Bankrupt and Distressed (BAD) Research and Due Diligence

[Madclown]

Re: FGCIQ Equity Committee Motion Denial

Judge Gross appears to take a hardline stance based on some of his past decisions and he held true to form in this case. There is a key hurdle that any equity committee movant must get past in order to gain approval, the question is which will it be?

1. The burden of proving the debtor is not hopelessly insolvent; or
2. The burden of proving that the equity constituency has a "substantial liklihood" of a meaningful recovery.

Burden #2 is much more difficult to get past in the early stages of a bankruptcy case because performing a valuation on the debtors estates at a forward date of 12 to 18 months down the road is not always possible because of market uncertainties, size of the claims pool, environmental claims, litigation, etc. In short the picture is unclear in the early going, so burden #1 is perhaps the most prudent standard at that point in time. The subtleties of which argument to take will always be on a case-by-case basis and largely hang on which side of the argument one is on.

Since this case had a valuation in hand and the equity committee movant did not provide their own but had an opportunity to cross examine the preparer, the court held to burden of proof standard #2 which, given the facts and circumstances of the case, was probably the most prudent decision.

Anyone contemplating an equity committee formation in a case presided over by Judge Gross will also want to take note of the following:

"The Court first observes that Resilient did not first request that the Office of the United States Trustee ("OUST") appoint an equity committee. The OUST did not object to the Motion and the Court accepts Resilient's explanation that it did not have the necessary time because of Debtors' timetable."

http://www.kccllc.net/documents/1010632/1010632100412000000000002.pdf