The Eighth Circuit recently affirmed the appeal by the “Ad Hoc Committee of Non-Consenting Creditors” of the 2017 confirmation of the Chapter 11 Plan of Peabody Energy, In re Peabody Energy Corp., No. 18-1302 (August 9, 2019 ). I would say that when the Court points out, not once but several times, that all 20 classes of creditors voted in favor of the Plan, and over 95% of the unsecured creditors agreed to participate in the new stock issuance and related “backstop agreements” within the Plan, then anyone who is a “non-consenter” should know that they are going to lose that battle.
One interesting footnote is the mention of the right to seek to intervene in the large mediation that took place over an extended time period. The mediation started out being about the “validity, priority and perfection” of certain liens, which would only require the parties to the required adversary proceeding to participate, not necessarily other major parties in the chapter 11 case. It is fairly common that the “powers” in a case (senior lenders, debtors, and committee) will get in a room together, excluding who they see fit, and cut a deal. If you are not at that table, then whatever objections you may have to it later in court, the deal is done and there is great pressure and great likelihood it will be approved.
In Peabody Energy, the mediation morphed beyond its initial scope into mediation of the formulation and contents of the chapter 11 plan. The Debtors filed their Disclosure Statement, proposed Plan, and a motion to approve a number of required supporting documents: rights offering memorandum, private placement memorandum, backstop agreement, and plan-support agreement. These documents were approved prior to the Plan voting. The Plan was ultimately confirmed with large support and over the ongoing objections of the Ad-Hoc Committee parties.
The Eighth Circuit opinion is based on its appellate-standard conclusions that the Plan did not violate 11 U.S.C. §§ 1129(a)(3) (good faith in the plan), or 1129(a)(4) (disparate treatment among similarly situated creditors). While the Circuit Judges noted that “we are somewhat sympathetic” to the argument that the “Debtors coercively solicited votes in favor of the plan,” and that “it is troubling that creditors wishing to take part in the Private Placement had to elect to do so before approval of all the agreements and the disclosure statement,” this concern did not rise to the level of reversal. As the Court noted, 1129(a)(4) permits permissive intervention “for cause shown” to “any interested entity,” both “with respect to any specified matter” as well as “generally.” The Ad-Hoc parties could have filed a motion to intervene in the mediation. Getting yourself into the room is your first step to getting some say-so in the outcomes. Not being in the room is often fatal.
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