EXIDE BANKRUPTCY BREAKING NEWS: U.S. Trustee files Protective Objection to and Reservation of Rights regarding Exide’s attempt to submit and gain approval of incomplete Plan of Reorganization and Disclosure Statement
On Dec. 31, 2014, Roberta A. DeAngelis, the United States Trustee for Region 3 filed a Protective Objection to and Reservation of Rights Regarding Exide’s Motion for Entry of an Order (a) Approving the Adequacy of the Exide’s Disclosure Statement; (b) Approving Solicitation and Noticing Procedures with Respect to Confirmation of Exide’s Proposed Plan of Reorganization; (c) Approving the Form of Various Ballots and Notices in Connection Therewith; and (d) Scheduling Certain Dates with Respect Thereto (the “Motion”).
The U.S. Trustee formed the Official Committee of Unsecured Creditors on June 18, 2013.
On November 17, 2014, Exide filed its proposed Chapter 11 Plan of Reorganization (“Plan,” D.I. 2632), together with a Disclosure Statement in support of the Plan (D.I. 2631).
Exide filed the Motion on December 4, 2014, seeking, among other things, approval of the adequacy of the Disclosure Statement.
The Plan and Disclosure Statement reference and provide for information to be provided which has not yet been filed, including Liquidation Analyses and Valuation Analyses (listed in the Disclosure Statement as “to come”). Additionally, the Plan and Disclosure Statement contain several “place holders” (e.g., for a definition of Senior Notes Alternative Distribution Property”) and “TBDs” (e.g., regarding treatment and voting rights of holders of General Unsecured Claims and Subordinated Notes Claims).
Section 1125 of the Bankruptcy Code provides that a disclosure statement must contain “adequate information describing a confirmable plan.” In re Quigley Co., 377 B.R. 110, 115 (Bankr. S.D.N.Y. 2007). Solicitation of votes is prohibited prior to court approval of a written disclosure statement, after notice and a hearing, which contains “adequate information.” See 11 U.S.C. § 1125(b).
The Bankruptcy Code defines “adequate information” in relevant part as:
information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor’s books and records, including a discussion of the potential material Federal tax consequences of the plan to the debtor, any successor to the debtor, and a hypothetical investor typical of the holders of claims or interests in the case, that would enable such a hypothetical investor of the relevant class to make an informed judgment about the plan. . . .11 U.S.C. § 1125(a)(1).
The disclosure statement requirement of section 1125 is “crucial to the effective functioning of the federal bankruptcy system[;] . . . the importance of full and honest disclosure cannot be overstated.” Ryan Operations G.P. v. Santiam-Midwest Lumber Co., 81 F.3d 355, 362 (3d Cir. 1996) (citing Oneida Motor Freight, Inc. v. United Jersey Bank (In re Oneida Motor Freight, Inc.), 848 F.2d 414 (3d Cir. 1988)).
“Adequate information” under section 1125 is “determined by the facts and circumstances of each case.” See Oneida, 848 F.2d at 417 (citing H.R. Rep. No. 595, 97th Cong., 2d Sess. 266 (1977)). The “adequate information” requirement is designed to help creditors in their negotiations with debtors over the plan. See Century Glove, Inc. v. First American Bank, 860 F.2d 94 (3d Cir. 1988).
In its as-filed form, Exide’s Disclosure Statement does not provide parties in interest with sufficient information to enable them to make an informed judgment about the Plan. Among other things:
(a) “Retail” holders of Senior Notes (those who are neither accredited investors nor institutional investors), holders of General Unsecured Claims, and holders of Subordinated Notes Claims cannot ascertain their proposed treatment under the Plan;
(b) Retail holders of Senior Notes cannot assess the fairness of their proposed treatment under the Plan in comparison to the Plan’s treatment of non-retail holders of the same Senior Notes;
(c) The Disclosure Statement does not provide adequate valuation information;
(d) The Disclosure Statement does not contain a liquidation analysis setting forth what creditors would receive in a liquidation under chapter 7 as compared to the Plan, so that creditors may judge whether the Plan is in their best interests.
Although it is anticipated that all of the information missing from the Plan and Disclosure Statement will be provided in amendments filed prior to the hearing scheduled for 1 p.m. EST on Jan. 12, 2015, for approval of the adequacy of the Disclosure Statement, the U.S. Trustee files this protective objection out of an abundance of caution, and reserves the right to assert further objections if such amendments do not resolve the issues described herein.
The United States Trustee requested that the U.S. Bankruptcy Court (i) sustain her protective objection, (ii) in the absence of filed amendments sufficient to cure the informational inadequacies described herein, direct Exide to amend the Plan and Disclosure Statement to provide adequate information, and (iii) grant such other relief as is appropriate.