Bankruptcy Judge Shields Parish Assets In Archdiocese Bankruptcy

In the bankruptcy reorganization proceedings of the Archdiocese of Milwaukee (WI), a federal bankruptcy judge has refused to include at least most of the assets of separately incorporated parishes as part of the assets which creditors of the Archdiocese can claim. In In re Archdiocese of Milwaukee, (ED WI Bankr., Dec. 7, 2012), the court refused to apply the "alter ego" doctrine to ignore the separate corporate status of the parishes:

The Committee has failed to state a plausible claim that the Debtor and Parishes failed to observe corporate formalities, that funds were siphoned, that officers or directors of the Parishes were nonfunctional, or that there was an absence of corporate records.  Absolutely no facts were alleged to make plausible a claim that the Debtor and the Parishes “egregiously ignored” corporate formalities or that control was so "pervasively exercised" to apply the alter ego doctrine in this case.

The court similarly refused to apply the equitable doctrine of substantive consolidation to make parish assets available to creditors.  Reporting on the decision, the Milwaukee Journal-Sentinel says that the parishes, however, could still face claims that creditors should have access to $35 million in funds that the Archdiocese moved off its books in 2005.