In The Matter Of Saybrook Manufacturing Co., Inc

963 F.2d 1490 (1992)


Saybrook et al. (D) initiated Chapter 11.  D filed a motion for the use of cash collateral and for authorization to incur secured debt. The court entered an emergency financing order. D owed Manufacturers Hanover (D1) approximately $34 million. The collateral for this debt was less than $ 10 million. Pursuant to the order, D1 agreed to lend D an additional $3 million to facilitate their reorganization. In exchange, D1 received a security interest in all of the debtors' property -- both property owned prior to filing the bankruptcy petition and that which was acquired subsequently. This interest protected the $3 million but also secured the $34 million pre-petition debt. D1's pre-petition debt became fully secured by all of the D's assets. P challenged the cross-collateralization of D1's pre-petition debt and not the propriety of collateralizing the post-petition debt. The bankruptcy court overruled the objections. The district court dismissed P's appeal as moot rejecting the argument that cross-collateralization is contrary to the Code. P appealed.