FROM: Ad Hoc Committee of Equity Interest Holders
TO: JC Penney Shareholders
DATE: December 2, 2020
RE:
Status Update Regarding Confirmation of the Plan
IMPORTANT INFORMATION REGARDING THE COMMITTEE’S PROFESSIONALS THE COMMITTEE HAS RETAINED PROFESSIONALS TO PROVIDE LEGAL COUNSEL AND FINANCIAL ADVISORY SERVICES TO THE COMMITTEE IN THESE BANKRUPTCY CASES. THE PROFESSIONALS DO NOT REPRESENT ANY COMMITTEE MEMBER OR SHAREHOLDER IN THEIR INDIVIDUAL CAPACITY.
THE INFORMATION PROVIDED IN THIS AND FUTURE UPDATES DOES NOT, AND IS NOT INTENDED TO, CONSTITUTE LEGAL ADVICE; INSTEAD, ALL INFORMATION, CONTENT, AND MATERIALS DISCUSSED HEREIN ARE FOR INFORMATIONAL PURPOSES ONLY.
INFORMATION HEREIN MAY NOT CONSTITUTE THE MOST UP-TO-DATE LEGAL OR OTHER INFORMATION.
READERS SHOULD CONTACT THEIR ATTORNEY TO OBTAIN ADVICE WITH RESPECT TO ANY PARTICULAR LEGAL MATTER. ONLY YOUR INDIVIDUAL ATTORNEY CAN PROVIDE ASSURANCES THAT THE INFORMATION CONTAINED HEREIN – AND YOUR INTERPRETATION OF IT – IS APPLICABLE OR APPROPRIATE TO YOUR PARTICULAR SITUATION. RECEIPT OF THIS UPDATE OR ANY OF THE RESOURCES CONTAINED WITHIN DOES NOT CREATE AN ATTORNEY-CLIENT RELATIONSHIP BETWEEN THE READER AND THE PROFESSIONALS.
This memorandum is provided by the Ad Hoc Committee of Equity Interest Holders (the “Committee”) in the bankruptcy cases (the “Bankruptcy Cases”) of J.C. Penney Company, Inc. and certain affiliate subsidiaries (the “Debtors”) and provides an update regarding the Debtors’ sale transaction. The Bankruptcy Cases are pending in the United States Bankruptcy Court for the Southern District of Texas – Corpus Christi Division (the “Bankruptcy Court”).
A final hearing on confirmation of the Debtors’ Amended Joint Chapter 11 Plan of Reorganization of J.C. Penney Company, Inc. and Its Debtor Affiliates [ECF #2022] (“the Plan”) was held on November 24, 2020. As detailed in previous updates, the Committee objected to confirmation arguing, among other issues, that (i) included impermissible third-party releases; (ii) the Plan’s releases for insiders and related parties were improper; (iii) a chapter 7 liquidation would provide greater returns for stakeholders. At the confirmation hearing, in exchange for the Committee withdrawing their objection to confirmation of the Plan, the Debtors agreed to withdraw the third-party releases as to any shareholder direct claim.
As a result of this compromise, shareholders retain the right to assert direct claims against parties other than the Debtors, provided, that the Bankruptcy Court, serving in a “gatekeeping” capacity, must first determine that a shareholder’s cause of action has been preserved for prosecution.
Importantly, shareholders are only permitted to bring direct claims and not derivative claims.
Derivative claims belong to the company, and shareholders do not have standing to bring these types of claims.
Whether a claim is direct or derivative is a complicated inquiry, and you should seek individual counsel if you believe you may have direct claims against the Debtors. Generally speaking, direct claims assert that the defendants harmed the shareholders themselves; derivative claims assert that the defendants harmed the corporation.
Per the Committee’s agreement to withdraw its objection, shareholders must first file a statement of pleading in the Bankruptcy Court detailing the cause of action they seek to pursue. The Bankruptcy Court will then determine whether the claim is direct, in which case the suit may be brought, or derivative, in which case the suit may not be brought.
Ultimately, the Plan was confirmed subject to the submission of an order (the “Confirmation Order”) detailing these terms. The Committee has reviewed a proposed form of order detailing the above compromise and approved such order. The Confirmation Order is expected to be entered on December 12, 2020.
The Committee has received multiple questions regarding the effect of confirmation. Below are responses to more common questions received:
On what date will shares be canceled?
Unfortunately, there is not yet a definitive answer to this question. Shares will be canceled on the “Effective Date” of the Plan. After entry of the confirmation order certain conditions precedent must be met prior to the Plan becoming effective, which include, but are not limited to, formation of the Propco entity; execution of all documents necessary to consummate the Plan; funding of a wind-down reserve; and approval and consent from all requisite governmental, regulatory, and third-parties. Because we do not know when these events will occur, we cannot provide a specific expected Effective Date.
That said, shareholders should expect that the Effective Date will occur approximately 14-days following entry of the Confirmation. Typically, the Debtors will file a notice with the Bankruptcy Court when the Effective Date occurs.
Does the Committee intend to appeal the Confirmation Order?
As a result of the compromise discussed above, the Committee withdrew its objection to confirmation of the Debtors’ Plan. The Committee, therefore, will not be appealing entry of the Confirmation Order.
Does entry of the Confirmation Order affect the Committee’s appeal of the Sale Order?
Not directly. While the Committee withdrew its remaining objections to confirmation of the Plan, the Court acknowledged on the record that such withdrawal would have no direct impact upon the Committee’s appeal of the Sale Order.
Nevertheless, one of the assumptions of the Plan is that the OpCo transaction will close. As we have previously noted, when that happens, certain aspects of the Committee’s appeal of the Sale Order may become moot.
AI
