HearUSA Inc. (HEARQ)

[BKfinancier]

HearUSA Equity Committee Responds to Debtor's Second Motion to Extend Exclusivity

On November 9, 2011, the Official Equity Committee of HUSA Liquidating Corporation, Inc. (f/k/a HearUSA, Inc.), filed a response [D.E. 540] to the Debtor’s second motion to extend exclusivity. In its response, the EC expressed disappointment with the fact that the Debtor did not file a liquidating plan during the first extension of exclusivity and that it looks likely that distributions will not be made until 2012. While the EC did not object to the Motion to extend exclusivity until December 1, 2011 it did reserve the right to oppose any additional extensions and also reserved the right to propose its own liquidating plan.

In order to expedite the Plan and Distribution process, the Parties may want to consider filing a “No Vote” liquidating plan whereby all Classes are either deemed to accept or reject the Plan. In the instant case, it is expected that all allowed claims are to be paid, in full, with interest, and it is also expected that shareholders will also receive a meaningful distribution from the liquidating estate. As such all creditor classes should be deemed to accept the plan and therefore would not be entitled to vote. With respect to the equity constituency, equity interests are either unimpaired, or therefore deemed to accept the Plan under §1126(f), or they are impaired and should be deemed to reject the Plan under §1126(g). Accordingly, holders of equity interests would not be entitled to vote to accept or reject the Plan. In the Middlebrook Pharmaceuticals bankruptcy (Case No. 10-11485 (MFW) this particular plan construct was successfully implemented and the liquidating plan was confirmed on December 30, 2010 and became effective on January 3, 2011.

Some may argue that it is unfair for equity holders to not have a vote on the Plan (and in certain reorganizations, I agree) but in a liquidation scenario it would beg the question “what exactly would equity be voting for or against?” In a straight liquidation with no continuing operations, voting for or against will not change the ultimate distribution. One might only vote “no” and elect to receive no distribution while giving no releases.

It is understandable that the Debtor would proceed with caution and with the utmost diligence but in proposing a “No Vote” Plan the Debtor could invoke the concept of “Business Judgment” as a reason to expedite the process. The Debtor has already cited to this concept earlier in the case. Often in bankruptcy, the Debtors “Business Judgment” is used as a sword and shield against the junior creditor and equity constituencies. In this instance it could actually be used for the benefit of equity in expediting the distribution process if the Debtor can ultimately satisfy the statutory predicates for an expedited Plan process.

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