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April 1, 2019 – The Debtors' Official Committee of Unsecured Creditors (the “Committee”) objected [Docket No. 1156] to the Debtors Second Amended Plan [Docket No. 1140] accusing the Debtors of an underhanded, if not unexpected, attempt to force through a last minute settlement and an Amended Plan in advance of an April 3rd confirmation hearing.
The objection states, “As the Committee brought to the Court’s attention in its Objection to the Disclosure Statement, the pre-petition history of the Debtors is riddled with transactions and transfers that diverted and siphoned value from the Debtors’ estates for the benefit of certain insiders of the Debtors. In addition to the Debtors reviewing these transactions and transfers with the assistance of their recently appointed ‘independent board members,’ the Committee also engaged in its own investigation to determine if any viable claims and causes of action exist on behalf of the Debtors’ estates.
As a result of its investigation, the Committee believes there are numerous viable and valuable causes of action which could be pursued on behalf of the Debtors’ estates against various parties…to recover significant transfers in excess of approximately $76,000,000 million (the ‘Claims’). Additionally, the Committee’s Claims also include the subordination and/or recharacterization of the Mission Coal Funding Second Lien Loan in the asserted amount of $127.2 million (as of the Petition Date).
Based on its investigation, the Committee has determined that the Claims set forth in the proposed Complaint (annexed to the Standing Motion) are valuable and the prosecution of such Claims would be beneficial to unsecured creditors. General unsecured creditors are owed hundreds of millions of dollars in these cases, and are not expected to receive any distribution on account of their prepetition unsecured claims under the Debtors’ Amended Plan and Proposed Settlement. Thus, absent pursuit and recovery on the Claims, unsecured creditors will likely receive no distribution.
Not surprisingly, and as predicted by the Committee, on the eve of confirmation, the Debtors and their independent directors have allegedly reached a Proposed Settlement of the Claims identified by the Committee, claims arising in and out of the Cliffs Litigation (plus potentially other claims), and are attempting to force that Proposed Settlement4on all creditors through the approval of comprehensive third party Releases in the Amended Plan. This Proposed Settlement is a material plan modification under section 1127 of the Bankruptcy Code and Bankruptcy Rule 3019 which requires the Debtors to re-solicit acceptances and rejections of the Amended Plan and, critically, grant creditors the ability opt out of the broad Releases."
The objection continues, “The Proposed Settlement the Debtors now seek approval of was not set forth in the solicitation versions of the Plan and Disclosure Statement sent to creditors and upon which ballots and opt out elections were solicited. Thus, the Amended Plan is improperly and prematurely before the Court for confirmation given the Debtors’ substantial plan modifications as a result of the Proposed Settlement… The Debtors now seek to have that Proposed Settlement approved through confirmation of their Amended Plan even though creditors have not been presented with the findings of the independent directors’ investigation, the findings of the Committee’s investigation, the potential Claims which could be pursued, the full spectrum of claims being Released or the terms of the Proposed Settlement and have never had the ability to make an informed decision about their vote on the Amended Plan and whether to opt in or out of the Releases…The Debtors improper attempts to shield Tom Clarke and the McCoy’s from liability is further demonstrated by the structure of the Assumption Agreements.
The Debtors seek to settle claims without ever having identified the claims being settled. Creditors should not be asked to sign on to broad and sweeping Releases of any and all claims without being provided detailed information about the scope and breadth of the claims being released. Principles of due process and fairness provide that creditors must be afforded an opportunity to evaluate the Proposed Settlement."
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