Even though the proposed financial reorganization of Regent Communications will leave current shareholders with something, approximately 12.8 cents per share in cash, some shareholders think they should be getting more. And it appears they have now gained a little leverage.
The US Trustee for the Federal Bankruptcy Court in Delaware has objected to Regent’s request to waive a vote by the shareholders on the pre-packaged Chapter 11 reorganization plan.
“The Debtors argue that nothing in the Bankruptcy Code requires them to solicit the Equity Interests so long as those interest holders have the right to object to the Plan. The Debtors further assert that the Equity Interests are simply receiving a gift, to which it has no legal entitlement, and therefore the Equity Interests can be deemed to reject the Plan. Equity Interests, however, are receiving a distribution of property under the Plan, and therefore, pursuant to section 1126(g) of the Bankruptcy Code, the Equity Interests have a right to receive the Disclosure Statement and Plan and to ultimately vote on the Plan,” the Trustee said in a court filing.
Even if the shareholders were to vote against the reorganization plan, it would appear to make no difference, since the senior creditors have already agreed to it and the shareholders are an impaired class with limited rights under the Bankruptcy Code. Nevertheless, the Trustee says the fact that they are to receive a payout (unlike other recent broadcasting bankruptcies where the shareholders got nothing) means that the shareholders have to receive a full notice of the plan, rather than a summary, and vote on it.
“The Debtors labeling of the distribution as a ‘gift’ is irrelevant because the important point is that Equity Interests are receiving property under the Plan, which under section 1126(g) allows it the right to vote on the Plan,” the Trustee said.
In response, Regent argues that the Trustee is wrong on the law and that the vote he says is necessary “fails to balance the need for due process with the cost and time associated with soliciting out-of-the-money public equity holders and is inconsistent with long-established practice in this District.”
According to Regent’s legal arguments, the shareholders are not legally entitled to any recovery and are only receiving the $5.5 million payout as a gift negotiated with the senior lenders. It cites other bankruptcy cases where nominal payouts to equity holders were treated as gifts.
Regent argues that the solicitation of shareholders sought by the Trustee will delay the company’s exit from Chapter 11. The company says it has sufficient cash to go through a 40-45 day confirmation process and emerge from Chapter 11 within 60 days, “but that the Debtors do not have sufficient cash to have a 90-day or 105-day chapter 11 case and make all the payments necessary upon confirmation of the proposed Plan, including payment in full of unsecured claims and payment of $5.5 million to holders of equity.”
Now it’s up to the judge to decide.
RBR-TVBR observation: An interesting game of chess. Will this potential delay result in a bigger payout for shareholders, or deplete the pot of money available and leave them with nothing?