The United States Trustee for Region 2, William Harrington, has filed an objection to Cumulus’ Disclosure Statement For Joint Plan of Reorganization. The trustee listed five reasons why the objection is being filed and has asked the court to deny the Reorganization Disclosure statement.
The trustee points out in the filing that the purpose of a disclosure statement is to give creditors enough information to make an informed choice as to whether to approve or reject the debtor’s plan. “The disclosure statement must inform the average creditor as to what it is going to get and when, and what contingencies there are that might intervene.” Harrington says the plan that’s been filed does not provide that information.
Here are the five specific reasons Harrington has filed the objection to Cumulus’ reorganization plan:
First, the Disclosure Statement should contain additional information explaining why the Plan treats two different classes as unimpaired despite the fact that under the Plan the legal rights of each such class’ members will be altered. Simply put, although the Debtors list Classes 1 and 2 as unimpaired, both classes are deemed to provide non-consensual third-party releases to non-debtors. As this Judge Wiles discussed (in a previous case called Chassix), creditors whose rights do not simply pass through the bankruptcy process are not truly unimpaired, yet the Plan aims to do exactly this.
Second, additional information should be provided in the Disclosure Statement to explain why creditors that vote to reject, are deemed to reject, or abstain from voting on the Plan are all deemed to consent to third-party releases unless they separately opt out.
Third, the Disclosure Statement should provide adequate information of the existence of the rare and exceptional circumstances that the Second Circuit has held would justify imposing a third-party release on an impaired non-consenting creditor. The Disclosure Statement provides no information that there is anything unusual about this case that would justify such extraordinary relief. Not only are the proposed releases extremely overbroad, there is no information establishing that the released parties provided consideration for the releases. As such, the releases do not appear to comport with Second Circuit law or the Bankruptcy Code, and the Debtors should provide information to explain why they believe otherwise.
Fourth, the Disclosure Statement should explain why non-estate fiduciaries are being exculpated from causes of action related to the Debtors in and out-of-court restructuring activities.
Finally, it is unclear if the Disclosure Statement and Plan comply with Rule 1.8(h) of the New York Rules of Professional Conduct, which prevents lawyers from limiting their liability. The Disclosure Statement and Plan should be amended to clearly comply with New York Rules of Professional Conduct.
Cumulus is hoping to come out of bankruptcy around May of 2018 with about $1 Billion less in debt. It filed for Chapter 11 with over $2 Billion in debt. If this bankruptcy plan is approved by the court, Term Loan Lenders will receive 83.5% equity in the company. Unsecured creditors will received 16.5% equity.
