Doc 215 off pacer I like this part
"Moreover, the Debtor recently entered into a modification of its supply contract with Massey that will provide significant monthly income to the estate."
Proposed Local Counsel for Chapter 11 Debtor and Debtor-in-Possession
IN THE UNITED STATES BANKRUPTCY COURT
DISTRICT OF UTAH
In re:
Western Utah Copper Company,
Debtor and Debtor-in-Possession.
Case No. 10-29159-WTT
Chief Judge William T. Thurman
Chapter 11
DEBTOR’S OMNIBUS REPLY TO OPPOSITIONS TO DEBTOR’S MOTION FOR AN ORDER EXTENDING DEBTOR’S EXCLUSIVITY PERIODS TO FILE A PLAN OF REORGANIZATION AND OBTAIN ACCEPTANCE THEREOF
WESTERN UTAH COPPER COMPANY, the above-named Chapter 11 debtor and debtor in possession (the “Debtor”) hereby submits its reply to the oppositions filed by the Senior Secured Creditors and Nevada Star to the motion (the “Motion”) for an order extending the Debtor’s exclusivity periods to file a plan of reorganization and obtain acceptance thereof, for ninety (90) days, from September 15, 2010 to December 15, 2010,
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Case 10-29159 Doc 215 Filed 09/02/10 Entered 09/02/10 17:02:30 Desc Main
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respectively, and from November 15, 2010 to February 14, 2011, respectively.
INTRODUCTION
The Senior Secured Creditors and Nevada Star seek to prevent the Debtor from maintaining its exclusivity periods to file a plan and obtain acceptances thereof, but neither party offers any actual reason, or any evidence, as to why the Debtor, which has demonstrated that it is capable of obtaining financing to reorganize its financial affairs, should not be afforded the exclusive opportunity to obtain Court approval of such financing and be in a position to propose a plan of reorganization in this case.
It is no secret that the centerpiece of this bankruptcy case is the Debtor’s efforts and ability to obtain post-petition financing, even over the objections of the Senior Secured Creditors and Nevada Star. The Debtor’s efforts to obtain post-petition financing, on a senior secured basis (for the most part), are supported by the Committee (which has objected to certain aspects of the Debtor’s DIP Financing, but which has expressed its overall support for the Debtor’s efforts to obtain post-petition financing). Indeed, the Committee has not opposed the Debtor’s Motion.
The Debtor has proposed a solution in this case that does not involve a liquidation of the Debtor’s assets. Such a liquidation of the Debtor’s assets, all parties seem to agree, would provide no recovery to general unsecured creditors No other party has offered any solution, plan or idea that does not involve a scenario where general unsecured creditors receive nothing. There is currently pending before the Court the Debtor’s Financing Motion, which will place the Debtor in a position to be able to propose a confirmable plan of reorganization, which will provide creditors of this case a far greater recovery than that which could ever be achieved by way of a liquidation (which is essentially the extent of the Senior Secured Creditors’ and Nevada Star’s “creative thinking”). The Debtor does not need the consent of either the Senior Secured Creditors nor Nevada Star to propose and confirm a
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plan of reorganization. Nor is the Debtor interested in liquidating its assets. Not extending exclusivity would have the effect of creating the potential for needless plan litigation. The Debtor has demonstrated, by way of its efforts to obtain post-petition financing, its negotiations with the Committee, Junior Secured Lenders, and other constituencies, including the largest secured creditor in this case in terms of principal loan amount owing (Massey), that there are prospects for a successful reorganization in this case. For these, and the reasons discussed below, “cause” exists to extend the Debtor’s exclusivity periods.
ARGUMENT
1. The Senior Secured Creditors and Nevada Star argue that the size and complexity of the case favors denial of the Motion. This argument makes no sense considering the following: The Debtor is the owner of extremely valuable mining properties in Milford, Utah. The amount of secured debt in this case is in the tens of millions of dollars. The Senior Secured Creditors have objected to every motion and/or request made by the Debtor. Nevada Star, a disputed creditor of the Debtor, has asserted that it owns some of the Debtor’s properties, and therefore, the Debtor cannot mine its own properties. Nevada Star has also asserted that prior to any reorganization taking place, the litigation with Nevada Star must be concluded. The Debtor and CKMC are inseparably intertwined, as they share books and records, management, and debt. The Debtor’s parent corporation, CKMC, is apparently the subject of SEC and IRS investigations. The Debtor is seeking post-petition financing for up to $18 million, and such financing request is heavily contested. CKMC’s case may involve an equity security holders committee. These facts are not facts that suggest a simple, straightforward, Chapter 11 bankruptcy case. This case is complex, with many moving parts and various constituencies with their own interests and motivations. This case is a complex Chapter 11 case.
2. The Senior Secured Creditors and Nevada Star also argue that the necessity 3
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for sufficient time to permit the Debtor to negotiate a plan of reorganization favors denial of the Motion. This argument fails to take into account the centerpiece of this case, which is the postpetition financing which the Debtor seeks Court authority to obtain. While the Senior Secured Creditors argue that the Debtor should have proposed a plan by now, that argument completely ignores the fact that the Debtor’s request for postpetition financing is pending before this Court, and is a vital aspect of the successful reorganization of the Debtor. If the Debtor files a plan now, without approval of its proposed financing, the Debtor’s plan would be subject to vigorous opposition as being not feasible. With financing, the Debtor can propose a confirmable plan that meets all of the requirements of Section 1129. Importantly, neither the Senior Secured Creditors nor Nevada Star can block the Debtor’s ability to confirm a plan because the Debtor can use the cramdown provisions of Section 1129 and also obtain the approval of other creditor classes, including other secured creditor classes. It is simply premature to file a plan now, which plan would be based on a significant assumption regarding the form and amount of financing that would be approved by the Court. Filing a plan now would not be prudent, or possible, given the overarching, unresolved matter, of postpetition financing. An additional 90 days will allow the Debtor to see its Financing Motion through to a final ruling. Only after such a ruling would the Debtor be able to propose a plan in this case.
3. The Senior Secured Creditors argue that that Debtor has not made good faith progress to reorganization. The Debtor has exhibited good faith progress towards reorganization in this case. The Debtor has made every effort to promptly secure post-petition financing and the Debtor has in fact been able to obtain a proposal for such financing. The Debtor also believes that it has allies in this case that will support the Debtor’s efforts to obtain post-petition financing and reorganization – the Committee, Junior Secured Creditors, and Massey (the single largest secured creditor in this case). The Debtor
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has negotiated with its creditors, and the Debtor has made progress with its creditors. The Senior Secured Creditors and Nevada Star are not the only constituencies in this case, and the Debtor has already pushed towards establishing a groundwork for a successful reorganization.
4. The Senior Secured Creditors argue that the Debtor is not paying its bills as they come due. This is the same constituency that objected to the Debtor’s request for financing to pay its employees and various other operational expenses. In any event, the Debtor recently obtained emergency financing to cover certain of its crucial expenses, and the Debtor’s motion for further approval of payment of various expense items is pending before the Court. Moreover, the Debtor recently entered into a modification of its supply contract with Massey that will provide significant monthly income to the estate.
5. The Senior Secured Creditors and Nevada Star argue that the Debtor has not demonstrated a reasonable prospect for filing a viable plan. The Debtor has a plan – in fact, it is the only party in this case that has actually demonstrated the ability to finance operations and create value in the estate. The Senior Secured Creditors and Nevada Star, of course, merely seek to liquidate the Debtor’s assets. In such a scenario, general unsecured creditors would receive nothing. The Debtor, on the other hand, presents the only solution in this case which would provide a recovery to general unsecured creditors. That solution is based substantially upon the Debtor’s Financing Motion, which is still pending before the Court. Until that Financing Motion is determined it is entirely premature to conclude that the Debtor cannot reorganize.
6. Nevada Star and the Senior Secured Creditors argue that the Debtor has not made good faith progress towards reorganization and in support of its argument states that the Debtor’s proposed financing is not in the best interests of creditors. The Debtor disagrees, and the Financing Motion is pending before this Court. This is exactly why the
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Debtor’s exclusivity period should be extended – so that the Financing Motion can first be resolved. If the Financing Motion is resolved in the Debtor’s favor, then the Court will have found that the proposed financing is in the best interests of creditors.
7. The Debtor has made progress in negotiations with its creditors. The Senior Secured Creditors and Nevada Star seem to believe that they are the only creditors in this case. They seemingly have not read, or have decided to purposefully ignore, the declarations of Massey and Junior Secured Creditors in support of the Debtor’s efforts to obtain financing. Such constituencies will also support the Debtor’s reorganization, over the objection of the Senior Secured Creditors.
8. The Senior Secured Creditors admit that “this case has been pending for only three months”. They argue that the amount of time which has elapsed in this case does not affect the outcome of the Motion. However, the Debtor is still within its exclusivity period, and the Debtor’s Financing Motion is still pending. The Debtor could file a plan right now, and still retain its exclusivity period to obtain acceptance of its plan. But filing a plan now would not be prudent until the Financing Motion is resolved. The Debtor has no interest in proposing a plan now only to be forced to later amend the plan. Such actions would be impractical and expensive. This is why competing plans would make no sense at this time – because no other party has offered any alternative to liquidation. It is more prudent to extend the Debtor’s exclusivity periods so that any plan that is filed takes into account the outcome of the Financing Motion.
9. The Debtor is not seeking an extension of its exclusivity period to pressure creditors. The Debtor already has the support of major constituencies in this case. Indeed, only the Senior Secured Creditors, and disputed creditor Nevada Star, have objected to the Debtor’s Motion. Those objections can best be characterized as nuisance objections, given that, while such objectors argue that the Debtor’s exclusivity period should not be extended,
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they offer no solution or proposal, other than to argue that the Debtor’s assets should be liquidated.1 Such an outcome would only serve their interests, to the detriment of the remainder of the estate. The fact of the matter is that it is very difficult to propose a plan at this time, without any idea regarding the financing that is at issue before the Court.
10. Two significant unresolved contingencies exist in this case: First, the Financing Motion is now pending and unresolved, and its outcome will dictate, in large part, the path of this case. Second, there currently exists unresolved litigation between the Debtor and Nevada Star, in the form of a pending lawsuit that Nevada Star brought against the Debtor in 2009 in the United States District Court for the District of Utah (the “Mine Ownership Case”). Nevada Star has filed a motion to modify the automatic stay to transfer the Mine Ownership Case to this Court. Nevada Star alleges that it owns certain of the Debtor’s properties and that the Debtor “cannot propose a plan that includes mining the Debtor’s properties.” (See Nevada Star Relief From Stay Motion, Docket No. 43.) The Debtor completely disputes Nevada Star’s contentions that the Debtor is not the owner of the real property at issue in the Mine Ownership Case. Nevertheless, Nevada Star also states that “resolving the Mine Ownership Case is a condition precedent to resolving this bankruptcy case.” (See id.) Given the nature of the Mine Ownership Case, and the fact that it has not yet been resolved, the Debtor submits that terminating plan exclusivity now does not make sense, and that, compelling the Debtor to file a plan now would be unfair to the Debtor’s efforts to propose a workable plan. Even if the Debtor were to propose a plan taking into account this contingency, the difference in the positions of the parties to the Mine Ownership Case is so vast that creditors of the Debtor’s estate would likely be unable to intelligently vote on any such plan that attempted to account for such diametrically opposed
1 Indeed, Nevada Star has previously taken the position that a reorganization in this case cannot proceed until its litigation with the Debtor is resolved, yet now, for the purpose of defeating the Debtor’s Motion, Nevada Star argues that the time to file a plan is now.
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scenarios (one where the Debtor owns properties to mine, and another where the Debtor does not own properties to mine). Accordingly, the Debtor should be afforded the “first-shot” at filing a plan without being forced to expend resources defending against a competing plan, and/or prematurely filing a plan now prior to determining the outcome of the Financing Motion prior to the further progression of the Mine Ownership Case.
11. Nevada Star argues that “a plan must be filed in the near future if there is to be any chance of reorganization in this case.” This is the same party that argued that “resolving the Mine Ownership Case is a condition precedent to resolving this bankruptcy case.” Nevertheless, Nevada Star, in an effort to thwart the Debtor’s Motion, in complete ignorance of its prior representations, now argues that the time to file a plan is now. This makes no sense.
[color=red]12. Typical of Nevada Star, the Nevada Star opposition provides no evidence whatsoever. No declarations have been filed in support of the opposition, and no witnesses are offered. Yet, Nevada Star purports to provide its opinion regarding: (1) how to mine, (2) where to mine, (3) what type of financing to obtain, and (4) the merits of the type of financing that the Debtor has obtained. This is the same party that misrepresented to the Debtor its ownership of various land which it purported to transfer to the Debtor, which the Debtor later found out was never Nevada Star’s to transfer. A complaint has been filed in this Court against Nevada Star concerning these misrepresentations.
13. The misrepresentations continue – Nevada Star argues that “Second Secured Creditors . . . are simply not going to consent to millions or tens of millions [of dollars] of priming liens.” This is not true – many of the “Second Secured Creditors” have already supported the Debtor’s request for emergency interim financing. They have filed declarations in support of the Debtor’s interim financing request (only one Second Secured Lender filed a joinder to the opposition to the Debtor’s Financing Motion). Additionally,
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Massey, the largest secured creditor in this case in terms of actual principal loan amount, supports the Debtor’s priming loan. In any event, Nevada Star is a disputed unsecured creditor at best, with no allowed claim in this case – it cannot speak to the will of any of the secured creditors (except that, it is clear that Nevada Star and the Senior Secured Creditors have agreed to join forces to obstruct the Debtor’s attempts to reorganize).[/color]
14. Nevada Star does not even have an allowed claim in this case, and even if Nevada Star did have a claim, it would be a general unsecured claim. According to Nevada Star and the Senior Secured Creditors, there is no equity in the Debtor’s assets, and the Senior Secured Creditors are undersecured, meaning that in a liquidation scenario, general unsecured creditors (such as Nevada Star assuming its claim is allowed, and any deficiency claim held by the Senior Secured Creditors) would receive nothing. Thus, Nevada Star’s and the Senior Secured Creditors’ motivations have nothing to do with what is in the best interests of the Debtor’s estate – indeed the exact opposite is true. Nevada Star and the Senior Secured Creditors are only motivated to take the Debtor’s properties.
15. Nevada Star and the Senior Secured Creditors argue that “creditors will continue as hostages in this case” but that argument fails to take into account the following: (a) Senior Secured Creditors can file a relief from stay motion at any time to attempt to obtain their collateral, but they have not done so; (b) Nevada Star has obtained relief from stay to prosecute its litigation with the Debtor, so it is also not prohibited from exercising its rights; (c) neither the Committee, Junior Secured Creditors, nor Massey has opposed the Debtor’s Motion, and in fact are supporting the Debtor’s efforts to obtain financing (while the Committee and the Debtor have issues left to resolve concerning the Financing Motion, the Debtor submits that it is negotiating with the Committee in good faith).
16. The Debtor seeks to develop a comprehensive, consensual exit strategy without the interference of a competing plan that would detract from the Debtor’s
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reorganization efforts, and without the need to file a premature plan prior to resolving the Financing Motion. The Motion should be granted.
Dated: September 2, 2010
LEVENE, NEALE, BENDER, YOO & BRILL L.L.P.
By: /s/ Martin J. Brill
Martin J. Brill
Proposed Reorganization Counsel for
Chapter 11 Debtor
