A US bankruptcy judge denied conditional approval of the First Brands’ disclosure statement for a proposed Chapter 11 plan and related global settlement, teeing up a conversion-or-dismissal hearing on the US Trustee’s bid to end the cases.
Judge Christopher Lopez of the US Bankruptcy Court for the Southern District of Texas ruled at a hearing today (26 May) that the plan, disclosure statement and Rule 9019 settlement are too intertwined to approve the DS on a conditional basis, and signaled due process concerns with the debtors’ proposed expedited timeline for notice, voting and objections.
A hearing on the US Trustee’s motion to convert or dismiss is expected on or around 11 June, Judge Lopez said, noting the Bankruptcy Code requires the motion to be heard within 30 days from its 13 May filing date. The court left the door open for a status conference sooner.
Why Lopez said no to conditional approval
Judge Lopez focused on process and timing, saying creditors need adequate time and access to the plan package — including multiple trust documents and related exhibits — before being asked to vote or object.
The debtors’ initial proposal would have given parties roughly 12 days to review three plan trusts and numerous additional documents, according to arguments aired in court. Judge Lopez questioned whether documents would be formally served or simply filed on the docket and linked to, and described the plan materials as the “architectural structure,” not ministerial exhibits.
Judge Lopez also expressed concern that the settlement would affect creditors who have no vote on the plan, because Premier Marketing Group is the only plan debtor entitled to solicit votes even though the proposed settlement and releases would apply more broadly.
Lopez said he did not want to approve the disclosure statement conditionally, and then have parties be surprised later by rulings on the plan and settlement issues when they ultimately come before him.
Revised plan, longer notice, wind-down funding
In presenting the case for approval, counsel for the debtors, Weil Gotshal, said the company filed a revised plan and disclosure statement on the morning of the hearing reflecting “narrow changes,” and said the debtors now plan to proceed on full notice with a 28-day objection period rather than an expedited solicitation process. 9fin reported earlier today on the revised plan documents and settlement motion, here.
Weil described the cases as liquidity-constrained from the outset and said the debtors face a DIP maturity of roughly $5bn at the end of June with limited liquidity.
The debtors’ proposed plan centers on an orderly wind-down funded through a global settlement and a three-trust structure, including:
- a litigation trust intended to pursue estate claims and generate recoveries for junior creditors;
- a DIP collateral trust; and
- an ABL trust for inventory, receivables and other assets subject to ABL liens.
Weil said the settlement includes $50m of trust funding plus $25m in initial funding, and contended the structure would provide a path to begin recoveries for general unsecured creditors starting at approximately $400m in litigation trust recoveries.
Objections: Jevic, sub rosa plan, and admin claim treatment
The US Trustee argued the debtors did not justify conditional approval and said the proposed plan is not confirmable on its face, raising objections to, among other things, the treatment of administrative claims and the structure of the settlement.
Multiple parties also raised concerns about whether the settlement and related asset-transfer mechanics amount to an impermissible “sub rosa” plan and whether the structure runs afoul of the priority scheme addressed in Jevic, according to arguments made in court.
Other objectors raised issues including substantive consolidation and requested additional clarity in the plan documents.
What’s next
The debtors and stakeholders are expected to confer on next steps and report back. Judge Lopez said he remains available for a status conference as needed, and is available on 11 June to hear the US Trustee’s motion to convert or dismiss the cases taking into the account the 30-day deadline of 12 June to hear that motion.
The Chapter 11 docket can be found on 9fin.
Check out our coverage summary of the First Brands saga.
