LaSalle* provides too many obstacles for management insiders to clear.
From the Legendary Investors Group No. 1 LLC brief (5/27/10):
"These Debtors do not even pretend that they are complying with Supreme Court precedent. The confirmation process must ensure that the new equity is the subject of a reasonable marketing effort that is free of any conflicts of interest inherent in a process run by existing equity that wants to reinvest. The LaSalle decision requires that Plans of the type proposed by “Debtor” (or more accurately management and majority shareholders of Debtor) satisfy certain fiduciary obligations imposed by corporate law applicable to interested-party transactions. As part of the ordinary confirmation process, a debtor will have to demonstrate, among other things, that the new value plan has not been proposed by any means forbidden by law. In particular, in the new value context, this requires the debtor to demonstrate that it has complied with the “entire fairness” doctrine. It is a basic tenet of corporate law that in evaluating a transaction between a corporation and its controlling shareholder or director, courts require a showing that the transaction is entirely fair."
"The Debtors’ insiders – to the extent they are also the proponents of the new value plan – have an inherent conflict of interest in connection with deciding which plan to pursue. Moreover, such insiders have an interest in discouraging, at least to the extent of their interest in the new value plan proponent, the marketing of the debtor because it might result in a third party making a more desirable bid than that offered by the insider plan proponent or any other reorganization alternative. One possible way to mitigate those concerns would be to require the debtor to appoint an independent special committee of its board to review offers and develop a plan free of influence from insiders."
"Putting aside whether or not such action constitutes a breach of their fiduciary duty, the net result is that this is a plan designed to go private, for the benefit of management and the other insiders. It is not a plan filed for the Debtors, as all creditors are entitled to expect when exclusivity is maintained for three separate attempts. This Plan is being proposed by management and insiders and promotes their interests without regard to equity’s interests. This approach violates the exclusivity extension and that extension should terminated."
Source: PACER (Docket 1455)
*Bank of America National Trust and Savings Association v. 203 North LaSalle Street Partnership, 526 U.S. 434, 119 S. Ct. 1411 (1999)
I could not have written it any better. Hold on, my personal letters to the United States Trustee and Judge Thompson pointed out these same concepts. Then again, I am not a lawyer.
Hopefully, I have now redeemed myself.
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