RDX Technologies – Court Grants Creditors Summary Judgement, Denies Confirmation of Plan

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October 10, 2018 – The Court hearing the RDX Technologies case issued an order granting Creditors CWT Canada II, GEM Holdco and Resource Recovery Corporation (together, the “Objecting Creditors”) summary judgment and denying confirmation of the “Plan of Reorganization dated April 4th, 2018 proposed by the Debtor (DE 50)” [Docket No. 132]. The order states, “The Court heard oral argument on the Motion from counsel for the Objecting Creditors and the Debtor on October 2, 2018. At the conclusion of this oral argument, pursuant to Rule 52 of the Federal Rules of Civil Procedure and Rule 7052 of the Federal Rules of Bankruptcy Procedure, the Court placed its findings of fact and conclusions of law on the Motion on the record. Based on the findings of fact and conclusions of law as stated…1. The Motion is Granted; and 2. Confirmation of the Plan is hereby Denied.”

As previously reported in respect of the Objecting Creditors’ argument, “Debtor knew from the outset of this case that the Objecting Creditors would be voting their claims against a plan. Debtor also knew those claims were large enough to dominate the unsecured creditor class. The Plan’s separate classification of general unsecured claims is blatant effort to gerrymander an accepting impaired class for the Plan.  Because such gerrymandering is not allowed under Ninth Circuit law, the Plan violates Bankruptcy Code section 1122(a) and thus fails to satisfy Bankruptcy Code section 1129(a)(1). Here, Debtor cannot show that the claims of general, non-priority unsecured creditors are dissimilar in any meaningful way….There is no meaningful distinction between the claims of unsecured creditors in this case. The Claims in classes 3, 4 and 5 are of equal rank under the Bankruptcy Code and state law…. Likewise, there is no basis distinguishing the Objecting Creditors’ claims from those of other unsecured creditors….There are over $20 million in unsecured claims in his case. Moreover, the IRS has a $637,000 claim that is secured by tax liens against Danzik’s real and personal property. So there is nothing to collect from Danzik for unsecured creditors such as Objecting Creditors….To confirm a Chapter 11 plan where there is at least one impaired class, the debtor must have at least one impaired class vote to accept the plan. Debtor cannot satisfy this requirement. Here, there is only one body of creditors who can provide an accepting impaired class— general unsecured creditors. When the claims of these creditors are properly grouped in a single class (see above), that class has rejected the Plan. That is because the votes of Objecting Creditors, with combined claims of over $16 million, control the class of unsecured claims and have voted against the Plan. As the Court is aware, in order for a class to accept a plan, more than 50 percent in number and two-thirds in amount of the claims voting on the plan must vote to accept the plan. According to the ballot report filed by Debtor, Debtor received acceptances from only 8 percent in amount of the unsecured claims voting on the Plan. That is well below the requirement for acceptance under Section 1126(c). Thus confirmation must be denied because Debtor cannot satisfy Bankruptcy Code section 1129(a)(10).”

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