The United States Bankruptcy Court for the Southern District of Mississippi entered an Order last evening approving the amended sale motion of debtor Mississippi Phosphates Corporation (In re Mississippi Phosphates Corporation, et al., Case No. 14-51667-KMS, (the “Debtors”)), as well as separate settlements made between the Debtors and the Unsecured Creditors’ Committee (the “Committee”) and between the Debtors and the U.S. and Mississippi environmental protection agencies (EPA and MDEQ, the “Government”). The Chemours Company, LLC, successor-in-interest to E.I du Pont de Nemours and Company (“Chemours”), which holds a roughly $700k administrative claim for goods delivered within 90 days prior to the bankruptcy (i.e., under 503(b)(9)), filed an objection to the sale motion, primarily challenging it as a “back-door” plan of reorganization that violates the absolute priority rule of Section 1129 of the bankruptcy code.
Chemours cited a well-known ruling in Pension Benefit Guar. Corp. v. Braniff Airways, Inc (In re Braniff) as the authority supporting its assertion that the Debtors, as well as the Committee and the Government, should not be allowed to push forward their proposed sale transaction as structured because it would have ” ‘the practical effect of dictating some of the terms of any future reorganization plan’ and thus would allow the debtor to ‘short circuit the requirements of chapter 11 for confirmation of a reorganization plan.’ ” (Dkt. No. 880 at 10-11)(citing Braniff) 700 F. 2d 935, 940 (5th Cir. 1983).
The secured lenders, as well as the Debtors, pointed out in responses that Chemours’ real complaint is the fact that the sale motion does not provide for administrative claims to be paid immediately upon the close of the proposed sale of the debtor’s assets–not that the Chemours claim, or any other claim, is being set aside in violation of the bankruptcy code. Chemours, like other administrative claimants (and other claimants of even lower priority), must wait. After all, the Debtors’ single largest asset is its $53 mm unliquidated claim against BP related to the 2010 Deepwater Horizon incident, and such an unresolved issue makes the setting forth of a plan of reorganization impractical at the moment. Furthermore, nothing prohibits debtors form conducting a sale of its assets prior to the proposal or approval of a plan of reorganization. The Court agreed and pointed out that neither Braniff nor any other authority relied upon by Chemours changes that fact–otherwise, all kinds of bankrutpcy section 363 sales would become subject to objection on the basis of them being “mini-hearings” on plan confirmation.
Thus, the Court ruled that “…neither the Sale Motion nor the related settlements require a release of all claims by individual creditors against the Debtors and Lenders, dictate how creditors should vote or dictate the terms of a plan of reorganization. Under a strict interpretation of Braniff, the settlements and Sale Motion do not constitute a sub rosa plan.”
Other bases of objection, including an erroneous assertion that notice of the sale to all creditors was not properly made, were also overruled by the Court. The bidding and sale process will now move forward as proposed in the amended sale motion.
Read the full order here at bmcgroup.com.
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