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March 15, 2019 – The U.S. Trustee assigned to Synergy Pharmaceuticals cases objected to the retention of Houlihan Lokey Capital, Inc. (“Houlihan”) as financial advisor and investment banker to the Debtors’ Official Committee of Equity Security Holders (the “Equity Committee”) [Docket No. 555], citing unreasonableness of Houlihan's fees in the liquidation context and the lack of "evidence that Houlihan increased the recovery to equity holders or to the estate."
On March 13, 2019, the Debtors' Official Committee of Unsecured Creditors (the “Creditors Committee”) filed a similar objection [Docket No. 540, covered separately], citing attempts by Houlihan to disguise flat rate fees as success fees and terms that threaten to run up Chapter 11 costs at the expense of creditors.
The Equity Committee's objection states, “In the present cases, Houlihan is seeking approval of its retention and proposed fee structure under section 328(a). Typically, fee structures pre-approved under section 328(a) are not reassessed for reasonableness at a later stage. Given the accelerated timeline of these cases with the Sale Motion having already been approved and Houlihan’s work for the Equity Committee complete (or near complete), the Court is especially well-positioned to make a determination as the reasonableness of the terms of this engagement prior to approving the fee structure. The Restructuring Transaction Fee (which could be as much as $2 million) is not reasonable because the Debtors are liquidating. To the extent Houlihan seeks any approval of this Restructuring Transaction Fee, the United States Trustee objects as it is a patently unreasonable provision. Additionally, the Sale Transaction Fee, which includes a $600,000 Sale Transaction Fee plus five percent of the total recovery to equity security holders, is not reasonable under the facts here. Equity security holders are projected to receive no recovery… The Sale Motion has been approved. The stalking horse bid that was on the table at the time Houlihan was initially engaged proved to be the winning bid a month later. There is no evidence that Houlihan increased the recovery to equity holders or to the estate. In sum, the Deferred Fee is simply not reasonable.”
The Court scheduled a March 20, 2019 hearing to consider the objection.
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