Charlestown Capital and Hartland Asset file opposition motion (5/28/10).
"An extension of exclusivity of that magnitude represents the strongest possible vote of confidence by the Court that the Debtors are managing the Chapter 11 process effectively, fairly and efficiently. To date, the Debtors have done nothing to justify such confidence. To the contrary, the Debtors appear to be moving backwards rather than forwards – their current proposed plan is a return to their earlier plan that gives exclusive rights to management at the expense of outside equity holders."
"Because the Debtors have successfully sidelined the creditors’ committee, the only way to move this bankruptcy case forward is to terminate exclusivity in some fashion. Charlestown and Hartland are concerned, however, that a complete termination of exclusivity will lead to an expensive and unwieldy free-for-all with various secured lenders proposing competing plans that may or may not include all debtor entities. To move the case forward, Charlestown and Hartland request that this Court terminate exclusivity as to them. This would permit Charlestown and Hartland to play the role that the creditors’ committee was expected to play – a check on the Debtors’ recalcitrance."
"The Bankruptcy Code gives debtors broad and extraordinary powers unavailable in any other context. In exchange for these extraordinary benefits, debtors submit to the jurisdiction of the Bankruptcy Court, they assume certain burdens of oversight and disclosure, and they commit to act as fiduciaries for creditors."
"The benefits for debtors and the parallel protections for creditors and other parties in interest are carefully crafted. Here, although the Debtors have happily availed themselves of the benefits of bankruptcy protection, they have shown little interest in taking on the parallel burdens. The Debtors have shown total disregard for the rights of legitimate parties in interest and have instead acted solely to benefit a group having no recognized standing under the Bankruptcy Code – management. As the creditors’ committee’s most recent filing illustrates, the Debtors have apparently gone so far as to subvert one of the most critical protections in the Bankruptcy Code – committee oversight."
"For the fourth time, the Debtors seek to avail themselves of one of the Bankruptcy Code’s most significant benefits – the exclusive right to propose a plan of reorganization. Moreover, having effectively sidelined the creditors’ committee, the Debtors stand to regain that small measure of balance that this Court previously created when it authorized the creditors’ committee to propose a plan."
"Without the creditors’ committee to act as a check on the Debtors, a further extension of exclusivity would be both unwise and unfair. Moreover, it likely renders the Debtors’ plan unconfirmable under Bank of America Natl’l Trust and Savings Ass’n v. 203 North LaSalle Street P’Ship, 526 U.S. 434 (1999)."
"To keep the bankruptcy case moving, to maximize value for creditors and to protect the rights of equity holders, termination of exclusivity is necessary. Charlestown and Hartland are concerned, however, that complete termination of exclusivity would create chaos. Several secured lenders have been very active in the case and, undoubtedly, would like to propose competing plans. There is no guarantee, however, that the secured lenders could agree on a single plan or that their competing plans would cover all Debtors. Thus, the likely result of a complete termination of exclusivity is a contested confirmation hearing with multiple competing plans covering different debtors all funded by the estate (either directly from the Debtors or indirectly in the form of increased secured claims)."
"Accordingly, Charlestown and Hartland request that the Court terminate exclusivity as to them while maintaining it otherwise. No matter what the outcome of this motion, exclusivity must terminate on September 30, 2010. If Charlestown and Hartland cannot obtain approval of a disclosure statement and move towards confirmation quickly, the secured lenders will have their opportunity. On the other hand, the mere possibility that Charlestown and Hartland will propose a plan may force the Debtors to propose a plan acceptable to equity holders and the secured lenders. In other words, Charlestown and Hartland may be able to play the role that the creditors’ committee was expected to play."
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