IN RE AUGIE/RESTIVO BAKING COMPANY, LTD., AUGIE'S BAKING COMPANY, LTD., Debtors. UNION SAVINGS BANK, Appellant, v. AUGIE/RESTIVO BAKING COMPANY, LTD., AUGIE'S BAKING COMPANY, LTD., MANUFACTURERS HANOVER TRUST COMPANY, LTD., Appellees, 860 F.2d 515

Summary

Company one borrowed from appellant. Company two borrowed from appellee trust company. Companies one and two merged (debtors) and planned to sell their assets to another company. The debtors moved for substantive consolidation of the two cases because appellant could prevent confirmation of the plan. Their motion was granted and upheld by the bankruptcy court. On appeal, the court determined that the course of dealing and expectations did not justify consolidation because both appellant and appellee trust company assumed they were dealing with separate entities and that appellant's claims were superior to that of appellee trust company. The court reversed the bankruptcy court's decision because consolidation impaired the rights of certain creditors, principally appellant, which extended credit to company one before it had any relationship with company two. It also unfairly benefitted later creditors of the merged companies, principally appellee trust company, who were aware of the ...