SEC Objects To Cumulus Reorganization Plan


The Securities and Exchange Commission (SEC) is a statutory party to Cumulus Media‘s Chapter 11 reorganization proceedings, underway in a New York Federal Bankruptcy Court.

As such, it has voiced its objection to Cumulus’ Disclosure Statement for its Joint Plan of Reorganization, and to the confirmation of its reorganization plan.

Meanwhile, an “amended rejected contracts list” has been filed by Cumulus with the court.

In an 11-page court filing made Thursday evening (1/25), the SEC explained why it objects to the nondebtor third party releases contained in the plan on two grounds.

First, it said, nondebtor third party releases contravene Section 524(e) of the Bankruptcy Code, which provides that only the debts of the debtor are affected by the Chapter 11 discharge provisions.

“Such releases have special significance for public investors because they may enable nondebtors to benefit from a debtor’s bankruptcy by obtaining their own releases with respect to past misconduct, including violations of the federal securities laws or breaches of fiduciary duty under state law,” the SEC notes in its filing.

While such releases may be allowed in exceptional circumstances, those circumstances are not present here, the SEC believes.

Second, the SEC says, to the extent that the third party releases purport to release direct claims between non-debtor parties, the releases have no impact on the assets or administration of the debtors’ estates. As such, “the court therefore lacks subject matter jurisdiction to approve them.”

What’s the SEC’s suggested solution?

“The Disclosure Statement should not be approved unless it is amended to include legal and factual support for the nondebtor third party releases or to reflect the deletion or modification of the releases,” it says. “The releases should be deleted from the Plan, or,
alternatively, the Plan should be amended to state that the releases will not bind: (i)
shareholders who are deemed to reject the Plan; and (ii) unsecured creditors who abstain
from voting.”

Before filing for bankruptcy protection, the Debtors negotiated a restructuring
support agreement, dated Nov. 29, 2017, with approximately 71% of the Debtors’ secured term lenders and the consenting equity holders.

Aside from having a Disclosure Statement lacking the adequate information to support the Releases under Section 1125(b) of the U.S. Bankruptcy Code, the SEC also elaborated on how the Releases are not consensual.

The SEC explains, “Here, the Plan contains no mechanism for shareholders and creditors to affirmatively consent to the Releases. Instead, unless they affirmatively opt out through a cumbersome process. Shareholders, who are deemed to reject the Plan because they receive nothing under it, will still be bound by the Releases.

“Because shareholders will receive a notice of non-voting status instead of a ballot, it is quite likely that many of them may see the notice, discover they are expected to receive nothing under the Plan, and simply not investigate further. While unsecured creditors are expected to receive a distribution under the Plan, the Releases purport to bind even unsecured creditors who abstain from voting, including, very likely, creditors who failed to receive a ballot. Under these circumstances, creditors who abstained from voting and shareholders should not be found to have provided “consent” to the Releases.”

The SEC’s court filing came after The Nasdaq Stock Market on Thursday handed Cumulus Media a formal delisting notice. Although Cumulus has been trading on the Over The Counter (OTC) exchange since late November 2017, Nasdaq is officially removing from listing the common stock of Cumulus Media following the Opening Bell on Wall Street on Monday, Feb. 5.


On Friday (1/26), an “amended rejected contracts list” was filed by Cumulus with the court by its legal counsel in the Chapter 11 restructuring, Paul Weiss Rifkind Wharton & Garrison LLP.

Why? “Two agreements related to executory contracts that are on the original Rejected Contracts List were excluded from that original list,” the law firm notes.

The new list appears as follows:

As shown, at left, the rejected contracts include one for Dickey Broadcasting Co.

The Chicago White Sox Major League Baseball club, the National Football League’s Buffalo Bills, Seattle Seahawks broadcast rights holder Sports USA Media, and CNBC are among the 15 entities listed.





Additionally, Friday saw an order establishing deadlines for submitting proofs of claim and requests for payment under Bankruptcy Code Section 503(b)(9).

Pursuant to Bankruptcy Rule 3003(c)(2), any Claimant other than a Governmental
Unit who asserts a claim against a debtor that arose, or is deemed to have arisen, prior to
November 29, 2017 must file a Proof of Claim on or prior to March 7, 2018 at 5pm Pacific/8pm Eastern so that such Proof of Claim is actually received by Epiq (the Beaverton, Ore.-based electronic court filing system) on or before the General Bar Date.