Tuesday, September 18, 2007

Paul M. Singer, Esquire, L.L.M.Joel M. Helmrich, Esquire, MBAMark M. Gleason, CPA, MBASalene M. Kraemer, Esquire, MBA, CTP-D

Marriott City Center112 Washington PlacePittsburgh, PA

Introduction to Liquidating Plans

CASE STUDY-In re Le-Nature’s, Inc., et. al.,Chapter 11, Case No. 06-25454 (MBM), U.S. Bankr. W.D. Pa.

Discussion Questions

Questions from Audience

Historically, did bankruptcy statutes provide for the liquidation of debtors’ estate? Yes.

Section 1112(b) Motions to Dismiss or Convert a Case v. Section 1123(b)(4)-Contents of a Plan

(A) substantial or continuing loss to or diminution of the estate and the absence of a reasonable likelihood of rehabilitation;

(B) gross mismanagement of the estate; (C) failure to maintain appropriate insurance that

poses a risk to the estate or to the public; (D) unauthorized use of cash collateral substantially

harmful to 1 or more creditors; (E) failure to comply with an order of the court; (F) unexcused failure to satisfy timely any filing or

reporting requirement established by this title or by any rule applicable to a case under this Chapter

. . .11 U.S.C. §1112(b)(4)

Inability to propose a feasible plan or carry it out.

Purpose: “prevent the debtor in possession from gambling on the enterprise at the creditors’ expense where there is no hope of rehabilitation.”

Lead to per se rule in favor of dismissing all liquidating Chapter 11 plans?

A plan may “provide for the sale of all or substantially all of the property of the estate, and the distribution of the proceeds of such sale among holders of claims or interests.” 11 U.S.C. §1123(b)(4)

Expressly condones liquidating Chapter 11 cases

Events Leading Up to Bankruptcy Pre-Petition Capital and Equity

Structure of the Debtors Bankruptcy Filing Financial Snapshot as of Petition Date Operating Provisions of Proposed Plan Proposed Claims Treatment

Approximate amount of proofs of claims filed against Debtors’ Estates:

Administrative: $2.4 million Secured: $286 million Priority: $23 million General Unsecured: $508 million

TOTAL: Over $800 million

         Unclassified: Administrative Claims (paid in full in cash)            Unclassified: Priority Tax Claims (paid in full in cash or in equal annual installments over 5 years)            Unclassified: Fee Claims (paid in full) (estimated at $14.7 million)           Class 1: Lender’s Secured Claims (Tier 1- Trust Beneficial Interests in a % ratable to other holders of Class 1 Claims)           Class 2: Other Secured Claims (payment in cash from proceeds of sale of collateral to the extent of the lien or surrender of collateral)           Class 3: Priority Non-Tax Claims (paid in full in cash)           Class 4A: Lender’s Unsecured Claims, Class 4B: General Unsecured Claims, and Class 4C: Unsecured Senior Subordinated Notes Claims (Tier 2- Trust Beneficial Interests in % ratable to other holders of Class 4A, 4B and 4C Claims)           Class 5: Subordinated Litigation Claims (Tier 3- Trust Beneficial Interests in % ratable to other holders of Class 5 Claims)          Class 6: Interests (Tier 4- Trust Beneficial Interests in % ratable to other holders of Class 6 Claims)

 

Hallmarks of feasible Ch. 11 liquidating plan/general structure

Passing the Section 1129(a)(7) Best Interests Test (liquidation in hypo Ch. 7)

Advantages to Ch. 11 v. Ch. 7

Disadvantages to Ch. 11 process

Valuation of Distressed Assets by Financial Analyst

Ways to Liquidate the Assets? Who would conduct?

Funding litigation of Estate Causes of Action

Alternative avenues for liquidating assets

Current Status of Le Nature’s

Alternative Ch. 11 Plan Conversion to Ch. 7 liquidation Section 363 Sale and then conversion

to Ch. 7 liquidation Dismissal of Ch. 11 case and liquidation

in non-bankruptcy forum

What is the status of the case now?