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Avaya Objections Filed

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Multiple Parties including–the United States Trustee assigned to Avaya’s case, SAE Power Company, the ad hoc second lien noteholder’s group, and the ad hoc group of crossover holders–filed with the U.S. Bankruptcy Court separate objections to Avaya’s Disclosure Statement related to the First Amended Joint Chapter 11 Plan of Reorganization. The U.S. Trustee asserts, “The United States Trustee objects to the approval of the Disclosure Statement because it does not provide adequate information, as required by Section 1125. The Debtors should be required to provide the following additional information adequate to describe the Plan: a description of the terms of the proposed (i) Advisory Services Agreement between the Debtors and Kevin Kennedy and (ii) Compensation Arrangements between the Debtors and James Chirico, the legal basis for their approval, and whether such approval infringes upon the fiduciary duties of the new board of directors of the Reorganized Debtors; the legal basis for paying the Restructuring Fee of PJT Partners LP, the financial advisor for the Ad Hoc First Lien Group….To be approved, a disclosure statement must include sufficient information to apprise creditors of the risks and financial consequences of the proposed plan. Although the adequacy of the disclosure is determined on a case-by-case basis, the disclosure must ‘contain simple and clear language delineating the consequences of the proposed plan on creditors’ claims and the possible alternatives….The lack of any discussion in the Disclosure Statement is particularly troubling because Mr. Kennedy and Mr. Chirico, as two of the Debtors’ most senior executives (with Mr. Kennedy also a Board member), presumably negotiated their own Agreements at the same time that they were negotiating the Plan and PSA on behalf of the Debtors. Without any information as to how the terms of these Agreements were established and approved by the Board, it appears that Messrs. Kennedy and Chirico were actively negotiating to enrich themselves through the Agreements at the same time they were supposed to be acting as fiduciaries negotiating the terms of the Plan, PSA and creditor recoveries….Finally, since the Plan seeks to bind the new board of directors of the Reorganized Avaya to these Agreements, the Disclosure Statement should contain a full discussion of the relevant terms, economics, and legal bases upon which the Debtors rely to (i) obligate a yet-to-be constituted board to take actions which may or may not be a reasonable exercise of its fiduciary duty and (ii) justify that the proposed allowances or payments do not violate Section 503(c).”