The U.S. Trustee assigned to the Grandparents.com case filed with the U.S. Bankruptcy Court an objection to the Company’s Disclosure Statement.
The Trustee asserts, “This case contains specific facts and circumstances that have not been seen in this Court before. To wit, the extraordinary relationship between the Debtors and VB Funding. A relationship so close and intimate that gave VB Funding dominance and control over the Debtors, an influence that may have been the catalyst for the Debtors’ bankruptcy, and at worst, the direct cause of the Debtors’ bankruptcy. Never before has this Court seen a prepetition lender wear as many hats as VB Funding has worn in this case. VB Funding’s many roles in this case is not, in and of itself, the concern. However, when presented with a Disclosure Statement and Plan proposing broad releases to VB Funding from virtually any form of legal liability, those many roles must be disclosed and carefully examined to determine the propriety of such releases.”
In addition, “There exists a myriad of pre-petition security agreements between the Debtors and VB Funding, which purportedly give VB Funding a lien on the largest estate asset that remains in the Debtors’ estate, the D&O and D&O recoveries. The Disclosure Statement and Plan treats VB Funding’s proper perfection of the lien on the D&O as a fait accompli, however, D&O policies and proceeds thereof, especially in the bankruptcy context, have to be carefully examined and checked against applicable law in order to determine whether in fact the lien is perfected. Because of the uniqueness of the D&O as a perfected lien, and because of the relationship between the Debtors and VB Funding, the United States Trustee questions the validity, priority and extent of that lien, and requests that the Debtors/VB Funding prove that such a lien is in fact perfected prior to the approval of the Disclosure Statement.”
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