Delaware Business Bankruptcy Report : Delaware Business Bankruptcy Report : Morris James LLP Lawyers & Attorneys

In re Universal Building Products, Case No. 10-12453 (MFW), Mem. Op. (November 4, 2010)

Following a meeting to form an official committee of unsecured creditors in this case, the committee selected two law firms to act as committee co-counsel.  The proposed counsel filed retention applications and initial declarations pursuant to FRBP 2014.  The Debtor objected to the firms’ retention on the basis that counsel had improperly solicited creditors and proxy holders prior to the formation meeting, and failed to disclose such contacts in their respective disclosures.  The U.S. Trustee asserted similar objections.  Following discovery, briefing and an evidentiary hearing, Judge Mary F. Walrath concluded that the facts suggested that the firms had improperly solicited creditors for their votes at the formation meeting.  The Court also found the respective disclosures filed by the firms to be deficient, and held that such deficiencies were not cured by subsequent disclosures.

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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.

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In re World Health Alternatives, Inc., 344 B.R. 291 (Bankr. D. Del. 2006) (Judge Peter J. Walsh)

The Debtors, Committee, and Senior Lender moved for approval of a global settlement and the United States Trustee objected, arguing that the Committee was not authorized to borrow and/or compromise estate claims and causes of action at the expense of priority unsecured creditors in a Chapter 11 case. The Court approved the settlement. Funds set aside for the general unsecured creditors were part of the lender’s perfected security interest and not property of the estate, so the settlement did not violate the Code’s absolute priority rule.

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