtaining confirmation of a plan,18 and in light of the probability of conversion to Chapter 7, debtors may be well-advised, where their creditors are cooperative, to forego the dislocations and trauma, the de­pressed markets, the higher cost of money, and other disadvantages of bankruptcy, and work out an arrangement, even if it con­templates an eventual liquidation.

Colonial (or its shareholder, if she is the debtor) garnered these general benefits and two additional bonuses from its settlement. (1) Mrs. Belnap, by paying the SBA, may assume its right of redemption upon fore­closure of the property. This assumption, if exercised, is free and clear of any claim by Colonial or its creditors. This option, given the dictates of 11 U.S.C. Section 1129(b)(2)(B), might be unavailable to her in Chapter ll.19 (2) Colonial may have grown weary of the protracted litigation, and real­izing that it had reached a point of dimin­ishing returns in court, sought disentangle­ment from its adversaries through the set­tlement. Colonial now seeks to keep the benefits of this compact, the reduction in debt, and avoid its burdens, the foreclosure, but this may not be done. An accord, with no satisfaction, releases parties from any duty to honor the compromise, and returns them to the status quo ante. The petition, therefore, may have revived the litigation in district court, with the risks and impon­derables which prompted settlement in the first instance. There is no assurance that changing forums and prolonging the fight for another 7 years will produce a better bargain for Colonial.

These reasons motivated Colonial to make an agreement with its creditors which com­posed the debt and provided for sale, refi­nancing, or foreclosure of the property. The alternative of bankruptcy was availa­ble then, as now, and entered the calculus of decisionmaking, but was rejected in fa­vor of the settlement. Colonial asserts, however, that reorganization better serves its interests at present. Attempting to di­vine the interests of Colonial, given this doublemindedness, is problematical. But even if full credit is given to its present protestations, these do not counterbalance the reasons for avoiding bankruptcy. Even assuming that the protestations and the reasons have equal weight, the policy of encouraging out-of-court workouts, embod­ied in Section 305(a)(1), dictates that the interests of Colonial are “better served” by the settlement than by a petition in Chapter 11.

CONCLUSION

The Code encourages out-of-court work­outs. Section 305(a)(1) is one of several instruments useful in achieving this goal. Because an order of dismissal under Section 305(a)(1) is nonreviewable, the statute should be invoked sparingly. Indeed, Sec­tion 305(a)(1) permits “suspension” as well as dismissal of a case, suggesting the possi­bility that efforts toward settlement may proceed on more than one front at the same time. Where, however, the workout is com­prehensive, and designed to end, not perpet­uate, the creditor-company relations, dis­missal under Section 305(a)(1) is appropri­ate. One “reorganization,” under these cir­cumstances, is enough. Section 305(a)(1) precludes an encore, thereby furthering the policies of expedition, economy, and good sense.

1

. Details of the claims asserted and positions taken in this litigation, while reviewed by the parties in their memoranda in order to show the “bad faith” of one another, is not repeated. The ruling of the court, given below, is based upon the purpose of Section 305(a)(1) to fur­ther out-of-court workouts. Section 305(a)(1), while designed to prevent abusive filings of a particular variety and under special circum­stances, does not require an analysis of “good faith” on the facts of this case. Moreover, the “bad faith,” if any, was accounted for and su­perseded in the settlement. Thus, the back­ground to the litigation has no significance. The progress from litigation to settlement, however, is important.

2

. These reductions, with other concessions, were substantial. Ford Credit, for example, held a judgment for $2,897,125. An injunction barring execution, however, had prevented col­lection from the fall of 1976 until the settlement in 1981. The settlement reduced the judgment to $1,250,000, provided a moratorium on inter­est for all but $50,000 of this amount, and postponed foreclosure another nine months. All but three creditors, by default or acquies­cence, are dealt with in the settlement. One of these, Ken Rothey, is counsel to and an officer of Colonial. He holds an attorneys lien on the unsettled cross-claim. The others, LeGrande Belnap and Doris Belnap, shareholders of Colo­nial, have a claim for wages.

3

. Ford Credit also sought dismissal of the case for want of “good faith” under 11 U.S.C. Sec­tion 1112(b) and relief from the stay under 11 U.S.C. Section 362(d). By stipulation of the parties, these matters were heard with the mo­tion to abstain under Section 305(a)(1) on July 15. At that time, Colonial was prepared to demonstrate, by calling five witnesses, its “good faith” and prospects for reorganization. The court, however, was unable to adjust its calendar to accomodate this amount of testimo­ny and confined the parties to the time which had been allocated. Colonial expressed con­cern that this procedure would prejudice its case. The court observed that, if necessary, a subsequent hearing might be held.

The court is satisfied that it was appropriate to rule on the question of abstention without reconvening the hearing and receiving more evidence. The court assumed, for purposes of its ruling, that Colonial was in “good faith” and had a reasonable prospect for rehabilitation, and dismissal would not have been allowed for these reasons under either Section 305(a)(1) or Section 1112(b). Likewise, the court assumed that relief from the stay would not have been allowed under Section 362(d). Thus, the inabil­ity of Colonial to present evidence on these points was immaterial.

4

.For a description and analysis of workouts, see generally, Billig, “What Price Bankruptcy: A Plea for ‘Friendly Adjustment,’ ” 14 Cornell L.Q. 413 (1929); Coogan, Broude and Glatt, “Comments on Some Reorganization Provi­sions of the Pending Bankruptcy Bills,” 30 Bus. Law. 1149, 1154-1160 (1975); Roberts and Laz­arus, “When the Workout Doesn’t Work Out— An Outline,” 12 Real Prop.Prob.Tr.J. 437 (1977); Rome, “The Business Workout — A Primer for Participating Creditors,” 11 U.C.C. L.J. 183 (1978); Statement of Peter F. Coogan, Hearings on H.R. 31 and H.R. 32 Before the Subcomm. on Civil and Constitutional Rights of the House Comm, on the Judiciary, 94th Cong., 1st Sess., Ser. 27, pt. 1, at 394-397 (1975); Statement of Patrick A. Murphy, id. at 436-­438, 478-488.

5

. Other antidotes for delay are detailed in In re South Village, Inc., 25 F.Supp. 987 (D.Utah 1982).

6

. As stated by the sponsors of the Code: “One cannot overemphasize the advantages of speed and simplicity to both creditors and debtors. Chapter XI allows a debtor to negotiate a plan outside of court and, having reached a settle­ment with a majority in number and amount of each class of creditors, permits the debtor to bind all unsecured creditors to the terms of the arrangement. From the perspective of credi­tors, early confirmation of a plan of arrange­ment: first, generally reduces administrative expenses which have priority over the claims of unsecured creditors; second, permits creditors to receive prompt distribution on their claims with respect to which interest does not accrue after the filing date; and third, increases the ultimate recovery on creditor claims by mini­mizing the adverse effect on the business which often accompanies efforts to operate an enterprise under the protection of the Bank­ruptcy Act.” 124 Cong.Rec. HI 1,102 (daily ed., September 28, 1978).

7

. Section 4-208(a) provided: “Upon the filing of an involuntary petition under section 4-­205(c)(1) or (2), unless the debtor consents to relief or defaults, the court shall as soon as possible, in accordance with the Rules of Bank­ruptcy Procedure, hold a hearing to determine whether the relief sought is in the best interests of the debtor and its creditors. The petitioner shall have the burden of proving that relief is in the best interests of the debtor and its credi­tors. If the court determines that it is not, the case shall be dismissed. The court may require that the petitioner file a bond in such amount as the court may determine to indemnify the person against whom the petition is filed for such costs, counsel fees, expenses, and dam­ages as may be allowed.” Report of the Com­mission on the Bankruptcy Laws of the United States, H.Doc. No. 93-137, pt. II, at 77 (1973).

8

. The notes to the Commission proposal ob- • served: “Subdivision (a) recognizes that invol­untary relief has been facilitated under the pro­posed Act. This has been done to allow credi­tors to force timely proceedings and to encour­age voluntary proceedings while there is still a possibility of rehabilitation or before all assets are dissipated. It is also hoped that litigation will be avoided and expenses thereby saved. On the other hand, the need for protection of a business debtor from the devastating impact of the mere filing of an involuntary petition is recognized. This section supplies safeguards that are not found in the present Act, except as indirectly provided, both to debtors that should and those that should not be in proceedings, by technical niceties and the expense of litigation. The judge is given broad discretion to dismiss a case after hearing. The case may be dismissed even though the requirements of § 4-205(c)(l) or (2) are met. This is necessary since a debtor may temporarily be unable to pay debts or one creditor might properly force a liquidation that would harm creditors. The judge can best deal with these difficult cases, given adequate dis­cretion. It is anticipated that Rules of Bank­ruptcy Procedure will treat the filing of the petition like the situation where there has been the issuance of a temporary restraining order and establish procedures similar to those found in Rule 65 of the Federal Rules of Civil Proce­dure. The petitioner must furnish a bond, if required by the court, indemnifying the debtor for damages allowed pursuant to § 4-210(f) if the case is dismissed.” Report of the Commis­sion on the Bankruptcy Laws of the United States, H.Doc. No. 93-137, pt. II, at 78 (1973).

9

.The legislative history, by way of illustration, not prescription, points to an involuntary peti­tion filed by a “few recalcitrant creditors.” “A principle of the common law requires a court with jurisdiction over a particular matter to take jurisdiction. This section recognizes that there are cases in which it would be appropri­ate for the court to decline jurisdiction. Ab­stention under this section, however, is of juris­diction over the entire case. Abstention from jurisdiction over a particular proceeding in a case is governed by proposed 28 U.S.C. § 1471[(d)]. Thus, the court is permitted, if the interests of creditors and the debtor would be better served by dismissal of the case or sus­pension of all proceedings in the case, to so order. The court may dismiss or suspend un­der the first paragraph, for example, if an ar­rangement is being worked out by creditors and the debtor out of court, there is no preju­dice to the rights of creditors in that arrange­ment, and an involuntary case has been com­menced by a few recalcitrant creditors to pro­vide a basis for future threats to extract full payment. The less expensive out-of-court workout may better serve the interests in the case.” H.R.Rep. No. 95-595, supra at 325, U.S. Code Cong. & Admin.News, p. 6281.

10

. Published opinions by appellate courts which have been invited to review orders under Section 305(a)(1) are silent on the policy of encouraging workouts and its effectuation through Section 305(c). The Seventh Circuit, in In the Matter of Covey, 650 F.2d 877 (7th Cir.1981), declined to review a refusal to dis­miss an involuntary petition, describing the re­quest for review as “meritless,” and pointing to “the plain language” of Section 305(c). Id. at 879. The Eighth Circuit, in Buffington v. First Service Corporation, 672 F.2d 687 (8th Cir. 1982), confronted the dismissal of a voluntary petition. The statement of facts reveals that the district court had affirmed the dismissal, but only after an examination on the merits, ignoring Section 305(c). The circuit court re­jected the appeal as “essentially frivolous,” and as “repetitious litigation,” awarding double costs against the debtor and his counsel, id. at 690, but left the question of appealability under Section 305(c) in doubt by dealing with certain items of procedure and standing. A district court, in Farmer v. First Virginia Bank of Fair­fax County, 22 B.R. 488 (E.D.Va.1982), faced with the dismissal of an involuntary petition, held that Section 305(c) was unconstitutional insofar as it proscribed review of constitutional issues, and that orders under Section 305(a)(1) raise questions of substantive due process and hence are appealable notwithstanding Section 305(c). But cf. Harlow v. Sargent, 14 B.R. 267, 8 B.C.D. 162 (D.Vt.981) (disallowance of ap­peal under 28 U.S.C. Section 1471(d) is consti­tutional). Farmer appears to vitiate Section 305(c), since any party may obtain review of an order under Section 305(a)(1) by alleging that it violates substantive due process. Commenta­tors, who like the district court in Farmer may be uneasy with a nonreviewable power of dis­missal in bankruptcy courts, have questioned whether review may be available where the court bases its decision on factors other than the interests of creditors and the debtor, see, e.g., Reed, Sagar and Granoff, “Subject Matter Jurisdiction, Abstention and Removal Under the New Federal Bankruptcy Law,” 56 Am. Bank.L.J. 121, 142 (1982), or whether it may be obtained by mandamus, see, e.g., Gaffney, “Bankruptcy Petitions Filed in Bad Faith: What Actions Can Creditor’s Counsel Take?" 12 U.C.C.L.J. 205, 238 n. 165 (1979); Levin, “Bankruptcy Appeals,” 58 No.Car.L.Rev. 967, 993-994 n. 200 (1980). But see, 1 Norton Bankruptcy Law and Practice § 9.16, at Part 9-Page 31 (1981). These questions may under­lie the prediction of other authorities that “[ajlthough [Section 305(c)] is apparently de­signed to avoid delay, it may generate further litigation. For example, when a case is dis­missed, petitioning creditors may challenge Congresses] sweeping attempt in Section 305(c) to preclude all forms of judicial review, even in extraordinary cases.” H. Miller and M. Cook, A Practical Guide to the Bankruptcy Reform Act 79 (1979).

That courts have overlooked the bias for workouts and against litigation reflected in Section 305(c) is remarkable, not only because of the plain meaning of the statute, but also because it is one of several measures where Congress interdicts appeals in favor of expedi­tion and economy in the Code. Thus, 28 U.S.C. Section 1471(d) permits abstention in proceed­ings, as distinct from cases, and 28 U.S.C. Sec­tion 1478(b) allows remand of a proceeding removed from state or federal forums, with either decision being nonreviewable. See, e.g., Levin, supra at 992-993.

Other measures, while not strictly analogous, are nevertheless instructive on the point of nonappealability, expedition, and economy. For example, 11 U.S.C. Section 1109(a) permits the United States Securities and Exchange Commission to raise and be heard on any issue, but forbids it the right to appeal from any decision in a case. This principle is restated and amplified in 11 U.S.C. Section 1125(d) which allows the SEC or any other “agency or official whose duty is to administer or enforce” a law governing disclosure to comment on a disclosure statement, but denies the SEC, agen­cy, or official the right to “appeal from an order approving a disclosure statement.” As noted in the House Report: “The SEC and State agencies will not have a right of appeal on the adequacy of disclosure, either in the role of an advisor to the court in reorganization cases, or in the role of the agency responsible for the enforcement of the securities laws gen­erally. The disclosure hearing is the central hearing in the case, and in a case of any size will be a relatively long process. An appeal by an agency that had no direct interest in the case when none of those with money involved can be persuaded to take an appeal could cause delay to the detriment of the debtor, the credi­tors, and the stockholders. The denial of the right to appeal does not deny a right to partici­pate in an appeal taken by a party in interest. It merely prohibits the SEC from initiating the appeal and being the only appealing party. As had frequently been pointed out in connection with the need for a valuation hearing, or diag­nosis of the debtor, the patient may die on the operating table while the lawyers are diagnos­ing. The public protection policy of the securi­ties laws must be balanced with the protection of creditors rights in bankruptcy cases, which is frequently facilitated by speed in the reorga­nization process.” H.R.Rep. No. 95-595, supra at 229, U.S.Code Cong. & Admin.News, p. 6188. See, e.g., Levin, supra at 979-981.

11

. Colonial also argues that abstention is inap­propriate because its composition occurred in federal not state court. Some cases have sug­gested that Section 305(a)(1) may be invoked only where insolvency proceedings have been initiated in a nonfederal forum. See, e.g., In the Matter of Lang, 5 B.R. 371, 374 n. 4 (Bkrtcy.S.D.N.Y.1980); In the Matter of Nina Merchandise Corporation, 5 B.R. 743, 747 (Bkrtcy.S.D.N.Y.1980). But see, In re Michael S. Starbuck, Inc., 14 B.R. 134 (Bkrtcy.S.D.N.Y.­1981) (SEC receivership in federal district court). This proposition, however, draws no support from the statute, and is contradicted by the legislative history, which far from cen­tering on a particular forum, states a prefer­ence for settlements “worked out by creditors and the debtor out-of-court.” H.R.Rep. No. 95-­595, supra at 325, U.S.Code Cong. & Admin. News, p. 6281. (Emphasis supplied.)

12

. The authorities which have addressed this point concur. See, e.g., Kennedy, “The Com­mencement of a Case Under the New Bank­ruptcy Code,” 36 Wash. & Lee L.Rev. 977, 1023 (1979) (“The authority of the court to abstain under Section 305 extends to a case filed under Section 301, 302, 303, or 304”); Reed, Sagar and Granoff, “Subject Matter Jurisdiction, Ab­stention and Removal Under the New Federal Bankruptcy Law,” 56 Am.Bank.L.J. 121, 145 (1982) (“Although 305 will probably have its widest applications in involuntary cases, the provision by its terms applies as well to volun­tary cases”). Cf. Samuels, “Unregulated For­eign Banks in Bankruptcy: Section 4 of the Bankruptcy Act,” 23 N.Y.L.S.L.Rev. 47, 90-91 (1977).

Approximately 35 published opinions have dealt with Section 305(a)(1). None has ex­pressly ruled that Section 305(a)(1) is applica­ble or inapplicable in voluntary cases. Several voluntary cases have been dismissed, however, under the aegis of Section 305(a)(1).

13

.This paucity of guidelines has led to specula­tion over the scope of Section 305(a)(1). “It appears that in every case the court under § 305 must consider the interests of creditors and the debtor. Yet the word ‘may’ in § 305(a) suggests that the court may abstain or decline abstention even when it is doubtful that the interests of creditors and the debtor will be better served by the court’s decision. Thus, the court arguably could consider factors other than the interests of creditors and the debtor in making its determination. Such other factors might include the views of regulatory authori­ties.” Reed, Sagar and Granoff, “Subject Mat­ter Jurisdiction, Abstention and Removal Un­der the New Federal Bankruptcy Law,” 56 Am. Bank.L.J. 121, 142 (1982). (Emphasis in origi­nal.)

14

. It could be argued that a court should be more cautious where an involuntary case is brought under 11 U.S.C. Section 303(h)(2) which provides for the entry of an order for relief if “within 120 days before the date of the filing of the petition, a custodian, other than a trustee, receiver, or agent appointed or autho­rized to take charge of less than substantially all of the property of the debtor for the purpose of enforcing a lien against such property, was appointed or took possession.” The legislative history observes that “once a proceeding to liquidate assets has been commenced, the debt- or’s creditors have an absolute right to have the liquidation (or reorganization) proceed in the bankruptcy court and under bankruptcy laws with all of the appropriate creditor and debtor protections that those laws provide.” H.R.Rep. No. 95-595, supra at 323-324, U.S. Code Cong. & Admin.News, p. 6280 (emphasis supplied). The Commission bill, according to one observer, did not permit abstention from an involuntary case “where there has been a general assignment for the benefit of creditors or where a receiver, trustee, or a liquidating agent has been appointed to take charge of the debtor’s property. Apparently, the Commis­sion believes that in such a case, a liquidation was contemplated, and that creditors should be able to obtain the safeguards available under the Bankruptcy Act.” Cook, “Involuntary Bankruptcy and the Proposed Bankruptcy Act of 1973: Reform at Last,” supra at 117-118. The observer concludes that this is “sound” but “not convincing,” since even in these cases, given certain facts, dismissal may be appropri­ate. Id. at 118. The Code may adopt these views, permitting dismissal under Section 305(a)(1) in a case involving Section 303(h)(2), but only in exceptional circumstances.

15

. Indeed, Ford Credit, in reliance upon the settlement, has made payments of $50,000 in attorneys fees to Colonial, and $85,000 in prop­erty taxes to its shareholder. Colonial has not offered to refund these monies or otherwise unscramble performance under the agreement.

16

. Where the court decides whether to excuse a custodian from turnover under 11 U.S.C. Sec­tion 543(d), it must consider the interest of “equity security holders,” if “the debtor is not insolvent.” The legislative history notes that this provision “reinforces the general absten­tion policy in Section 305.” H.R.Rep. No. 95-­595, supra at 370, U.S.Code Cong. & Admin. News, p. 6326. This may imply that the inter­ests of solvent and insolvent debtors, or at least the interests of shareholders in solvent or insol­vent debtors, should receive different weight under Section 305(a)(1). But cf. 4 Collier on Bankruptcy ¶ 543.01, at 543-6 (15th ed.1981).

17

. The fragmentation of the interest of a debtor under Section 305(a)(1) may explain, in part, those cases where abstention has been allowed because of intracompany disputes. Compare, e.g., In The Matter of Win-Sum Sports, Inc., 14 B.R. 389 (Bkrtcy.D.Conn.1981) with In re Don­aldson Ford, Inc., 19 B.R. 425, 6 C.B.C.2d 564 (Bkrtcy.N.D.Ohio 1982); In The Matter of Nina Merchandise Corporation, 5 B.R. 743 (Bkrtcy.S.­D.N.Y.1980).

18

. Statistics are sparse. In this district, how­ever, 261 petitions under Chapter 11 had been filed and were pending for over 6 months as of September 30, 1982. Of these, 43 or 16 percent had achieved confirmation. R. Wily, Estate Administrator’s Report of Chapter 11 Cases iii (United States Bankruptcy Court, District of Utah, Third Quarter, 1982).

19

.Unless the class of unsecured claims con­sents, Colonial would have to pay unsecured claims in full or eliminate any option to Mrs. Belnap. See, 11 U.S.C. Section 1129(b)(2)(B). It might be argued that Section 1129(b)(2)(B) codifies the absolute priority rule of former law, and therefore, insofar as Mrs. Belnap con­tributes “money or money’s worth,” she may participate notwithstanding failure to pay unse­cured claims in full. See, e.g., Carr, “When Can the Owners Participate in the Reorganized Debtor? Cram Down as a ‘Shield’ for Credi­tors,” 15 Ind.L.Rev. 547, 556-560 (1982). It may be questioned, however, whether the sub-­rogation of Mrs. Belnap to the rights of the SBA, so that she can redeem for her own bene­fit, would constitute the payment of money or money’s worth to the reorganized debtor.