U.S. Trustee Program Prevails on Motion to Dismiss Nine Related Cases for Lack of Good Faith

The United States Trustee Program (USTP) recently obtained dismissal of nine related bankruptcy cases involving a chain of fitness businesses that lacked a good-faith basis for seeking bankruptcy relief.

On October 2, the Bankruptcy Court for the District of Kansas entered an order dismissing the cases of Blush Bootcamp LLC and eight affiliates based on a motion filed by the USTP’s office in Wichita, Kansas. The debtors and their owners engaged in a tangled web of transfers both before and after bankruptcy, using some of the companies’ income to cover others’ debts and commingling funds across multiple accounts without regard to corporate formalities. Some of the companies had stopped operating, leaving no business to rehabilitate. Some entities lacked insurance to protect their assets, and none had workers’ compensation coverage. And the owners—a married couple—each drew a monthly salary of $12,500 out of the bankrupt companies even though they also operated two cash-positive entities that did not file for bankruptcy.

The debtors filed their cases under the streamlined provisions of subchapter V, which provides eligible small businesses with a more flexible, efficient and cost-effective path through chapter 11. The USTP plays an integral role in administering subchapter V cases in accordance with the Bankruptcy Code. This includes seeking dismissal or conversion of cases to chapter 7 liquidations when warranted, and raising objections to eligibility and confirmation of a plan of reorganization when appropriate.

“Subchapter V was designed to help debtors remain in business, so long as they abide by the Bankruptcy Code’s requirements,” said Director Tara Twomey of the Executive Office for U.S. Trustees. “Unfortunately, these entities did not follow the requirements and there was no reasonable likelihood of rehabilitation.”

The USTP’s mission is to promote the integrity and efficiency of the bankruptcy system for the benefit of all stakeholders – debtors, creditors and the public. The USTP consists of 21 regions with 89 field offices nationwide and an Executive Office in Washington, D.C. Learn more about the USTP at www.justice.gov/ust.