Amy Denton Mayer Obtains Favorable Ruling on MCA Debt

Shareholder, Amy Denton Mayer, represented the Debtor, McKenzie Contracting, LLC in a Subchapter V case filed in the United States Bankruptcy Court for the Middle District of Florida, Tampa Division, on March 11, 2024. McKenzie Contracting was a minority-owned underground utilities and infrastructure contractor based in Tampa, Florida. As of the petition date, the Debtor had scheduled claims without exclusion for contingent and unliquidated claims in the amount of $6,626,519.29. After the filing, creditors filed claims totaling $14,133,855.83 without exclusion for contingent and liquidated claims. Of that total, $6,268,634.54 were claims that were amended and superseded, withdrawn or paid, duplicates, insider claims, or contingent and unliquidated breach of contract and indemnity claims. That left the Debtor with total filed claims of $8,074,372.57 without exclusion for other contingent and unliquidated claims. Of that total, $1,631,640.97 were claims held by merchant cash advance (MCA) entities, including GCM Prime LLC (GCM). GCM filed a claim in the amount of $709,240.27.

GCM filed an objection to the Debtor’s eligibility for Subchapter V. The Debtor responded and asserted that the MCA claims were contingent and unliquidated and, therefore, excluded from the then $7.5 million debt cap for purposes of determining eligibility for Subchapter V relief under Section 1182(1)(A) of the Bankruptcy Code.

The Court held a preliminary hearing on June 14, 2024. At the hearing, the Court requested briefing on the issue. The parties briefed the issue on June 28, 2024. On July 19, 2024, the Bankruptcy Court entered an Order Overruling GCM Prime LLC’s Objection to Debtor’s Designation as a Subchapter V Debtor (Doc. No. 195 in Case No. 8:24-bk-01255-RCT). In its opinion, the Court held that: (i) it did not need to determine whether the GCM claim was contingent and unliquidated, (ii) the claims filed by the other three MCA entities were filed as sales (rather than loans) and were contingent and unliquidated as of the filing; (iii) those claims, which totaled $922,400.70, were excluded from the then $7.5 million debt cap, leaving the Debtor with at most $7,151,971.87 in noncontingent, unliquidated claims; and (iv) the Debtor was eligible for relief under Subchapter V.

This ruling paves for the way for debtors to assert that MCA claims are contingent and unliquidated and, therefore, excluded from the debt cap for purposes of determining Subchapter V eligibility. This decision has broad implications, particularly in light of the fact that Congress failed to extend the $7.5 million debt cap resulting in a reduction of the cap to $3,024,725 as of June 21, 2024.