No Official Equity Committee Was Required Where It Was Unlikely Equity Would Receive Any Distribution And Where Equity Holders' Interests Were Already Sufficiently Represented
US Concrete, Inc., Case No. 10-11407 (PJW) (June 21, 2010) (J. Walsh)
In this case, the Court denied the Ad Hoc Equity Committee’s (“AHEC”) motion to appoint an official committee of equity holders because the Court was not convinced equity holders would receive any recovery and because the Court felt the equity holders did not require any additional representation. In determining whether to appoint an official committee of equity holders, a court considers two factors: (a) whether there is a substantial likelihood that equity holders will receive a meaningful distribution under a strict application of the absolute priority rule, and (b) whether equity holders were able to represent their interests without an official committee. The Court held in favor of the objectors on both counts.
First, the Court reasoned that both the Debtors’ valuation and AHEC’s initial valuation left equity out of the money, with the Debtors being valued at as high as $175 million by the Debtors’ expert and as high as $325 million by the AHEC’s expert with $325 million in debt. The Court briefly acknowledged that AHEC’s expert had prepared a subsequent report which indicated that the equity holders would receive at least some recovery, but dismissed this subsequent report as a “significant departure from [AHEC’s] November presentation” and insufficient to allow the Court to conclude, on the record before it, that equity holders stood to receive a meaningful distribution.
Second, the Court determined that no official committee was necessary because the Debtors’ officers and directors, who owed a fiduciary duty to the equity holders of the Debtors, held a larger share of the Debtors’ equity than any of the members of the AHEC and because the AHEC had already committed to contesting the Debtors’ plan and valuation. Accordingly, the Court was satisfied that no additional representation was required for the equity holders and denied the motion to appoint an official committee on their behalf.
