G.I. Joe's: Global Settlement & Bankruptcy Dismissal in Work
G.I. Joe’s Holding Corporation, its Official Committee of Unsecured Creditors, and its Prepetition (pre-bankruptcy) Term Loan B Secured Creditors have filed a joint response and objection to the United States Trustee’s request to convert G.I. Joe’s chapter 11 cases to chapter 7 liquidations (for details on the U.S. Trustee’s motion, please see an earlier post here). Earlier today, the debtors also filed a revised agenda for tomorrow’s omnibus hearing (at which the U.S. Trustee’s conversion motion was scheduled to be heard). The revised agenda reflects that G.I. Joe’s and the U.S. Trustee have agreed to adjourn the hearing on the motion to the next regularly-scheduled hearing. It also reflects that G.I. Joe’s has reached a consensual settlement of BMC Group’s motion seeking payment of its fees and expenses incurred as the claims and noticing agent in the cases. You can find details on BMC Group’s motion in an earlier post, available here.
The joint response and objection asks the bankruptcy court not to convert the chapter 11 cases to chapter 7 because the three parties (the debtors, the Creditors’ Committee and the agent for the Term Loan B Secured Creditors) are working to reach a global settlement which would, according to the response, provide a more favorable result for general unsecured creditors and administrative creditors. Specifically, the global settlement (which is expected “in the next few weeks”) would provide the following benefits, according to the response:
- The Term Loan B Secured Creditors will release their rights to avoidance actions and the proceeds thereof;
- $200,000 will be made available for the payment of allowed administrative expense claims;
- $380,000 will be added to the carve-out for unpaid fees and expenses of the debtors’ and creditors’ committee’s professionals, including BMC Group; and
- the bankruptcy cases will be dismissed.
By comparison, conversion to chapter 7 would harm general unsecured creditors because the chapter 7 trustee would pursue avoidance actions. Even though the Term Loan B Secured Creditors do not hold a security interest in the proceeds of avoidance actions, they would still be the only beneficiaries of the avoidance actions because they hold an allowed superpriority administrative expense claim pursuant to the financing orders entered in the bankruptcy cases. According to the response, there would be insufficient assets to pay the Term Loan B Creditors’ claims in full and, as a result, administrative creditors would receive no recovery if the cases were converted.
The response also discloses, in a footnote, that G.I. Joe’s and BMC Group have reached a settlement pursuant to which BMC Group will accept a reduced amount of fees and expenses. The amount of the reduction is not disclosed. The disclosure does provide, however, that the settlement is conditioned upon “the Court’s determination that dismissal, and not conversion, be the appropriate outcome for these cases.” In addition, G.I. Joe’s filed monthly operating reports for the periods from April through December 2009 on Friday. As noted in our earlier post, the U.S. Trustee had complained in its motion of the debtors’ failure to remain current on its reporting obligations.
netDockets has made a complimentary copy of the response available on JDSupra.
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