Bankruptcy & Restructuring Department Vice Chair David M. Posner and partner Gianfranco Finizio explore a notable opinion issued by Judge Kenney in the Enviva Chapter 11 case, addressing the rare occurrence of reconstituting creditors' committees. Enviva's substantial capital structure included approximately $1 billion in unsecured funded debt represented by two Indenture Trustees who were excluded from the initial three-member committee appointed by the U.S. Trustee. One Indenture Trustee filed a motion to reconstitute the committee, arguing inadequate representation of general unsecured creditors, and the court granted the motion and directed the U.S. Trustee to appoint one or both indenture trustees to the committee, but let U.S. Trustee decide which creditors to appoint. The decision underscores the court's willingness to intervene in committee composition to ensure fair representation.
Speakers:
David M. Posner, Partner,
Vice Chair, Bankruptcy & Restructuring Department
Gianfranco Finizio, Partner,
Bankruptcy & Restructuring Department
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TRANSCRIPT
David M. Posner: Welcome to the Lowenstein Bankruptcy Lowdown. In this episode, we'll talk about a memorandum opinion issued by Judge Kenney from the Enviva Chapter 11 case. The decision is noteworthy because it deals with the appointment of creditors' committees, and what happens when a creditor requests that the bankruptcy court reconstitute the Committee. Reconstituting creditors' committees is fairly unusual, so let's discuss it.
Gianfranco Finizio: The Debtor's capital
structure in Enviva is substantial and included approximately $1
billion of unsecured funded debt that was represented by two
Indenture Trustees. Prior to the petition date, the Debtors entered
into a restructuring support agreement with holders of most of that
funded debt.
The Indenture Trustees did not sign the RSA, however. As a result,
given the size of their claims, the Indenture Trustees sought to
serve on the creditors committee. The United States Trustee ended
up appointing a three-member committee, however neither Indenture
Trustee was appointed to the Committee, so that substantial funded
debt did not have a voice on the official committee.
As a result, one of the Indenture Trustees filed a motion for an
order directing the U.S. Trustee to reconstitute the committee and
appoint one of the Indenture Trustees to the Committee.
David M. Posner: The Indenture Trustee argued that
the committee did not adequately represent the Debtor's general
unsecured creditor body. The U.S. Trustee objected, arguing that
the Committee adequately represented the unsecured creditors, and
the code does not require proportionate representation of distinct
creditor groups.
The movant countered that the Committee should include at least one
member that can directly offer perspectives unique to the note
holders, since the unsecured claims pool was dominated by funded
debt.
Gianfranco Finizio: The court ultimately granted
in part, and denied in part, the motion and ordered that the U.S.
Trustee add at least one Indenture Trustee to the Committee, and if
the U.S. Trustee decided to appoint only one Indenture Trustee, the
U.S. Trustee may decide which Indenture Trustee to appoint.
The court also observed that the fact that a majority of the
holders of the bond that signed the RSA was not a reason to exclude
either of the Indenture Trustees, neither of whom signed the
RSA.
Ultimately, the U.S. Trustee reconstituted the Committee to add an
Indenture Trustee, though it was not the Indenture Trustee that
filed the motion. Regardless, it was still a victory for the
holders of unsecured funded debt who now had a voice on the
Committee in the form of that Indentured Trustee.
While this process will still be an uphill battle, the court's
opinion in Enviva demonstrates that in the appropriate
situation a court can and will interject itself into the committee
composition process.
We look forward to seeing you on the next Lowenstein Lowdown.
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