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II. THE LAST MINUTE MODIFICATIONS TO THE PLAN RELEASE PROVISIONS ARE, AT BEST, AMBIGUOUS AND REMAIN UNREASONABLY BROAD, ARE NOT SUPPORTED BY ADEQUATE CONSIDERATION AND ARE IMPROPER UNDER THIRD CIRCUIT LAW.
A. The First Plan Modification to the Debtors Release Section 43.S.
The Debtors filed their First Modification to the Plan on October 29, 2010 [Dkt No. 5714] (the "First Modification") - after the October 22, 2010 deadline for service of the Solicitation Packages (see Disclosure Statement Order at 12) - which limits the scope of the release of claims owned by the Debtors in Section 43.5 of the Plan (the "Debtors' Release") (which includes derivative claims) by excluding any claims based upon gross negligence or willful misconduct. The First Modification further modified the Debtors' Release to exclude from the definition of "Related Persons" the Debtors' "retained financial advisors, attorneys, accountants, investment bankers, consultants, agents and professionals with respect to Claims and Causes of Action relating to the period prior to the Petition Date." All of these Claims and Causes of Action are now proposed to be assigned to the Liquidating Trust on the effective date of the Plan. This is mere window dressing. Whether or not to pursue these Claims and Causes of Action will be within the discretion of the Liquidating Trustee, who is subject to the control and oversight of the Trust Advisory Board. (Proposed Liquidating Trust Agreement at 19). The Liquidating Trust Advisory Board is to be comprised of three members chosen jointly by the Debtors, the Creditors' Committee and the Settlement Note Holders. Neither the holders of common nor preferred Equity Interests will have any representation on the Advisory Board. Each of the members currently proposed as a member of the Advisory Board is also party to the GSA and each represents a constituency that will either receive a full (or near full) recovery under the Plan or does not otherwise have a material interest in seeing any of the assigned Claims or Causes of Action prosecuted. And certainly the professionals representing these stake holders have no interest in pursuing such Claims and Causes of Action. The likelihood that these Claims and Causes of Action will ever be brought is remote, at best. Thus the Debtors' initial efforts to release significant claims against its own Officers and Directors (and other culpable parties) have been modified only superficially, by placing those claims in the control of parties who have no incentive to pursue them. At a bare minimum, this problem with the Plan should be rectified by appointing representatives of equity to the Advisory Board and giving the parties with a financial stake in the outcome the power to control the potential litigation claims.3
AI
