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Full title: Second Amended Disclosure Statement filed by David W. Parham for Debtor First River Energy, LLC. (Attachments: # 1 Exhibit Plan of Liquidation)(Parham, David) (related document(s): 319 Disclosure Statement filed by David W. Parham for Debtor First River Energy, LLC. (Attachments: # 1 Exhibit # 2 Exhibit), 320 Chapter 11 Plan filed by David W. Parham for Debtor First River Energy, LLC.)
Document posted on Jun 29, 2021 in the bankruptcy, 52 pages and 0 tables.
Bankrupt11 Summary (Automatically Generated)
VOTING INSTRUCTIONS A. Holders of Claims Entitled to Vote Pursuant to the provisions of the Bankruptcy Code, only holders of allowed claims or equity interests in classes of claims or equity interests that are impaired are entitled to vote to accept or reject a proposed chapter 11 plan.Because an entity may hold multiple claims and/or equity interests which give rise to different legal rights, the holders of such claims and/or equity interests may find themselves as members of multiple classes of claims and/or equity interests.If the Holder of an Allowed Claim fails to negotiate a check issued to such Holder within ninety (90) days of the date such check was issued, then the Plan Administrator shall provide written notice to such Holder stating that unless such Holder negotiates such check within ninety (90) days of the date of such notice, the amount of Cash attributable to such check shall be deemed to be unclaimed, such Holder shall be deemed to have no further Claim in respect of such check, such Holder’s Allowed Claim shall no longer be deemed to be Allowed, and such Holder shall not be entitled to participate in any further distributions under the Plan in respect of such Claim.If a Cash distribution made pursuant to the Plan to any Holder of an Allowed Claim is returned to the Plan Administrator due to an incorrect or incomplete address for the Holder of such Allowed Claim, and no claim is made in writing to the Plan Administrator as to such distribution within ninety (90) days of the date such distribution was made, then the amount of Cash attributable to such distribution shall be deemed to be unclaimed, such Holder shall be deemed to have no further Claim in respect of such distribution, such Holder’s Allowed Claim shall no longer be deemed to be Allowed, and such Holder shall not be entitled to participate in any further distributions under the Plan in respect of such Claim. With respect to the Impaired Classes of Unsecured Claims, Bankruptcy Code Section 1129(b)(2)(B) provides that a Plan is “fair and equitable” if it provides that (i) each holder of a claim of such a class receives or retains on account of such claim, property of a value as of the effective date of the Plan equal to the allowed amount of such claim; or (ii) the Holder of any claim or interest that is junior to the claims of such class will not receive or retain any property under the Plan on account of such junior claim or interest.
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Document ContentsIN THE UNITED STATES BANKRUPTCY COURT FOR THE WESTERN DISTRICT OF TEXAS SAN ANTONIO DIVISION In re: § § Chapter 11 FIRST RIVER ENERGY, LLC,1 § § Bankruptcy Case No. 18-50085 Debtor. § § SECOND AMENDED DISCLOSURE STATEMENT FOR THE DEBTOR’S PLAN OF LIQUIDATION UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE David W. Parham, SBN: 15459500 Esther McKean, SBN: 24122145 AKERMAN LLP 2001 Ross Avenue, Suite 3600 Dallas, Texas 75201 Telephone: (214) 720-4300 Facsimile: (214) 981-9339 firstname.lastname@example.org email@example.com Attorneys for the Debtor and Debtor in Possession Dated: June 30, 2021 1 The Debtor in this Chapter 11 Case, along with the last four digits of the Debtor’s federal tax identification number, is: First River Energy, LLC (9656). The mailing address for the Debtor, solely for purposes of notices and communications, is P.O. Box 1718, Livingston, TX 77351.
1DISCLAIMER THIS DISCLOSURE STATEMENT MAY NOT BE RELIED ON FOR ANY PURPOSE OTHER THAN TO DETERMINE HOW TO VOTE ON FIRST RIVER ENERGY, LLC’S PLAN OF LIQUIDATION UNDER CHAPTER 11 OF THE UNITED STATES BANKRUPTCY CODE DATED AS OF JUNE 30, 2021, AS AMENDED FROM TIME TO TIME (THE “PLAN”). NOTHING CONTAINED HEREIN SHALL CONSTITUTE AN ADMISSION OF ANY FACT OR LIABILITY BY ANY PARTY, OR BE ADMISSIBLE IN ANY PROCEEDING INVOLVING THE DEBTOR, THE LIQUIDATING DEBTOR, THE PLAN ADMINISTRATOR OR ANY OTHER PARTY, OR BE DEEMED CONCLUSIVE ADVICE ON THE TAX OR SECURITIES LAWS OR OTHER LEGAL EFFECTS OF THE PLAN ON HOLDERS OF CLAIMS AGAINST OR EQUITY INTERESTS IN THE DEBTOR. ALL CREDITORS THAT ARE ENTITLED TO VOTE ON THE PLAN ARE ENCOURAGED TO READ AND CAREFULLY CONSIDER THE ENTIRE DISCLOSURE STATEMENT FURNISHED TO THEM AND THE MATTERS DESCRIBED IN THIS DISCLOSURE STATEMENT PRIOR TO SUBMITTING A BALLOT PURSUANT TO THIS SOLICITATION. THE DESCRIPTION OF THE PLAN CONTAINED IN THIS DISCLOSURE STATEMENT IS INTENDED AS A SUMMARY ONLY AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE PLAN ITSELF. EACH CREDITOR SHOULD READ, CONSIDER, AND CAREFULLY ANALYZE THE TERMS AND PROVISIONS OF THE PLAN. THE DEBTOR BELIEVES THAT THE PLAN IS IN THE BEST INTERESTS OF CREDITORS. ALL CREDITORS ARE URGED TO VOTE IN FAVOR OF THE PLAN. VOTING INSTRUCTIONS ARE CONTAINED IN THE SECTION OF THIS DISCLOSURE STATEMENT TITLED “VOTING INSTRUCTIONS.” TO BE COUNTED, YOUR BALLOT MUST BE DULY COMPLETED, EXECUTED, AND RECEIVED BY DONLIN RECANO & COMPANY, INC. BY NO LATER THAN AUGUST ___, 2021. THE PLAN PROPOSES EXCULPATION FROM LIABILITY AS TO THE DEBTOR AND VARIOUS OTHER PARTIES FOR CERTAIN ACTIONS IN CONNECTION WITH THE CHAPTER 11 CASE. ALL CREDITORS, HOLDERS OF EQUITY INTERESTS, AND OTHER PARTIES IN INTEREST ARE URGED TO READ CAREFULLY ARTICLE 12 OF THE PLAN ON EXCULPATION FROM LIABILITY. THIS DISCLOSURE STATEMENT HAS NOT BEEN APPROVED BY THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THE STATEMENTS CONTAINED HEREIN. NO PERSON IS AUTHORIZED BY THE DEBTOR IN CONNECTION WITH THE PLAN OR THE SOLICITATION OF ACCEPTANCES OF THE PLAN TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN AS CONTAINED IN THIS DISCLOSURE STATEMENT AND THE EXHIBITS ATTACHED HERETO OR INCORPORATED BY REFERENCE OR REFERRED TO HEREIN, AND IF GIVEN OR
2MADE, SUCH INFORMATION OR REPRESENTATION MAY NOT BE RELIED UPON AS HAVING BEEN AUTHORIZED BY THE DEBTOR. SUCH ADDITIONAL REPRESENTATIONS SHOULD BE REPORTED TO COUNSEL FOR THE DEBTOR WHO, IN TURN, SHALL DELIVER SUCH INFORMATION TO THE BANKRUPTCY COURT FOR ACTION AS MAY BE DEEMED APPROPRIATE. THE DELIVERY OF THIS DISCLOSURE STATEMENT WILL NOT UNDER ANY CIRCUMSTANCES IMPLY THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE DATE HEREOF. THIS DISCLOSURE STATEMENT IS DATED AS OF JUNE 30, 2021, AND CREDITORS ARE ENCOURAGED TO REVIEW THE BANKRUPTCY DOCKET FOR THE CHAPTER 11 CASE IN ORDER TO APPRISE THEMSELVES OF EVENTS WHICH OCCUR BETWEEN THE DATE OF THIS DISCLOSURE STATEMENT AND THE DATE OF THE CONFIRMATION HEARING. IN THE EVENT THAT ANY IMPAIRED CLASS OF CLAIMS VOTES TO REJECT THE PLAN, (1) THE DEBTOR MAY ALSO SEEK TO SATISFY THE REQUIREMENTS FOR CONFIRMATION OF THE PLAN WITH RESPECT TO THAT CLASS UNDER THE BANKRUPTCY CODE’S “CRAMDOWN” PROVISIONS AND, IF REQUIRED, MAY AMEND THE PLAN TO CONFORM TO SUCH REQUIREMENTS OR (2) THE PLAN MAY BE OTHERWISE MODIFIED OR WITHDRAWN. THE REQUIREMENTS FOR CONFIRMATION, INCLUDING THE VOTE OF IMPAIRED CLASSES OF CLAIMS TO ACCEPT THE PLAN, AND CERTAIN OF THE STATUTORY FINDINGS THAT MUST BE MADE BY THE BANKRUPTCY COURT, ARE SET FORTH IN THE SECTION OF THIS DISCLOSURE STATEMENT TITLED “VOTING ON AND CONFIRMATION OF THE PLAN.”
3TABLE OF CONTENTS DISCLAIMER ................................................................................................................................. iDISCLOSURE STATEMENT PURSUANT TO SECTION 1125 OF THE BANKRUPTCY CODE ........................................................................................................................................ 1ARTICLE I PURPOSE OF THIS DISCLOSURE STATEMENT ................................................ 2ARTICLE II VOTING INSTRUCTIONS ...................................................................................... 2A. Holders of Claims Entitled to Vote .................................................................................. 2B. Voting Procedures ............................................................................................................ 3C. Confirmation Hearing and Objections to Confirmation ................................................... 4ARTICLE III HISTORY OF THE DEBTOR PRIOR TO THE CHAPTER 11 FILING; CURRENT STATUS OF LIQUIDATION OF THE DEBTOR............................................... 4A. The Debtor’s Businesses .................................................................................................. 5B. The Debtor’s Corporate Structure .................................................................................... 5C. Historical Debt Structure .................................................................................................. 5D. Debt Structure .................................................................................................................. 7E. Assets ............................................................................................................................... 8ARTICLE IV EVENTS LEADING TO THE BANKRUPTCY FILING ...................................... 8A. The Sustained Drop in Oil Prices ..................................................................................... 8B. The Revenue Losses ......................................................................................................... 8C. Pipeline Agreement .......................................................................................................... 9D. Defaults Under Credit Agreement.................................................................................. 10ARTICLE V SIGNIFICANT EVENTS IN THE CHAPTER 11 LIQUIDATION CASE .......... 11A. Bankruptcy Filing ........................................................................................................... 11B. Applications to Employ Professionals ........................................................................... 13C. Chapter 11 Administration ............................................................................................. 13D. Adversary Proceedings ................................................................................................... 15E. Avoidance Actions ......................................................................................................... 17ARTICLE VI SUMMARY OF THE PLAN ................................................................................ 17A. Purpose and Effect of the Plan ....................................................................................... 18B. Proposed Comprehensive Compromise and Settlement Under the Plan ....................... 18C. Introduction .................................................................................................................... 25D. Overview ........................................................................................................................ 26E. Classification of Claims and Equity Interests ................................................................ 27
4F. Summary of Plan Distributions ...................................................................................... 27G. Treatment of Executory Contracts and Unexpired Leases ............................................. 32H. Disallowed Claims ......................................................................................................... 32I. Insurance ........................................................................................................................ 33ARTICLE VII MEANS OF IMPLEMENTATION OF THE PLAN ........................................... 33ARTICLE VIII CERTAIN FEDERAL INCOME TAX CONSEQUENCES .............................. 41ARTICLE IX VOTING ON AND CONFIRMATION OF THE PLAN ...................................... 41Confirmation and Acceptance by All Impaired Classes ......................................................... 41Confirmation Without Acceptance by All Impaired Classes .................................................. 42ARTICLE X ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN ...................................................................................................................................... 43Alternative Amended Plans of Liquidation ............................................................................ 43Liquidation under Chapter 7 or Chapter 11 ............................................................................ 43ARTICLE XI SUMMARY, RECOMMENDATION AND CONCLUSION .............................. 44
5DISCLOSURE STATEMENT PURSUANT TO SECTION 1125 OF THE BANKRUPTCY CODE INTRODUCTION First River Energy, LLC (a “Debtor”) filed with the United States Bankruptcy Court for the Western District of Texas, San Antonio Division (the “Bankruptcy Court” or “Court”), a Plan of Liquidation under Chapter 11 of the United States Bankruptcy Code dated as of June 30, 2021 (as amended from time to time, the “Plan”). The Debtor’s Disclosure Statement dated as of June 30, 2021 (the “Disclosure Statement”), is submitted pursuant to Section 1125 of the Bankruptcy Code, 11 U.S.C. Section 101, et. seq. (the “Bankruptcy Code”), in connection with the solicitation of votes on the Plan from Holders of Impaired Claims against the Debtor, and the hearing on Confirmation of the Plan to be scheduled by the Court. This Disclosure Statement has been approved by the Bankruptcy Court in accordance with Section 1125(b) of the Bankruptcy Code as containing information of a kind and in sufficient detail adequate to enable a hypothetical reasonable investor typical of Holders of Claims in the relevant Voting Classes (as defined below) to make an informed judgment whether to accept or reject the Plan. The approval of this Disclosure Statement by the Bankruptcy Court and the transmittal of this Disclosure Statement does not, however, constitute a determination by the Bankruptcy Court as to the fairness or merits of the Plan and should not be interpreted as being a recommendation by the Bankruptcy Court either to accept or reject the Plan. IN THE OPINION OF THE DEBTOR, AS DESCRIBED BELOW, THE TREATMENT OF CLAIMS UNDER THE PLAN CONTEMPLATES A GREATER RECOVERY THAN THAT WHICH IS LIKELY TO BE ACHIEVED UNDER OTHER ALTERNATIVES FOR THE LIQUIDATION OF THE DEBTOR. ACCORDINGLY, THE DEBTOR BELIEVES THAT CONFIRMATION OF THE PLAN IS IN THE BEST INTERESTS OF CREDITORS AND RECOMMEND THAT YOU VOTE TO ACCEPT THE PLAN. Accompanying or included as exhibits to this Disclosure Statement are copies of the following: 1. The Bankruptcy Court’s Order Authorizing Donlin, Recano & Company, Inc. to Act as Balloting Agent, Approving Disclosure Statement, Approving Solicitation Packages and Distribution Procedures, Approving Ballot Forms and Plan Voting Procedures, Fixing the Deadline to Accept or Reject the Plan, and Approving Procedures for Vote Tabulations (the “Disclosure Statement Approval Order”); 2. In the case of Impaired Classes of Claims (collectively, the “Voting Classes”), a Ballot for acceptance or rejection of the Plan; and 3. Liquidation Analysis.
6ARTICLE I PURPOSE OF THIS DISCLOSURE STATEMENT The purpose of this Disclosure Statement is to provide the Holders of Claims with adequate information to make an informed judgment about the Plan. This information includes, among other things, (a) the procedures for voting on the Plan, (b) a summary of the Plan and an explanation of how the Plan will function, including the means of implementing and funding the Plan, (c) general information about the history and business of the Debtor prior to the Petition Date, (d) the events leading to the filing of the Chapter 11 Case, and (e) a summary of significant events which have occurred to date in this Chapter 11 Case. This Disclosure Statement contains important information about the Plan and considerations pertinent to a vote for or against the Confirmation of the Plan. All Holders of Claims are encouraged to review carefully this Disclosure Statement. Unless otherwise defined herein, all capitalized terms used in this Disclosure Statement have the meanings ascribed to them in the Plan. Any term used in the Plan or herein that is not defined in the Plan or herein and that is used in the Bankruptcy Code, the Bankruptcy Rules, or the Local Rules of the Bankruptcy Court has the meaning assigned to that term in the Bankruptcy Code, the Bankruptcy Rules, or the Local Rules, as the case may be. If there is any conflict between the definitions contained in this Disclosure Statement and the definitions contained in the Plan, the definitions contained in the Plan shall control. ARTICLE II VOTING INSTRUCTIONS A. Holders of Claims Entitled to Vote Pursuant to the provisions of the Bankruptcy Code, only holders of allowed claims or equity interests in classes of claims or equity interests that are impaired are entitled to vote to accept or reject a proposed chapter 11 plan. Classes of claims or equity interests in which the holders of claims or equity interests are unimpaired under a chapter 11 plan are deemed to have accepted the plan and are not entitled to vote to accept or reject the plan. Classes of claims or equity interests in which the holders of claims or equity interests are impaired but are not entitled to receive or retain any property on account of such claims or equity interests are deemed to have rejected the plan and similarly are not entitled to vote to accept or reject the plan. Classes 3 (503(b)(9) Claims), 4 (Oil General Unsecured Claims) and 5 (Non-Oil General Unsecured Claims), under the Plan are Impaired. To the extent Claims in Classes 3, 4, and 5 are not the subject of an objection, the holders of such Claims are entitled to vote to accept or reject the Plan. Class 1 (Priority Claims), Class 2 (Oklahoma Owner Secured Claims) and Class 7 (“Lenders”) under the Plan are unimpaired. Pursuant to section 1126(f) of the Bankruptcy Code, holders of Claims in Classes 1, 2 and 7 are conclusively deemed to have accepted the Plan and therefore may not vote to accept or reject the Plan. ACCORDINGLY, A BALLOT TO ACCEPT OR REJECT THE PLAN IS BEING PROVIDED ONLY TO HOLDERS OF CLAIMS IN
7CLASSES 3, 4, and 5. Classes 6 (Non-Voting de Minimis Claims)and 8 (Equity Interests) and are presumed to reject the Plan and are not entitled to vote. The Bankruptcy Code defines “acceptance” of a plan by a class of claims as acceptance by creditors in that class that hold at least two-thirds in dollar amount and represent more than one-half in number of the claims that cast ballots for acceptance or rejection of the plan. For a more detailed description of the requirements for confirmation of the Plan, see Article IX below. The Debtor intends to request confirmation of the Plan pursuant to section 1129(b) of the Bankruptcy Code in the event any Class rejects the Plan. Section 1129(b) permits the Court to confirm a plan of reorganization or liquidation notwithstanding the nonacceptance of a plan by one or more impaired classes of claims or equity interests and any other dissenting classes. Under that section, a plan may be confirmed if it does not “discriminate unfairly” and is “fair and equitable” with respect to each nonaccepting class. For a more detailed description of the requirements for confirmation of a nonconsensual plan, see Article IX below. For a summary of the treatment of each Class of Claims and Interests, see Article VI below. B. Voting Procedures If you are entitled to vote to accept or reject the Plan, a Ballot is enclosed for the purpose of voting on the Plan. If you hold a Claim in more than one Class and you are entitled to vote Claims in more than one Class, you will receive separate Ballots that must be used for each separate Class of Claims. Please vote and return your Ballot(s). Please vote and return your Ballot(s) directly to the following address: If by First Class Mail: If by Hand Delivery or Overnight Mail: Donlin, Recano & Company, Inc. Donlin, Recano & Company, Inc. Re: First River Energy Balloting Re: First River Energy BallotingAttn: Voting Department Attn: Voting Department PO Box 199043 Blythebourne Station 6201 15th Ave Brooklyn, NY 11219 Brooklyn, NY 11219 If by E-mail DRCVote@donlinrecano.com RE: First River Ballot DO NOT RETURN ANY INSTRUMENTS OR AGREEMENTS THAT YOU MAY HAVE WITH YOUR BALLOT(S). TO BE COUNTED, YOUR BALLOT(S) INDICATING ACCEPTANCE OR REJECTION OF THE PLAN MUST BE ACTUALLY RECEIVED BY DONLIN, RECANO &
8COMPANY, INC. AT THE ABOVE ADDRESS NO LATER THAN 4:00 P.M., PREVAILING CENTRAL TIME, ON AUGUST ___, 2021. Any Claim to which an objection or request for estimation is pending, is not entitled to vote unless the holder of such Claim has obtained an order of the Court temporarily allowing such Claim for the purpose of voting on the Plan. In addition, Ballots cast by alleged creditors whose Claims (a) are not listed on the Debtor’s Schedules of liabilities or (b) are listed as disputed, contingent and/or unliquidated on the Debtor’s Schedules of liabilities, but who have timely filed proofs of claim in unliquidated or unknown amounts that are not the subject of an objection filed by the Debtor will have their Ballots counted towards satisfying the numerosity requirement of section 1126(c) of the Bankruptcy Code, but will not have their Ballots counted toward satisfying the aggregate Claim amount requirements of that section. Pursuant to the Disclosure Statement Order, the Court set _____________, 2021, the date of the entry of the Disclosure Statement Order, as the record date (the “Voting Record Date”) for voting on the Plan. Accordingly, only holders of record as of _____________, 2021 will receive a Ballot and may vote on the Plan. If you are a holder of a Claim entitled to vote on the Plan and did not receive a Ballot(s), received a damaged Ballot(s) or lost your Ballot(s), or if you have any questions concerning the Disclosure Statement, the Plan or the procedures for voting on the Plan, please call Donlin, Recano & Company at (212) 771-1128 from 9 a.m. to 6 p.m., prevailing Eastern Time, Monday through Friday. C. Confirmation Hearing and Objections to Confirmation The Bankruptcy Court has scheduled a hearing to consider Confirmation of the Plan for ______________, 2021, at _________ a.m./p.m. (the “Confirmation Hearing”), at the Honorable Craig A. Gargotta, United States Bankruptcy Court, 615 East Houston Street, Courtroom 3, San Antonio, TX 78205, which Confirmation Hearing may be adjourned from time to time by the Bankruptcy Court without further notice except for an announcement of the adjourned date made at the Confirmation Hearing. Any objection to Confirmation of the Plan must be filed and served in accordance with the Disclosure Statement Approval Order. ARTICLE III HISTORY OF THE DEBTOR PRIOR TO THE CHAPTER 11 FILING; CURRENT STATUS OF LIQUIDATION OF THE DEBTOR The information contained in this section of the Disclosure Statement is intended as a summary of the Debtor’s history and the status of the liquidation of the Debtor prior to and after the filing of the Voluntary Petition on the Petition Date.
9A. The Debtor’s Businesses The Debtor was formed as a Delaware limited liability company in 2014 under the name First River Midstream, LLC to provide “midstream” transportation services to the oil industry across the southwestern United States and Great Plains. As a “midstream” service business the Debtor specialized in the purchasing and marketing of crude oil and condensate, along with all necessary multi-modal logistics throughout the journey from source to refinery. As a midstream service provider, the Debtor was a critical link between companies that explore for and produce oil. The midstream industry is generally characterized by regional competition based on the proximity of gathering systems and processing plants to crude oil producing wells. The Debtor’s services included buying and selling domestic crude oil and transporting oil through a combination of trucks or pipeline. The Debtor’s customers included the largest names in the oil business, as well as smaller specialty and independent producers. The Debtor generated substantially all its revenue by purchasing crude oil and shipping the oil by truck and/or pipeline to its customers. The Debtor’s daily business transactions of the purchase and sale of crude oil culminated once a month on the 20th day of each month (“Settlement Day”) for all transactions completed during the prior month. The month accumulation of daily purchase with producers from which the Debtor bought crude oil and the daily shipment to refiners to which the Company sold crude oil was reconciled and all parties paid including royalty owners on or about Settlement Day. B. The Debtor’s Corporate Structure First River Energy Holdings, LLC was the sole member of First River Energy, LLC and First River Marketing, LLC. In September of 2016, First River Energy, LLC changed its name to First River Energy Holdings, LLC pursuant to a Certificate of Amendment to the Certificate of Formation. First River Energy, LLC was the sole member of First River Midstream, LLC. On September 27, 2016, First River Midstream, LLC, the Debtor, changed its name to First River Energy, LLC. C. Historical Debt Structure2 First River Energy LLC (“First River”) was formed in March 2014 to provide crude oil gathering and marketing services to independent producers in North America. In 2015, First River sought to acquire Texas Gathering Company LLC (“TGC”), Bargas Inc (“Bargas”) and United Energy Logistics (“UEL”). The assets of Bargas were acquired by TGC. The UEL stock was sold. 2 The Historical Debt Structure was drafted by counsel for Lenders.
10In 2015, First River sought loans for an up to $60 million revolving credit facility (“RCF”) consisting of an up to $30 million Senior Secured Borrowing Base Facility (“BBRCF”) and an up to $30 million Acquisition Revolving Credit Facility (“ARCF”). The proceeds of the Facility were to be used (a) to repay any existing indebtedness, (b) to provide Letters of Credit to back any existing letters of credit, (c) for working capital, (d) to fund capital expenditures and acquisitions, and (e) for general corporate purposes of the company. Under the July 23, 2015 Credit Agreement,3 the total Acquisition Facility Commitment was $30 million, and the total Working Capital Commitment was $20 million from a combination of four lenders. On about July 23, 2015, the Debtor as a guarantor (among other guarantors) entered into a Guarantee Agreement (“Guarantee Agreement”) with the Agent and Deutsche Bank AG, New York Branch (in such capacity, the “Collateral Agent”). Under the Guarantee Agreement, each Debtor unconditionally and irrevocably guaranteed the prompt and complete payment and performance by the Borrower when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations under the Credit Agreement. The Debtor, as a grantor, and also with certain other grantors, entered into a Security Agreement (“Security Agreement”) dated July 23, 2015 with Deutsche Bank AG, New York Branch as collateral agent for the Lenders. Under the Security Agreement, the Collateral includes substantially all of Debtor’s assets. Beginning on July 23, 2015, the Agent timely, duly, and properly perfected the Bank Liens on the Bank Collateral by the filing of Uniform Commercial Code (“UCC”) financing statements and subsequent financing statement amendments with the Delaware Department of State. The ARCF was to be funded up to $22.5 million at closing. In 2015, the Buyer Parties (consisting of First River Energy LLC and First River Midstream, LLC (now the Debtor)) acquired TGC, Bargas, and UEL. Along with other sources, the $22,500,000 from the ARCF was used by First River to fund the acquisition of these companies. 3 The following promissory notes were executed pursuant to the Credit Agreement: i. Working Capital Facility Note dated July 23, 2015 in the amount of $4,000,000.00 promising to pay Macquarie Bank Limited; Borrower: First River Energy LLC. ii. Working Capital Facility Note dated July 23, 2015 in the amount of $3,000,000.00 promising to pay Wells Fargo Bank, National Association, Borrower: First River Energy LLC, Borrower: First River Energy LLC. iii. Acquisition Facility Note dated July 23, 2015 in the amount of $9,750,000 promising to pay BNP Paribas; Borrower: First River Energy LLC. iv. Acquisition Facility Note dated July 23, 2015 in the amount of $9,750,000 promising to pay Deutsche Bank AG, New York Branch; Borrower: First River Energy LLC. v. Acquisition Facility Note dated July 23, 2015 in the amount of $6,000,000 promising to pay Macquarie Bank Limited; Borrower: First River Energy LLC. vi. Acquisition Facility Note dated July 23, 2015 in the amount of $4,500,000 promising to pay Wells Fargo Bank, National Association; Borrower: First River Energy LLC. vii. Swing Line Note dated July 23, 2015 in the amount of $15,000,000 promising to pay Deutsche Bank AG, New York Branch; Borrower: First River Energy LLC. viii. Working Capital Facility Note dated July 23, 2015 in the amount of $6,500,000 promising to pay BNP Paribas; Borrower: First River Energy LLC, Borrower: First River Energy LLC. ix. Working Capital Facility Note dated July 23, 2015 in the amount of $6,500,000 promising to pay Deutsche Bank AG, New York Branch; Borrower: First River Energy LLC, Borrower: First River Energy LLC.
11The Debtor received all the operating, working capital and tangible assets of the acquired companies as an integral part of the transaction and used them to conduct its business from the date of the July 2015 loan closing through the January 12, 2018 Petition Date. On September 27, 2016, the entity then-named First Energy, LLC changed its name to First River Energy Holdings, LLC. See State of Delaware Certificate of Amendment at State of Delaware Secretary of State Division of Corporations SR 20165968494 - File Number 5710857. On September 27, 2016, the Debtor, then-named First River Midstream, LLC changed its name to First River Energy, LLC. See State of Delaware Certificate of Amendment at State of Delaware Secretary of State Division of Corporations SR 20165968495; File Number 5710850. D. Debt Structure Pursuant to the Credit Agreement dated as of July 23, 2015 (as amended by a Forbearance Agreement and Amendment No. 1 to Credit Agreement, dated as of June 7, 2016, and an Amendment No. 2 to Credit Agreement and Limited Waiver, dated as of July 22, 2016, and as otherwise amended, restated, supplemented or otherwise modified from time to time, the “Credit Agreement”), by and among (i) First River Energy Holdings, LLC f/k/a First River Energy, LLC as borrower, (ii) the Debtor as a guarantor; (iii) Deutsche Bank AG, New York Branch as Lender, Issuing Lender, Swing Line Lender, and Collateral Agent, Deutsche Bank Trust Company Americas as Administrative Agent (the “Agent”), and (iv) the several banks and other financial institutions or entities from time to time parties to the Credit Agreement, as lenders (collectively with the Agent, the “Lenders”), the Lenders provided certain credit facilities to finance the Debtor’s business enterprise by making advances and issuing or participating in letters of credit, in each case on the terms and conditions of the Credit Agreement. All such loans, financial accommodations, and other amounts that were owed by the Debtor to the Lenders under, or in connection with, the Credit Agreement are hereinafter referred to as the “Pre-Petition Obligations.” To secure payment of the Pre-Petition Obligations, the Debtor granted the Lenders liens (the “Pre-Petition Liens”) and security interests in certain assets, including, inter alia, and without limitation, the Debtor’s present and future rights, titles, and interests in all cash, deposit accounts, property, interests in property, and the proceeds thereof (the “Pre-Petition Collateral”). As of the Petition Date, the Debtor was indebted to the Lenders under the Credit Agreement in the approximate amount of not less than $14,000,000 (plus accrued and unpaid interest, fees, and expenses, including legal fees and expenses). In addition, the Lenders asserted the right to charge interest and attorneys’ fees post-petition on the basis that the value of their collateral exceeds the amount of their debt. On April 10, 2018, the Court entered an Order Pursuant to 11 U.S.C. §§ 105(a) and 363(b) Authorizing the Debtor to Pay Certain Secured Claims Subject to Disgorgement [Dkt. No. 457] (the “Pay Order”), based in part that the amounts owed under the Credit Agreement were accruing interest at $4,552.59 per diem and by authorizing payment interest stopped accruing. Pursuant to the Pay Order the Debtor paid the Lenders $14,692,556.85. See [Dkt. No. 483].
12The “fees” mentioned in the above table are not professional fees, but rather Letter of Credit fees and the like under the Credit Agreement. As of the Petition Date, the Debtor’s total liabilities were approximately $57,800,000, of which approximately $38,120,000 was owed to producers, owners of royalty interests, and unsecured creditors. E. Assets Current assets of the estate are Cash, Causes of Action, and Debtor’s books and records. As of June 1, 2021, the Debtor was in possession of cash of approximately $7,735,000.00. ARTICLE IV EVENTS LEADING TO THE BANKRUPTCY FILING A. The Sustained Drop in Oil Prices The oil and gas industry had been enduring one of the longest and deepest troughs in oil and gas in recent history. The downturn led many production companies, whose business are directly impacted by price fluctuations in commodities, to sizably reduce their production and drilling activities, causing a substantial reduction in the volumes serviced by midstream service providers such as the Debtor. In early 2016, crude oil prices reached multiyear lows of approximately $26 per Bbl4. This represented a decline in oil prices of more than 75% from a peak of over $105 per Bbl in mid-year 2014. As a result of the decline in oil prices and the volatility of prices, the Debtor’s volumes and margins were adversely impacted. B. The Revenue Losses In 2016, the Debtor bought and transported approximately 5.48 million barrels of crude oil, which generated a total revenue of approximately $313 million. For twelve months ended December 31, 2016, the Debtor had an adjusted EBIDTA of approximately $523,000. As a result of a continued decline in volumes of product and margins across the industry, the Debtor’s profit margin continued to decline, although the company was able to increase volume overall. The total revenue in the first three quarters of 2017 was approximately $234 million in the first three quarters of 2016 and adjusted EBITDA declined to approximately ($1.7) million. Excluding the Pipeline Agreement discussed in paragraph C., adjusted EBITDA for the first 3 quarters of 2017 was approximately $1.9 million. As of September, 2017 the Debtor’s cash balance had decreased to $2.8 million and an adjusted EBIDTA for the month (excluding NuStar) was $192,000. 4 Refers to the measurement of barrel of crude oil.
13C. Pipeline Agreement NuStar Crude Oil Pipeline, L.P. (“NuStar Crude”) and Debtor were parties to a certain Throughput and Deficiency Agreement dated September 30, 2013 (“T&D Agreement”), governing the transportation of petroleum products on NuStar Crude’s South Texas Crude Oil Pipeline System (the “System”). Pursuant to the T&D Agreement, NuStar Crude provided Debtor access to certain pipeline and transportation infrastructure to transport crude oil that Debtor delivered into the System. In exchange for access to NuStar Crude’s facilities under the conditions of the T&D Agreement, Debtor committed to transport a minimum monthly volume of its product on the System. Debtor agreed that if it failed to meet the monthly volume commitment, Debtor would pay a monthly deficiency payment. NuStar Crude and NuStar Pipeline Operating Partnership, LP (collectively, “NuStar”) and Debtor were also parties to a certain Master Terminal Services Agreement No. 13-11-1397 and a Terminal Services Schedule No. 13-11-1397/STS-01, both dated November 6, 2013 (collectively, the “MTS Agreement”), governing the storage and throughput of petroleum products as well as associated services. Pursuant to the MTS Agreement, NuStar provided Debtor access to certain storage and throughput infrastructure as well as associated services for the storage of Debtor’s crude oil products. NuStar agreed to reserve a certain throughput capacity at its terminals for the storage of Debtor’s crude petroleum products. In exchange, Debtor committed to pay a monthly capacity charge to reserve the throughput capacity, an excess throughput capacity charge in the event that the Debtor’s product stored at NuStar’s terminals exceeded a certain percentage of the monthly throughput capacity, and additional storage charges if Debtor maintained product exceeding its inventory under the circumstances set forth in the MTS Agreement. NuStar invoiced Debtor on a monthly basis for amounts due under the T&D Agreement and MTS Agreement (collectively, the “Pipeline Agreement”). The Agreements required Debtor to pay the amount of each invoice within ten days from receipt (or posting) of the invoice. NuStar provided Debtor with invoices for throughput and deficiency charges and for storage and marine charges for August, September and October 2017. The Debtor ceased using NuStar’s pipeline for transportation on or before September 30, 2017. On October 6, 2017, the Debtor served NuStar with a Notice of Default and Demanding Cure with respect to a past-due payment in the amount of $16,506.38 resulting from NuStar’s alleged improper use of sampling numbers related to sulfur content in LACTS 15 & 16 as it related to Quality Bank activity (the “Notice of Default”). NuStar failed to cure the alleged default referenced in the Debtor’s Notice of Default. On October 26, 2017, the Debtor sent NuStar a Notice of Termination of the Agreement in accordance with § 2.6 of the Agreement (the “Termination Notice”). The Debtor asserted through the Termination Notice it properly terminated the Pipeline Agreement and all other agreements that the Debtor entered into with NuStar or its affiliates for services related to product throughput under the Pipeline Agreement. On November 2, 2017, the Debtor sent NuStar a second Notice of Termination of the Agreement in accordance with § 2.6 of the Agreement (the “Second Termination Notice”). The Debtor sent the Second Termination Notice in an abundance of caution, based on an alleged new breach of the Agreement by NuStar, which gave rise to cause to terminate. However, NuStar asserted (i) that Debtor’s notice was inadequate; (ii) that NuStar was not in default of the
14Agreements, and (iii) Debtor’s purported termination of the Agreements was wrongful. On November 14, 2017, the Debtor and NuStar unsuccessfully mediated the dispute. On or about November 18, 2017, First River filed suit against NuStar in the District Court of Bexar County, Texas. On or about November 20, 2017, NuStar filed suit against First River in the District Court of Bexar County, Texas. Following the Petition Date, both of these cases were dismissed as the parties agreed to resolve the issues in the Bankruptcy Court. The Debtor and NuStar have also agreed to rejection of the Agreements effective as of the Petition Date. NuStar asserts it has a total unsecured claim of $16,544,117. D. Defaults Under Credit Agreement On November 18, 2017, the Debtor was notified by the Agent of an Event of Default under the Credit Agreement resulting from Debtor’s redemption of equity units for a minority shareholder for approximately $5,000 in breach of Section 8.5 of the Credit Agreement. Debtor acknowledged the existence and continuation of this Event of Default in letters to the Agent on December 4, 2017 and December 5, 2017. Notwithstanding the default, Lenders and Debtor continued to negotiate a resolution and Lenders did not exercise their rights under the Credit Agreement. On December 15, 2017, the Debtor delivered to the Administrative Agent, as required by the Credit Agreement, a Borrowing Base Report showing that, as of November 30, 2017, the Total Working Capital Facility Extensions of Credit exceeded the Borrowing Base by $2,022,890 and, pursuant to Section 4.7(a)(ii) of the Credit Agreement, the Debtor was in default. Further, the Debtor failed to cash collateralize, replace or decrease the amount of outstanding Letters of Credit by an amount sufficient to eliminate such excess within three (3) Business Days following delivery of such Borrowing Base Report. On December 15, 2017, the Lenders provided the Debtor with a notice of default on these two additional grounds. The Debtor acknowledges each of these events are an Event of Default under the Credit Agreement. As a result of the Debtor’s defaults, on December 15, 2017, the Lenders, with agreement of the Debtor, took dominion and control of the cash in the Debtor’s depositary bank (not a member of the Lenders) operating accounts (the “Depositary Accounts”) and its securities accounts pursuant to account control agreements already in place, and provided for the Debtor to use the cash in accordance with an agreed-upon budget. The Debtor agreed to dominion and control to ensure the Lenders would not take unilateral action to realize on their claims and liens. This agreement allowed the Debtor and Lenders to agree on use of cash to operate the company and work towards a resolution of the issues that existed with the Credit Agreement. On December 21, 2017, the Lenders, certain equity holders, and Debtor executed a Second Forbearance Agreement to enable the Debtor to continue to operate and to pay producers and royalty owners for oil purchased in November while the parties negotiated for a long-term agreement. However, Debtor encountered numerous issues in connection with making those producer payments, including but not limited to inability to send ACH payments, limits on the number of wire transfer payments, which had to be done manually. As a result, the Debtor decided to make all payments that had not been made by wire, by check. Some of those checks cleared, but many were declined. As a result, the Company lost customers, breached many production
15agreements and by New Year’s weekend, believed that material damage had been done to the business and that in all likelihood the Debtor would face requests for letters of credit (which it did not have the capacity to provide) or prepayments or deposits, which it also could not provide. Notwithstanding, the Debtor’s equity owners continued negotiations with the Lenders in the week following Christmas and over the New Year’s weekend, culminating on the morning of December 31, 2017, when the Debtor, certain equity holders, and Lenders were not able to come to an agreement. At that time, the Debtor made the decision that it would not be able to restructure the credit facility or otherwise continue in operations, and thus determined to stop picking up oil and to commence the wind down of the company. In summary, the impact of declining oil prices, an unfavorable contract with NuStar and an unmanageable debt load with a looming January 31, 2018 maturity simply proved to be obstacles too great for the Debtor to overcome. The main goal of the Debtor in filing the Chapter 11 Case was to confirm a plan of liquidation that would assure a fair distribution of the Debtor’s assets to its creditors, particularly given that the Debtor anticipated there would be a dispute over lien priority between the Agent and various customers who were relying on Tex. UCC 9.343 for the proposition that the customers claims should have priority over the Agent’s claim . ARTICLE V SIGNIFICANT EVENTS IN THE CHAPTER 11 LIQUIDATION CASE A. Bankruptcy Filing On January 12, 2018, two producers, U.S. Energy Development Corporation (“USED”) and Viceroy Petroleum, LP. (“Viceroy”) (together the “Producers”) initiated a state court lawsuit against the Debtor in the 408th Judicial District Court of Bexar County, Texas (the “State Court”), styled U.S. Energy Development Corporation and Viceroy Petroleum, LP., Plaintiffs v. First River Energy, LLC, Defendant, Cause No. 2018-CI-00648 (the “Receivership Action”), claiming breach of contract and seeking the emergency appointment of as receiver over the Debtor. The State Court then appointed Ray Battaglia as the receiver (the “Receiver”) shortly after the filing of the lawsuit. Later that same day, the Debtor filed a petition for relief under Chapter 11 of the Bankruptcy Code in Delaware Bankruptcy Court initiating Case No. 18-10080 (the “Delaware Bankruptcy Case”). The Delaware Bankruptcy Case was assigned to the Hon. Mary F. Walrath. The Receiver, also on January 12, 2018, then filed another petition for relief under Chapter 11 of the Bankruptcy Code on behalf of the Debtor in San Antonio Bankruptcy Court initiating Case No. 18-50063 (the “50063 Bankruptcy Case”). On January 12, 2018, without knowledge of the 50063 Bankruptcy Case, the Debtor removed the Receivership Action to this Court as a matter intertwined with the Delaware Bankruptcy Case; this action was pending as Case No. 18-05005 (the “5005 Adversary Proceeding”). On January 19, 2018, the Debtor filed a Motion to Vacate Receivership (“Motion to Vacate”) [Dkt. No. 13 in the 5005 Adversary Proceeding] and a Motion to Dismiss Complaint Pursuant to Fed.R.Civ.P. 12(b)(1), (b)(2), (b)(5) and (b)(6)
16(“Motion to Dismiss Complaint”) [Dkt. No. 12 in the 5005 Adversary Proceeding]. On January 17, 2018, the Producers filed a motion to dismiss the Delaware Bankruptcy Case (the “Producers’ Motion to Dismiss”) [Dkt. No. 31]. On January 17, 2018, the Delaware Court entered an Order Transferring Venue to the United States Bankruptcy Court for the Western District of Texas, San Antonio Division in the Delaware Bankruptcy Case [Dkt. No. 40]. The Debtor filed Chapter 11 Case is currently pending before this Court as Case No. 18-50085. On January 17, 2018, the Producers filed an emergency motion to appoint the Receiver as the chapter 11 trustee in the 50063 Bankruptcy Case (the “Motion to Appoint a Trustee”) [Dkt. No. 5]. On January 23, 2018, the Debtor filed a Motion to Dismiss Bankruptcy Case (the “Debtor’s Motion to Dismiss Bankruptcy Case”) [Dkt. No. 20] in the 50063 Bankruptcy Case. The Debtor, Receiver and Producers reached a compromise and agreed to the following: The Debtor will not appeal or otherwise challenge Judge Walrath’s determination that the United States Bankruptcy Court for the Western District of Texas, San Antonio Division is the proper venue for the Delaware Bankruptcy Case (Case No. 18-50085). The Debtor shall release the Producers, the Producers’ State Court and bankruptcy counsel, the Receiver, and the Receiver’s bankruptcy counsel, up through February 1, 2018, from any liability for damages caused the Debtor and its estate as a result of acts taken by the Producers in seeking the appointment of the Receiver, for acts taken by the Receiver after his appointment, and from any liability or damages resulting from the Receiver filing the 50063 Bankruptcy Case. On February 2, 2018, the Producers (and the Receiver) will dismiss, without prejudice, the 5005 Adversary Proceeding and upon dismissal, the Receiver will relinquish his role as the receiver for the Debtor. On February 2, 2018, the Producers will withdraw the Producers’ Motion to Dismiss [Dkt. No. 31 in Case No. 18-50085] and the Producer’s Motion to Appoint a Trustee [Dkt. No. 5 in Case No. 18-50063] filed in the 50063 Bankruptcy Case. The Receiver supports the Debtor’s Motion to Dismiss Bankruptcy Case [Dkt. No. 20 in Case No. 18-50063] and independently requests that the Court dismiss the 50063 Bankruptcy Case. On February 1, 2018, the Court approved the compromise. As a result of the compromise this Chapter 11 Case filed by the Debtor is the only chapter 11 case for the Debtor. No official committee of unsecured creditors has been appointed in the Chapter 11 Case. Post-petition the Debtor has been working to continue the wind-down of its business. The Debtor has ceased buying oil and sold or abandoned all of its real and personal property.
17The following pleadings have been filed in the Chapter 11 Case and creditors are referred to the Court docket for a more complete listing. B. Applications to Employ Professionals Akerman LLP On January 30, 2018, the Debtor filed an Application for Authorization to Employ Akerman LLP as Counsel for Debtor in Possession, and on February 13, 2018, the Court entered its final order approving the Application. Armory Strategic Partners, LLC On February 1, 2018, the Debtor filed an Application to Employ Armory Strategic Partners, LLC (“Armory”) as Financial Advisor and Scott Avila as Chief Restructuring Officer, and on February 21, 2018, the Court entered its order approving the Application. Armory was retained by the Debtor in November 2017 to provide strategic review of the Debtor’s operations and financial condition. In that role, Armory participated in pre-bankruptcy negotiations with NuStar and the Lenders. On May 4, 2018, Armory resigned as financial advisor and Scott Avila resigned as Chief Restructuring Officer. Donlin Recano & Company, Inc. On January 12, 2018, the Debtor filed an Application for Entry of an Order Pursuant to 28 U.S.C. §156(c) (I) Approving Retention and Appointment of Donlin, Recano & Company, Inc. as Claims and Noticing Agent to Debtor, Effective Nunc Pro Tunc to Petition Date, and (II) Granting Related Relief and on January 29, 2018, the Court entered its order approving the Application. Chipman Brown Cicero & Cole LLP On February 12, 2018, the Debtor filed an Application for Approval of the Employment of Chipman Brown Cicero & Cole, LLP as Co-Counsel (Delaware Counsel) for the Debtor, and on February 17, 2018, the Court entered an order approving the Application. Law Offices of Ray Battaglia, PLLC On January 9, 2020, the Debtor filed an Application for Approval of Employment of the Law Offices of Ray Battaglia, PLLC to serve as special counsel to the Debtor in bringing certain avoidance actions. C. Chapter 11 Administration Schedules and Statement of Financial Affairs. The Debtor filed its Schedules and Statement of Financial Affairs, amending those documents from time to time, as needed. 341 Meetings with Creditors. The Section 341 meeting of creditors was held and concluded on February 21, 2018. Claims Bar Date. The Bankruptcy Court fixed May 2, 2018, as the deadline for the filing of Proofs of Claim. Prepetition Wages. On January 15, 2018, the Debtor filed an Emergency Motion for Authorization to (A) Pay Prepetition and Postpetition Wages, Salaries, Other Compensation, and Reimbursable Expenses, and (B) Continue Employee Benefits Programs, and Granting Related Relief. On January 29, 2018, the Bankruptcy Court entered a final order granting the relief requested in that Motion.
18Cash Collateral. On January 15, 2018, the Debtor filed a Motion for an Interim and Final Order (I) Authorizing the Use of Cash Collateral Pursuant to Sections 105, 351, 362, and 363 of the Bankruptcy Code and Federal Rule of Bankruptcy Procedures 4001(B), and (II) Granting Adequate Protection to the Prepetition Secured Lenders. On March 5, 2018, the Court entered a Final Order Authorizing the Debtor to Use Cash Collateral Under 11 U.S.C. §§ 105 and 363. Insurance. On January 24, 2018, the Debtor filed a Motion for Entry of an Order (I) Authorizing, but Not Directing, Debtor to (A) Maintain Existing Insurance Programs, and (B) Fund All Obligations in Respect Thereof, and (II) Granting Related Relief. On January 29, 2018, the Court entered an order granting the relief requested in the motion. Sale of Assets. During the Chapter 11 Case the Debtor pursuant to multiple Court orders liquidated all personal property, including, but not limited to tractors, trailers, trucks, tanks, and other field equipment, portable buildings, office furniture, equipment and oil and heater contents, as well as a piece of real property. Rejection of Executory Contracts and Leases. In the exercise of its business judgment, the Debtor determined that rejection of certain executory contracts, including truck rentals, parking agreements and property commercial lease and certain other leases, was in the best interests of the Debtor’s estate, because the services subject to the executory contracts were no longer necessary to the continued operation of the Debtor’s business and rejection of the executory contracts would eliminate unnecessary costs to the Debtor’s estate. 503(b)(9) Procedures. On February 26, 2018, the Debtor filed a Motion for Entry of Order Pursuant to 11 U.S.C. §§ 105(a) and 503(b)(9) Establishing Procedures for the Assertion, Resolution, and Satisfaction of Claims Asserted Pursuant to 11 U.S.C. § 503(b)(9), which after holding a hearing the Court granted the relief requested in the motion. Pursuant to the order the Debtor prepared a 503(b)(9) Claim List and any vendor listed on the 503(b)(9) Claim List was deemed to have an allowed 503(b)(9) Claim and not required to file a proof of claim in that amount (a “Proof of 503(b)(9) Claim”). Any vendor asserting a 503(b)(9) Claim that is not listed on the 503(b)(9) Claim List or who disagreed with the 503(b)(9) Claim amount set forth on the 503(b)(9) Claim List was required to file a Proof of 503(b)(9) Claim with Donlin, Recano & Company, Inc., the claims and noticing agent retained in this Chapter 11 Case, so as to be received no later than 5:00 p.m., Central Standard Time, on April 18, 2018 (the “503(b)(9) Claim Bar Date”). Severance Taxes. On March 28, 2018, the Court entered an Order Approving Settlement Agreement Between Debtor and Texas Comptroller of Public Accounts Pursuant to Federal Rule of Bankruptcy Procedure 9019. Dkt. No. 399. The Court authorized the Debtor to make a settlement payment in the amount of $2,016,131.51 to the Texas Comptroller and if paid on or before March 30, 2018 the Texas Comptroller would waive all interest and penalties in connection with unpaid severance taxes. Procedures Order. On March 19, 2018, the Debtor and the Agent filed Expedited Motion for Authorization to Establish Procedures for the Resolution of Claims and Liens Against Estate Property. [Dkt. No. 331.] On April 2, 2018, the Court entered Order Granting Expedited Motion To Establish Procedures For The Resolution Of Claims And Liens Against Estate Property. [Dkt. No. 413.]
19Motion to Pay. On March 20, 2018, the Debtor filed an Expedited Motion for Order Pursuant to 11 U.S.C. §§ 105(a) and 363(b) Authorizing the Debtor to Pay Certain Secured Claims Subject to Disgorgement. [Dkt. No. 335].5 D. Adversary Proceedings 18-05008-cag (“Phillips 66 Interpleader”). On January 19, 2018, Phillips 66 Company filed a Complaint in Interpleaders against the Debtor, Deutsche Bank Trust Company Americas, as Administrative Agent and Deutsche Bank AG, New York Branch as Collateral Agent and Raymond W. Battaglia relating to two crude oil purchase agreements between the Debtor and Phillips 66 Company. The Complaint sought a determination on which party was entitled to $911,299.68 in account proceeds Phillips 66 Company was holding. The parties reached an agreement, wherein Phillips 66 was allowed to retain $15,000 and the Debtor received the balance. On May 8, 2018 the adversary was dismissed. 18-0515-cag (“Lien Claimants’ Adversary Proceeding”). On February 21, 2018, Lenders initiated this adversary proceeding against First River Energy, LLC, U.S. Energy Development Corporation, Ageron Energy, LLC, Petroedge Energy IV, LLC, Teal Natural Resources, LLC, Crimson Energy Partners IV, LLC, Viceroy Petroleum, LP, RLU Operating, LLC, Dewbre Petroleum Corporation, Jerry C. Dewbre, Trustee, American Shoreline, Inc., Texpata Pipeline Company, Aurora Resources Corporation, AWP Operating Co.; Texron Operating Co. LLC, Magnum Producing, LP, Magnum Engineering Company, Magnum Operating LLC, Rock Resources, Inc., Killam Oil Co., Ltd. and Energy Reserves Group, LLC, wherein Lenders sought a declaration that their liens securing the Credit Agreement were senior in priority to the claims raised by the defendants and that their lien(s) were valid, perfected, first priority liens in the Collateral, including proceeds of the Collateral. On April 2, 2018, the Court entered Order Granting Expedited Motion To Establish Procedures For The Resolution Of Claims And Liens Against Estate Property (“Procedures Order”). [Dkt. No. 413.] The intent of the Procedures Order was that the Lien Claimants’ Adversary Proceeding would be the sole and exclusive method of litigating conflicting claims of an Interest in the Property and that such resolution of those conflicting claims to the Property in the Declaratory Judgment Action would be binding on all parties-in-interest. Any Claimant who asserted an Interest in the Property had the option to intervene as a party in the Lien Claimants’ Adversary Proceeding as a matter of right by filing a Motion to Intervene on or before the Intervention Deadline. Certain Operating Producers did intervene on behalf of themselves and Non-Operating Interest Owners. The Procedures Order provided that non-intervenors would be bound by the outcome of the Adversary, including any Claimants who did not file a Motion to Intervene by the Intervention Deadline. On July 27, 2018, the Lenders filed a Motion for Summary Judgment and Alternative Motion for Partial Summary Judgment,6 which was responded to by the Producers.7 On March 7, 2019, the Bankruptcy Court entered its Order Granting, In Part, And Denying, In Part, Agent’s 5 The Motion to Pay is set for hearing on April 5, 2018. Debtor will update this paragraph based on the court’s ruling at said hearing. 6 18-05015 Dkt. No. 89. 7 18-05015 Dkt. No. 103, 105.
20Motion For Summary Judgment And Alternative Motion For Partial Summary Judgment (Dkt. No. 89) (“Summary Judgment Order”),8 supported by a Memorandum Opinion Granting, In Part And Denying, In Part Agent’s Motion For Summary Judgment And Alternative Motion For Partial Summary Judgment (Dkt No. 89)(“Memorandum Opinion”)9 (collectively, the “Summary Judgment Rulings”). In the Memorandum Opinion the Bankruptcy Court found that the controlling law was the Delaware Uniform Commercial Code (“Delaware UCC”) because the Debtor was a Delaware corporation. The Delaware UCC did not have a provision similar to the non-uniform Tex. UCC 9.343, and thus in order to perfect a lien in production the seller would have to file a UCC-1 with the Delaware Secretary of State. Moreover, lien priority would be governed by the first to file rules contained in the Delaware UCC. As a result, the Summary Judgment Order held (a) that the Agent had a valid, perfected security interest on Debtor’s goods, inventory, accounts, and proceeds that has priority over liens asserted under Tex. UCC 9.343, (b) that the Agent has a valid, perfected, first-priority security interest in Debtor’s deposit accounts, (c) that to the extent a producer can demonstrate the extent and amount of sums owed by Debtor for pre-petition purchases of oil and gas in Oklahoma, that producer would be entitled to a first-priority lien under Okla. Stat. Ann. tit. 52 § 549.1 et seq., (d) that producers’ affirmative defenses of waiver, estoppel, and unclean hands should be stricken, (e) that producers’ counterclaims for conversion based upon Tex. UCC 9.343 fail as a matter of law and are dismissed, (f) that producers’ counterclaims for conversion based on the Oklahoma Statute could be re-pled with twenty-one (21) days from the date of entry of the order, and (g) that all other relief not specifically granted was denied. The Summary Judgment Rulings was interlocutory. The Producer Group timely filed a Motion for Leave to Appeal10 and a Notice of Appeal11 with respect to certain portions of the Summary Judgment Rulings pursuant to 28 U.S.C. § 158(a)(3). The motion and notice were transmitted for consideration to the United States District Court for the Western District of Texas, and assigned Case No. 19-CV-00301. On April 25, 2019, the Debtor timely filed its Notice of Cross-Appeal with the Bankruptcy Court.12 On April 22, 2019, the Bankruptcy Court sua sponte certified appeal13 of the Summary Judgment Rulings for direct appeal to the Fifth Circuit Court of Appeals pursuant to 28 U.S.C. § 158(d)(2). The Fifth Circuit Court of Appeals later accepted the appeal and cross-appeal. The Fifth Circuit Court of Appeals issued an Opinion on February 3, 2021 affirming the Summary Judgment Order in its entirety. On February 25, 2021, the Fifth Circuit issued a Judgment and Mandate (collectively “Fifth Circuit’s Ruling”). Because of the Fifth Circuit’s ruling, the Agent has been conclusively established as the first lien holder in the Debtor’s accounts receivable and the proceeds of such. The Agent, and various banks in the lending group, filed claims for their attorney fees and expenses as permitted under the loan documents and Bankruptcy 8 18-05015 Dkt. No. 113. 9 18-05015 Dkt. No. 114. 10 18-05015 Dkt. No. 118. 11 18-05015 Dkt. No. 119. 12 18-05015 Dkt. No. 144. The Debtor had been granted an extension of time to file its notice of appeal. 13 18-05015 Dkt. No. 136; see also Opinion at USBC 18-05015 Dkt. No. 135.
21Code, and the Debtor has paid the allowed fees and expenses. Together with the Pay Order, the Agent and Lenders have been paid in full. On March 3, 2021, Agent filed with the Bankruptcy Court an Expedited Motion to Direct Entry of a Final Judgment Under Fed. R. Bank. P. 7054, which was granted. The order provided the Agent would be removed as a party to the adversary proceeding. The foregoing is a mere summary of the adversary proceeding and appeal. The filings in the adversary proceeding and appeal should be consulted for full details. 20-ap-5002 On January 10, 2020, the Debtor filed a complaint against Quinn Emanuel Urquhuart & Sullivan, LLP for (i) avoidance of avoidable transfers under 11 U.S.C. § 547(b) in the amount of $292,206.83; (ii) recovery of avoidable transfers under 11 U.S.C. § 550; and (iii) disallowance of claims under 11 U.S.C. § 502(d). The Court approved a settlement whereby Quinn Emanuel Urquhuart & Sullivan, LLP paid the Debtor $90,000. This adversary proceeding was dismissed on August 13, 2020. E. Avoidance Actions On October 29, 2019, the Debtor filed a Motion to Extend Deadline to File Avoidance Actions Under Section 546(a) of the Bankruptcy Code (“Motion to Extend 546 Deadline”) [Dkt. No. 816], due to the pending appeal stemming from the Lien Claimants’ Adversary Proceeding. On December 11, 2019, the Court granted the Motion to Extend 546 Deadline and ruled that the “statute of limitations for bringing all avoidance actions set forth in 11 U.S.C. § 546 are hereby extended for a period of ninety (90) days after all appeals and orders stemming from or related to” the Lien Claimants’ Adversary Proceeding are final and non-appealable. On April 2, 2021, the Debtor filed a Second Motion to Extend Deadline to File Avoidance Actions Under Section 546(a) of the Bankruptcy Code (“Second Motion to Extend 546 Deadline”) [Dkt. No. 987]. The Court granted Debtor’s Second Motion to Extend 546 Deadline and ruled that the statute of limitations set forth in 11 U.S.C. § 546 for bringing all avoidance actions are extended to Wednesday, September 1, 2021. [Dkt. No. 993] ARTICLE VI SUMMARY OF THE PLAN This section provides a summary of the structure and means for implementation of the Plan and the classification and treatment of Claims and Equity Interests under the Plan and is qualified in its entirety by reference to the Plan (as well as the exhibits thereto and definitions therein). The statements contained in this Disclosure Statement do not purport to be precise or complete statements of all the terms and provisions of the Plan or documents referred to therein, and reference is made to the Plan and to such documents for the full and complete statement of such terms and provisions. The Plan itself and the documents referred to therein control the actual treatment of Claims against and Equity Interests in the Debtor under the Plan and will, upon the occurrence of the
22Effective Date, be binding on all Holders of Claims against and Equity Interests in the Debtor, the Debtor’s Estate, all parties receiving property under the Plan, and other parties in interest. In the event of any conflict, inconsistency, or discrepancy between this Disclosure Statement and the Plan, the Confirmation Order, any Plan Supplement, or any other operative document, the terms of the Plan, Confirmation Order, Plan Supplement, or such other operative document, as applicable, shall govern and control; provided that, in any event, the terms of (1) the Confirmation Order and then (2) the Plan, inclusive of any Plan Supplement, in that order, shall govern and control over all other related documents. A. Purpose and Effect of the Plan Chapter 11 is the chapter of the Bankruptcy Code primarily used for business reorganization. Under chapter 11, a debtor is authorized to reorganize its business for the benefit of its constituents. Chapter 11 also specifically allows a debtor to formulate and consummate a plan of liquidation. See 11 U.S.C. § 1129(a)(11). A plan of liquidation sets forth the means for satisfying claims against and equity interests in a debtor. Confirmation of aplan of liquidation by a bankruptcy court makes that plan binding on the debtor and any creditor of or interest holder in the debtor, whether or not such creditor or interest holder (i) is impaired under or has accepted the plan or (ii) receives or retains any property under the plan. The Plan provides for the distribution of the proceeds of the liquidation of all Estate Assets to various creditors as contemplated under the Plan and for the wind-up the Debtor’s corporate affairs. The Plan also calls for a Plan Administrator to assist with making distributions and implementing the Plan. Under the Plan, Claims against, and Equity Interests in, the Debtor are divided into Classes according to their relative seniority and other criteria. If the Plan is confirmed by the Bankruptcy Court and consummated, the Claims and Equity Interests of the various Classes will be treated in accordance with the provisions in the Plan for each such Class, as applicable, and the Plan Administrator will make Distributions as provided in the Plan. A general description of the Classes of Claims and Equity Interests created under the Plan, the treatment of those Classes under the Plan, and the property to be distributed under the Plan are described below. B. Proposed Comprehensive Compromise and Settlement Under the Plan The Debtor, NuStar and the producers who were lien claimants in the Lien Claimants’ Adversary Proceeding have engaged in discussions regarding a proposed compromise and settlement in connection with this Case, which will enable the Debtor to confirm the Plan and allow creditors to receive more than they would otherwise in a liquidation under Chapter 7. Based on those discussions, the Debtor is proposing this compromise plan which it believes is in the best interest of all creditors. Certain of the key provisions are described below in more detail. Generally, however, the Plan would speed payments to creditors by waiving litigation claims and providing for only limited claim objections, thus eliminating actions that typically delay distributions. In addition, creditors who have 503(b)(9) claims, many of whom received payments during the preference period, are “gifting” a portion of their recovery to general unsecured creditors in exchange for releases of potential preference claims, expedited payments and reduced
23administrative costs which could dilute their recovery . Absent this compromise and “gift”, unsecured creditors and priority creditors would not receive a distribution absent successful prosecution of various claims, and then only in the distant future assuming the litigation was successful and netted significantly more than the cost of pursuing the litigation, both of which events are highly speculative. The settlement would result in the release of all Avoidance Actions that could otherwise be commenced against parties receiving payment(s) in December 2017 for November 2017 oil sold to the Debtor. The settlement provides for a distribution to general unsecured creditors who did not sell oil to the Debtor on or after December 23,2017 and thus do not have 503(b)(9) claims and who might otherwise not receive a distribution under the Plan. As a result, the Plan, will allow creditors to receive such payments sooner than they otherwise would were all potentially contested issues and claims adjudicated through contested matters and adversary proceedings. Pursuant to Bankruptcy Code sections 1123(a)(5), 1123(b)(3), and 1123(b)(6), as well as Bankruptcy Rule 9019, and in consideration for the Distributions and other benefits provided under the Plan, the provisions of the Plan will constitute a good faith compromise and settlement of all claims and controversies relating to the rights that a Holder of a Claim or an Equity Interest may have against any Debtor with respect to any Claim, Equity Interest, or any Distribution on account thereof. As well as the provisions of the Plan will constitute a good faith compromise and settlement of the Debtor relating to (i) all potential causes of auction under 11 U.S.C. § 547 (Preferences), (ii) all potential causes of action under 11 U.S.C. § 548 (Fraudulent Transfers), (iii) Causes of Action, (iv) 503(b)(9) Claim liability, and (v) objections to claims filed in this Case. The entry of the Confirmation Order will constitute the Bankruptcy Court’s approval, as of the Effective Date, of the compromise or settlement of all such claims or controversies and the Bankruptcy Court’s finding that all such compromises or settlements are (i) in the best interest of the Debtor, the Estate, and their respective property and stakeholders; and (ii) fair, equitable, and reasonable. The Debtor believes that the comprehensive compromise and settlement to be effected by the Plan is appropriate for several reasons and intend to request that the Bankruptcy Court approve that comprehensive compromise and settlement contemporaneously with the Confirmation Hearing. In particular, this comprehensive compromise and settlement is a critical component of the Plan and is designed to provide a resolution of a myriad of complex claim issues, Avoidance Actions, and Causes of Action that otherwise could take years of litigation to resolve, which would delay and undoubtedly reduce the Distributions that ultimately would be available for all creditors. Among the many disputed issues that will be resolved if the compromises are approved through the Plan are the following complex matters, any one of which could be the subject of years of expensive, complicated, and uncertain litigation, as well as time consuming and substantial professional fees to address the complex accounting of the Debtor’s ordinary course method of payments in comparison with the claims filed in this Chapter 11 Case.
241. Debtor’s Settlement with NuStar NuStar Logistics LP a/k/a NuStar Crude Oil Pipeline LP timely filed an unsecured claim in the amount of $16,544,117. NuStar Pipeline Operating Partnership LP a/k/a NuStar Crude Oil Pipeline LP timely filed an unsecured claim in the amount of $3,389,416 (collectively the “NuStar Claims”). NuStar Logistics LP a/k/a NuStar Crude Oil Pipeline LP and NuStar Pipeline Operating Partnership LP a/k/a NuStar Crude Oil Pipeline LP have agreed to collectively have an Allowed unsecured claim in the amount of $16,000,000 and share pro rata with Class 5 in the Class 5 Distribution. NuStar has agreed and understands that the Debtor and/or Plan Administrator will file limited or no objections to claims in Class 5 and will not file any objections to the NuStar Claims. Confirmation of the plan will effect a release of any and all claims the Debtor or any party acting in whole or in part with or through the Debtor could have asserted or may assert in the future against NuStar including, without limitation, any claim which was or could have been asserted in the First River Complaint, the NuStar Complaint or any claim or cause of action which was or could have been asserted under the Throughput and Deficiency Agreement dated September 30, 2013 (“T&D Agreement”), Master Terminal Services Agreement No. 13-11-1397 and a Terminal Services Schedule No. 13-11-1397/STS-01, both dated November 6, 2013 (collectively, the “MTS Agreement”). NuStar has agreed it will timely vote to accept the Plan, subject to determination of the amount of Allowed Claims in Class 5. 2. 503(b)(9) claims Another significant dispute exists regarding identifying the correct 503(b)(9) claimants in this Chapter 11 Case. On February 26, 2018, the Debtor filed a Motion for Entry of Order Pursuant to 11 U.S.C. §§ 105(a) and 503(b)(9) Establishing Procedures for the Assertion, Resolution, and Satisfaction of Claims Asserted Pursuant to 11 U.S.C. § 503(b)(9) (“503(b)(9) Procedures Motion”)[Dkt. No. 227]. Section 503(b)(9) of the Bankruptcy Code provides for the allowance, as an administrative expense, of the value of any goods sold to the Debtor in the ordinary course of the Debtor’s business and received by the Debtor within twenty (20) days before the commencement date: (b) After notice and a hearing, there shall be allowed, administrative expenses . . . including – (9) the value of any goods received by the debtor within 20 days before the date of commencement of a case under [the Bankruptcy Code] in which the goods have been sold to the debtor in the ordinary course of such debtor’s business. 11 U.S.C. § 503(b)(9).
25Within twenty (20) days of and prior to the Petition Date and in the ordinary course of its business, the Debtor purchased oil for resale and possible miscellaneous items for the operation of its business (collectively, the “Goods”), from various producers, royalty and working interest owners, and others (collectively, the “Vendors”), but for which the Debtor had not yet made payment. Section 503 of the Bankruptcy Code does not set any date by which 503(b)(9) Claims must be asserted. On March 14, 2018, the Court granted the 503(b)(9) Procedures Motion [Dkt. No. 316] which provided that (i) The Debtor shall prepare and serve a list of Vendors whom the Debtor believes is entitled to assert a 503(b)(9) Claim along with the corresponding 503(b)(9) Claim amount (the “503(b)(9) Claim List”); (ii) Any Vendor that is listed on the 503(b)(9) Claim List will be deemed to have an allowed 503(b)(9) Claim in the amount ascribed to the Vendor in the 503(b)(9) Claim List and such Vendor is not required to file a proof of claim as to that amount (a “Proof of 503(b)(9) Claim”); (iii) Any Vendor asserting a 503(b)(9) Claim that is not listed on the 503(b)(9) Claim List or who disagrees with the 503(b)(9) Claim amount set forth on the 503(b)(9) Claim List must file a Proof of 503(b)(9) Claim by April 18, 2018; and (iv) Vendors shall be forever barred, without further order of the Court, from asserting a Section 503(b)(9) Claim after the expiration of the 503(b)(9) Claim Bar date, but shall not be barred from asserting a related or unrelated general unsecured or secured claim. To date there are approximately three thousand four hundred sixty-five (3,465) alleged 503(b)(9) Claims totaling $13,629,089.74 (collectively the “Asserted 503(b)(9) Claims”). The Asserted 503(b)(9) Claims consist of the following: Certain claims Debtor’s also identified in their Schedules; Debtor’s 503(b)(9) Claims List as required by the order granting 503(b)(9) Procedures Motion; Duplicate 503(b)(9) claims; Claims filed by Producers where royalty owners already asserted a similar 503(b)(9) claim; Royalty Owners who filed 503(b)(9) claims; Working interest who filed 503(b)(9) claims; and Claims which are on legal suspense. The Debtors believe that the amount of Allowed 503(b)(9) claim will range between $7,000,000 - $8,000,000. In addition, adding to the complexity of issues with determining proper 503(b)(9) claims is that the Debtor’s 503(b)(9) Claims List, required by the order granting 503(b)(9) Procedures Motion, identified 503(b)(9) claimants based on the Debtor's historical ordinary course of business of making payment. If historically the Debtor paid a producer because
26producer paid directly a royalty interest, the Debtor scheduled the producer as having the 503(b)(9) claim. On the other hand, if in the ordinary course of business, the Debtor paid royalty owners per a division order the Debtor listed the royalty owner as having a 503(b)(9) claim. In other words, all claimants on the Debtor’s 503(b)(9) List are not producers, but rather are the parties who would be paid for the oil picked up during the 20th day period preceding the Petition Date. However, when producers filed 503(b)(9) Claims, a number of them filed claims to protect royalty owners, even though the royalty owners were being paid directly by First River pursuant to division orders, and thus many claims do not match the method of Debtor’s historical ordinary course of business of paying. This resulted in duplicate claims and claims made by parties who historically did not directly receive payment from the Debtor. In addition, the Debtor has requested, but not received, proof from producers that they paid royalty interests. Further complexing the issue is you have claims that might according to Debtor’s books and records been on legal suspense. The proposed compromise in the Plan resolves this dispute about the nature of 503(b)(9) claims. The Debtor will pay those 503(b)(9) Claims as identified in the Plan Supplement, unless the Debtor agrees with a claimant for a different amount or the Court orders a different amount. The Debtor will file as part of the Plan Supplement a list of proposed distribution to 503(b)(9) claimants. To the extent any claimant disagrees, such dispute will be resolved either by (i) a stipulation with the Debtor prior to Confirmation, (ii) a Court order determining the claim amount or (iii) following confirmation, an agreement with the Plan Administrator. To the extent producers have paid royalty interests, the producers will be entitled to the 503(b)(9) payment in lieu of such going to the royalty interest owner provided they supply the Debtor with sufficient information to determine the royalty owner that was paid. In addition, the plan provides for 503(b)(9) claimants to receive a reduced recovery in exchange for a release from any liability resulting from transfers within the preference period and in order that all creditors gain from avoiding costly professional fees and thus maximizing distribution to creditors, including Allowed 503(b)(9) Claims. Further, the settlement facilitates the 503(b)(9) claimants, as well as all other creditors who are to receive distributions, receiving a distribution sooner than without a settlement. 3. Actions Pursuant to 11 U.S.C. § 547 (Preference) and 11 U.S.C. § 548 (Fraudulent Transfers) Historically, the Debtor received virtually all of its income on Settlement Day from parties to whom it sold oil, and on the same day paid producers and royalty interest owners by ACH, wire transfer or check, depending on the recipient. Just prior to the December 2017 Settlement Day however, the Debtor’s lenders exercised control and dominion over the Debtor’s bank accounts. As a result, the Debtor was unable to make payments as it customarily had and virtually all payments made to producers and royalty interest owners in December of 2017 were made late, many by a means of payment different from prior, agreed payment methods. Thus, the Debtor believes these payments, which the Debtor calculates at approximately $20 million, were outside the ordinary course of business and thus are not protected by a Section 547(c)(2)(A) defense. Although the Debtor believes it more likely than not would prevail in any such avoidance litigation, there is the inherent risk of not prevailing and thus not recovering more for the estate from avoidance actions than the cost of prosecuting hundreds of avoidance actions.
27Pursuant to the Court’s order granting Debtor’s Second Motion to Extend 546 Deadline the Debtor has until September 1, 2021 to file avoidance actions to recover potential estate assets. A majority, if not all, of the avoidance actions would be brought against claimants in this Chapter 11 Case, including but not limited to producers, royalty owners and working interest owner who received payments for oil sold in November, as well as vendors of the Debtor. , The Debtor could move forward with filing hundreds of avoidance actions, which would require the devotion of substantial professional fees preparing and prosecuting the adversaries and utilize a substantial amount of the Court’s judicial resources, and force the avoidance action defendants to likewise incur significant litigation costs. In addition, distributions to creditors would likely be delayed for potentially a prolonged period while the preference claims were being litigated. Thus, the risks for Debtor in filing avoidance actions is that recovery after professional fees may not meaningfully increase distribution to claimants and ultimately the claimants could incur more in litigation costs defending avoidance actions than the distribution they may potentially receive years from now when all avoidance actions are fully prosecuted. The Plan’s comprehensive compromise and settlement resolves this dispute by providing that the Debtor will not investigate, prepare and file avoidance actions and thereby avoid substantial professional fees. Further, the settlement insures that all creditors with allowed claims will receive a distribution. Absent successful prosecution of preference actions, it is likely that general unsecured creditors would not receive a distribution on their unsecured claims. The compromise and settlement thus benefits the creditors who could be the target of such avoidance actions by (i) conserving estate resources by not bringing avoidance actions which potentially could deplete estate assets due to the amount of attorneys’ fees that would be incurred in filing and prosecuting hundreds of avoidance actions (ii) saving the creditors the costs of defending such actions (iii) avoiding potentially additional years of delay in creditors receiving their distributions and (iv) avoiding the risk creditors would have of losing and having to pay back a preference in addition to payment of costs incurred in defending the claims,. As a result, all claimants are receiving sooner rather than later a known distribution versus an unknown distribution which could be higher or lower than the amounts set forth in the Plan years from now. U.S. Energy Development Corporation, Ageron Energy, L.L.C., Petroedge Energy IV, L.L.C., Teal Natural Resources, L.L.C., Crimson Energy Partners IV, L.L.C., Viceroy Petroleum L.P., RLU Operating, L.L.C., Dewbre Petroleum Corporation, Jerry C. Dewbre, Trustee., American Shoreline, Inc. , Texpata Pipeline Company, Aurora Resources Corporation , AWP Operating Co., Texron Operating L.L.C., Galveston Bay Operating Co. L.L.C., Magnum Producing, L.P., Magnum Engineering Company, Magnum Operating, L.L.C., Rock Resources, Inc., Killam Oil Co., Ltd., Energy Reserves Group, L.L.C., RADCO Operations, L.P., and RHEACO Ltd. have agreed to timely vote to accept the Plan. In sum, the Plan is a vehicle for the near-term resolution of the myriad complex legal issues and disputes that have arisen in the Case. The proposed Plan resolves several major issues that would otherwise have to be judicially determined through lengthy, expensive, and inherently uncertain litigation and/or costly administration and professional expenses. There are colorable arguments on both sides of each of the foregoing issues, and the outcome of any litigation regarding such issues is necessarily uncertain. Moreover, if such issues were litigated, it could be
28years before allowed claims are determined and received distribution. In contrast, the Plan provides a mechanism for meaningful Distributions to be made to creditors in a timely and orderly fashion. Furthermore, the Debtor is strongly of the view that all elements of the comprehensive compromise and settlement to be effected under the Plan are superior to the disorderly and uncertain alternatives. The terms of the global resolution under the Plan were heavily negotiated by the Debtors, NuStar and lead Producers who were active in the Lien Clamant Adversary Proceeding, each of which acted at arm’s length and had the benefit of sophisticated external advisers. Under these circumstances, the Debtor believes that the Plan’s holistic treatment of the general unsecured claims including the NuStar claims, 503(b)(9) Claims and Avoidance Actions provided under the Plan represent a fair and reasonable result that satisfies the standards for approval under Bankruptcy Rule 9019, which approval the Debtor intends to seek contemporaneously with Plan confirmation. Whether to approve a compromise is a matter within the sound discretion of the bankruptcy court. See In re AWECO, Inc., 725 F.2d 293, 297 (5th Cir. 1984), cert. denied, 469 U.S. 880 (1984). The principal factors that the Court should consider in connection with approval of a compromise and settlement are set out in Protective Committee for Independent Stockholders of TMT Trailer Ferry, Inc. v. Anderson, 390 U.S. 414 (1968), on remand TMT Trailer Ferry, Inc. v. Kirkland, 471 F.2d 10 (5th Cir. 1972), and its progeny. Courts have considered the following factors when determining the reasonableness of a proposed settlement: (a) the probability of success in the litigation, with due consideration for the uncertainty in fact or law; (b) the complexity of the litigation involved and any attendant expense, inconvenience and delay associated with litigating the dispute; and (c) all factors bearing on the wisdom of the compromise. See In re Foster Mortgage Corp., 68 F.3d 914, 917 (5th Cir. 1995); see also AWECO, 752 F.2d at 298; see alsoRiver City v. Herpel, 624 F.2d 599, 602 (5th Cir. 1980); see alsoIn re W.J. Services, Inc., 146 B.R. 190, 191 (S.D. Tex. 1991). These factors seek to balance the risks and benefits associated with pursuing a claim against the costs associated with the proposed settlement. See In re Cajun Electric Power Cooperative, Inc., 119 F.3d 349, 356 (5th Cir. 1997). Indeed, in order to “minimize litigation and expedite the administration of the bankruptcy estate ‘compromises are favored in bankruptcy.’ ” Meyers v. Martin (In re Martin), 91 F.3d 389, 393 (3d Cir. 1996) (quoting 9 Collier on Bankruptcy ¶ 9019.03 (15th ed. rev. 1993)); see also In re Penn. Cent. Transp. Co., 596 F.2d 1102 (3d Cir. 1979); In re World Health Alternatives, Inc., 344 B.R. 291, 296 (Bankr. D. Del. 2006); In re Culmtech, Ltd., 118 B.R. 237, 238 (Bankr. M.D. Pa. 1990). This is particularly true when a settlement helps to timely resolve a bankruptcy case, which is a matter of significant public importance.14 14 See, e.g., Bullard v. Blue Hills Bank, 135 S. Ct. 1686, 1694 (2015) (“[E]xpedition is always an important consideration in bankruptcy.”); Katchen v. Landy, 382 U.S. 323, 328-29 (1966) (describing longstanding recognition “that a chief purpose of the bankruptcy laws is ‘to secure a prompt and effectual administration and settlement of the estate of all bankrupts within a limited period’ ” (quoting Ex parte Christy, 44 U.S. (3 How.) 292, 312 (1845))); Wiswall v. Campbell, 93 U.S. (3 Otto) 347, 350-51 (1876) (emphasizing how “[p]rompt action is everywhere required by law,” and that this principle requires quick resolutions of claims against a bankruptcy estate, as “[w]ithout it there can be no dividend”); Bailey v. Glover, 88 U.S. (21 Wall.) 342, 346-47 (1875) (discussing how “[i]t is obviously one
29Here, the Debtor is firmly of the view that consideration of the each factor demonstrates that the terms of the comprehensive compromise and settlement to be effected by the Plan are fair and reasonable, and that its approval is in the best interests of the Estate and all stakeholders. The Debtor will provide further evidence and argument supporting approval of this comprehensive compromise and settlement, including the elements detailed above, at the Confirmation Hearing. C. Introduction Chapter 11 does not require each holder of a Claim or Equity Interest to vote in favor of the Plan in order for the Bankruptcy Court to confirm the Plan. However, a Plan must be accepted by the holders of at least one impaired Class of Claims without considering the votes of “insiders” as defined in the Bankruptcy Code. The Plan is a liquidating plan and shall be funded with the Cash on hand as of the Effective Date. It appoints a Plan Administrator to assist with implementation of the Plan, talking all steps to necessary to effectuate distributions under the Plan, establishing and maintaining bank accounts, establish claims reserves, file any necessary tax returns, and exercising such other powers pursuant to order of the Bankruptcy Court. The Plan Administrator shall be responsible for all creditors receiving distributions under the Plan, but will utilize the services of Donlin Recano & Company as the Disbursing Agent for the actual cutting of checks and mailing to claimants. Claimants holding Allowed Claims will receive distributions, to the extent they are entitled to distributions, pursuant to the Plan within thirty (30) days after the Effective Date or such other time as the Plan Administrator determines to make distributions, or as directed by order of the Court. Total scheduled and claims filed exceed $57,800,000 million.15 The following table summarizes the classification and treatment of Claims and Interests under the Plan (including unclassified Claims). THE TABLE IS INTENDED FOR ILLUSTRATIVE PURPOSES ONLY AND DOES NOT ADDRESS ALL ISSUES REGARDING CLASSIFICATION, TREATMENT, AND ULTIMATE RECOVERIES, THE TABLE IS NOT A SUBSTITUTE FOR A FULL REVIEW OF THIS DISCLOSURE STATEMENT AND THE PLAN IN THEIR ENTIRETY. THERE ARE NO GUARANTEED AMOUNTS OF RECOVERY. of the purposes of the Bankrupt law, that there should be a speedy disposition of the bankrupt's assets,” which is a goal “only second in importance to securing equality of distribution”); Century Glove, Inc. v. First Am. Bank, 860 F.2d 94, 98 (3d Cir. 1988) (highlighting how “issues central to the progress of the bankruptcy petition, those likely to affect the distribution of the debtor's assets, or the relationship among the creditors, should be resolved quickly” (citation and quotation marks omitted)). 15 During the course of the Chapter 11 Case the Court authorized some claims to be paid. This amount does not reflect a reduction for claims that have been paid.
30Class Designation Treatment Projected Entitled to Vote Recovery 1 Priority Claims Unimpaired 100% No (Tax Claims) (presumed to accept) 2 Oklahoma Owner Unimpaired 100% No Secured Claims (presumed to accept) 3 503(b)(9) Claims Impaired 65.57% – Yes 70.57%16 4 Oil General Impaired 3%17 Yes Unsecured Claims 5 Non- Oil General Impaired 3%18 Yes Unsecured Claims 6 Non-Voting De Impaired 0% No Minimis Claims (presumed to reject) 7 Lenders’ Claim Unimpaired 0% No (presumed to accept) 8 Equity Interests Impaired 0% No (presumed to reject) D. Overview The Plan provides a mechanism for the expeditious and orderly collection and liquidation of assets, the resolution of disputed claims, and the distribution of funds to creditors, including distributions in the form of interim installments to the extent such distributions are determined to be advisable by a Plan Administrator. Allowed Priority, Administrative Expense, Fee Claims and Oklahoma Owner Secured Claims will be paid in full. Class 7, Lenders’ Claim, was paid in full pursuant to the Pay Order. In addition, the Plan establishes a Disputed Claims Reserve for the benefit of Holders of Disputed Claims. The Plan Administrator may (but is not obligated) to make interim distribution of Cash on account of Allowed Claims of a given Class from time to time, provided the Plan Administrator leaves sufficient Cash in reserve to cover the Disputed Claims of that Class. No Distribution or payment shall be made on account of a Disputed Claim until such Disputed Claim becomes an Allowed Claim. 16 Projected recoveries for Class 3, Class 4, and Class 5 were projected based on projections of allowed claims and remaining Cash in the estate. Projected recoveries will be affected by, among other things, the ultimate pool of Allowed Claims in each such Class. including any potential decrease in each pool as a result of objections to filed or scheduled claims, the amount of wind-down and Plan Administrator expenses. 17 See footnote 16 above. 18 See footnote 16 above.
31E. Classification of Claims and Equity Interests Section 1123 of the Bankruptcy Code provides that a plan of liquidation shall classify the claims of a debtor’s creditors and the interests of a debtor’s equity holders. The Plan divides the Claims and Equity Interests into eight (8) Classes. Section 101(5) of the Bankruptcy Code defines “claim” as a “right to payment, whether or not such right is reduced to judgment, liquidated, unliquidated, fixed, contingent, matured, unmatured, disputed, undisputed, legal, equitable, secured or unsecured,” or a “right to an equitable remedy for breach of performance if such breach gives rise to a right to payment, whether or not such right to an equitable remedy is reduced to judgment, fixed, contingent, matured, disputed, undisputed, secured or unsecured.” The Debtor is required under Section 1122 of the Bankruptcy Code to classify the Claims and Equity Interests into separate Classes which contain Claims and Equity Interests that are substantially similar to the other Claims and Equity Interests within such Class. The Debtor believes it has classified all Claims and Equity Interests in compliance with the provisions of Section 1122 of the Bankruptcy Code. However, it is possible that a Holder of a Claim or another interested party may challenge the classification of Claims and Equity Interests contained in the Plan and that the Bankruptcy Court may find that a different classification is required for the Plan to be confirmed. In such event, it is the present intent of the Debtor, to the extent permitted by the Bankruptcy Court, to make such reasonable modifications of the classifications under the Plan to provide for whatever classification might be required by the Bankruptcy Court for Confirmation and to use the Plan acceptances received in this solicitation for the purpose of obtaining the approval of the Class or Classes of which the accepting Holder is ultimately deemed to be a member. Any such reclassification could adversely affect the Class in which such Holder was initially a member, or any other Class under the Plan, by changing the composition of such Class and the vote required of that Class for approval of the Plan. A reclassification of Claims after approval of the Disclosure Statement might necessitate a resolicitation of acceptances or rejections of the Plan. F. Summary of Plan Distributions THE FOLLOWING IS A SUMMARY OF SOME OF THE SIGNIFICANT ELEMENTS OF THE PLAN. THIS DISCLOSURE STATEMENT IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE MORE DETAILED INFORMATION SET FORTH IN THE PLAN. 1. Classification and Treatment of Administrative Expense Claims, Fee Claims and Equity Interests Under the Plan Only administrative expenses, claims and equity interests that are “allowed” may receive distributions under a chapter 11 plan. An “allowed” administrative expense, claim or equity interest simply means that the Debtor agrees, or in the event of a dispute, that the Court determines, that the administrative expense, claim or equity interest, including the amount thereof, is in fact a valid obligation of, or equity interest in, the Debtor. Section 502(a) of the Bankruptcy Code provides that a timely filed administrative expense, claim or equity interest is automatically
32“allowed” unless the debtor or another party in interest objects. However, section 502(b) of the Bankruptcy Code specifies certain claims that may not be “allowed” in a bankruptcy case even if a proof of claim is filed. These include, without limitation, claims that are unenforceable under the governing agreement or applicable non-bankruptcy law, claims for unmatured interest on unsecured and/or undersecured obligations, property tax claims in excess of the debtor’s equity in the property, claims for certain services that exceed their reasonable value, nonresidential real property lease and employment contract rejection damage claims in excess of specified amounts, and late-filed claims. In addition, Bankruptcy Rule 3003(c)(2) prohibits the allowance of any claim or equity interest that either is not listed on the debtor’s schedules or is listed as disputed, contingent, or unliquidated if the holder has not filed a proof of claim or equity interest before the deadline to file proofs of claim and equity interests. The Bankruptcy Code also requires that, for purposes of treatment and voting, a chapter 11 plan divide the different claims against, and equity interests in, the Debtor into separate classes based upon their legal nature. Claims of a substantially similar legal nature are usually classified together, as are equity interests of a substantially similar legal nature. Because an entity may hold multiple claims and/or equity interests which give rise to different legal rights, the holders of such claims and/or equity interests may find themselves as members of multiple classes of claims and/or equity interests. Under a chapter 11 plan, the separate classes of claims and equity interests must be designated either as “impaired” (altered by the plan in any way) or “unimpaired” (unaltered by the plan). If a class of claims or interests is “impaired,” the Bankruptcy Code affords certain rights to the holders of such claims or interests, such as the right to vote on the plan (unless the plan provides for no distribution to the holder, in which case, the holder is deemed to reject the plan), and the right to receive an amount under the chapter 11 plan that is not less than the value that the holder would receive if the debtor were liquidated under chapter 7. Under section 1124 of the Bankruptcy Code, a class of claims or interests is “impaired” unless, with respect to each claim or interest of such class, the plan (i) does not alter the legal, equitable or contractual rights of the holders of such claims or interests or (ii) irrespective of the holders’ right to receive accelerated payment of such claims or interests after the occurrence of a default, cures all defaults (other than those arising from, among other things, the debtor’s insolvency or the commencement of a bankruptcy case), reinstates the maturity of the claims or interests in the class, compensates the holders of such claims or interests for any damages incurred as a result of their reasonable reliance upon any acceleration rights and does not otherwise alter their legal, equitable or contractual rights. Typically, this means that the holder of an unimpaired claim will receive on the later of the effective date of the plan of reorganization or the date on which amounts owing are due and payable, payment in full, in cash, with postpetition interest to the extent permitted and provided under the governing agreement between the parties (or, if there is no agreement, under applicable non-bankruptcy law), and the remainder of the debtor’s obligations, if any, will be performed as they come due in accordance with their terms. Thus, other than its right to accelerate the debtor’s obligations, the holder of an unimpaired claim will be placed in the position it would have been in had the debtor’s case not been commenced. For purposes of computing distributions under the Plan, Allowed Claims do not include post-petition interest unless otherwise specified in the Plan.
33Consistent with these requirements the Plan divides the Claims into the following Classes and affords the treatments described: a. Unclassified – Administrative Expense Claims Administrative Expense Claims include any right to payment constituting a cost or expense of administration of the Chapter 11 Case of a kind specified under section 503(b) of the Bankruptcy Code and entitled to priority under sections 507(a)(2), 507(b) or 1114(e)(2) of the Bankruptcy Code, including, without limitation, any actual and necessary costs and expenses of preserving the Debtor’s estate, any actual and necessary costs and expenses of operating the Debtor’s business, and the wind-up, any indebtedness or obligations incurred or assumed by the Debtor in Possession in connection with the conduct of its business, including, without limitation, for the acquisition or lease of property or an interest in property or the rendition of services, all compensation and reimbursement of expenses to the extent awarded by the Court under sections 330, 331 or 503 of the Bankruptcy Code, or any fees or charges assessed against the Debtor’s estate under section 1930 of chapter 123 of title 28 of the United States Code, excluding all 503(b)(9) Claims which are treated separately. Each holder of an Allowed Administrative Expense Claim shall receive from the Debtor or Plan Administrator (a) Cash in an amount equal to the amount of such Allowed Administrative Expense Claim on the later of the Effective Date and the date such Administrative Expense Claim becomes an Allowed Administrative Expense Claim, or as soon thereafter as is practicable, or (b) such other treatment as the Debtor or Plan Administrator and such holder shall have agreed upon in writing; provided, however, that Allowed Administrative Expense Claims incurred in the ordinary course of the Debtor’s business shall be paid when due. Unless a prior date has been established pursuant to the Bankruptcy Code, the Bankruptcy Rules or a prior order of the Court, the Confirmation Order will establish a bar date for filing applications for allowance of Administrative Expense Claims, which date will be the first business day that is thirty (30) days after the Effective Date. Holders of Administrative Expense Claims not paid prior to the Effective Date shall submit requests for payment on or before the applicable Administrative Expense Claims Bar Date or forever be barred from doing so. The notice of confirmation to be delivered pursuant to Bankruptcy Rules 3020(c) and 2002(f) will set forth the Administrative Expense Claims Bar Date and constitute good and sufficient notice of the Administrative Expense Claims Bar Date. The Debtor or Plan Administrator shall have thirty (30) days (or such longer period as may be allowed by order of the Court, which may be entered without notice or a hearing) following the Administrative Claims Bar Date to review and object to all Administrative Expense Claims. Any pre-confirmation United States Trustee fees shall be paid on or before the Effective Date in accordance with 11 U.S.C. § 1129(a)(12).
34b. Unclassified – Fee Claims Fee Claims are Administrative Expense Claims under sections 330(a), 331 or 503 of the Bankruptcy Code for compensation of a Professional or other Person for services rendered or expenses incurred in the Chapter 11 Case on or prior to the Effective Date.19All requests for compensation or reimbursement of Fee Claims pursuant to sections 327, 328, 330, 331, 503 or 1103 of the Bankruptcy Code for services rendered prior to the Effective Date shall be filed and served on the Debtor, counsel to the Debtor, the United States Trustee, Plan Administrator and such other entities who are designated by the Bankruptcy Rules, the Confirmation Order or other order of the Court, no later than September 10, 2021. Holders of Fee Claims that are required to file and serve applications for final allowance of their Fee Claims and that do not file and serve such applications by the required deadline shall be forever barred from asserting such Claims against the Debtor, or their respective properties, and such Fee Claims shall be deemed discharged as of the Effective Date. Objections to any Fee Claims must be filed and served on the Debtor, counsel for the Debtor, Plan Administrator, counsel for the Plan Administrator and the requesting party no later than twenty-one (21) days after the applications are filed. Fee Claims shall be paid in full pursuant to the amount allowed by the Bankruptcy Court. 2. Classification and Treatment of Claims The categories of Claims and Interests set forth below classify Claims and Interest for all purposes, including purposes of voting, confirmation, and distribution pursuant to the Plan and Bankruptcy Code §§ 1122 and 1123(a)(1). (a) Priority Claims: Class 1. Each Holder of an Allowed Priority Claim shall be paid on the later to occur of the Effective Date or the date such claim becomes an Allowed Claim, or as soon as reasonably practicable thereafter in (a) an amount, in Cash, equal to the Allowed Amount of its Priority Claim, in accordance with Section 1129(a)(9)(B) of the Bankruptcy Code, (b) under such other terms as may be agreed upon by both the Holder of such Allowed Priority Claim and the Plan Administrator, or (c) as otherwise ordered by a Final Order of the Bankruptcy Court. Class 1 is Unimpaired. (b) Oklahoma Owner Secured Claim: Class 2. Class 2 consists of holders of Allowed Oklahoma Owner Secured Claims who have established that they hold a perfected First Purchaser Lien in the First Purchaser Collateral under Oklahoma law. Each Holder of an Allowed Oklahoma Secured Claim shall be paid on the later of October 1, 2021 or the date such claim becomes an Allowed Claim, or as soon as reasonably practicable thereafter in (a) an amount, in Cash, equal to the Allowed Amount of its Oklahoma Secured Claim, in accordance with Section 1129(a)(9)(B) of the Bankruptcy Code, (b) under such other terms as may be agreed upon by both the Holder of 19 For the avoidance of doubt, claims by Lenders against Debtor for compensation for professional services and related fees pursuant to the Credit Agreement are not Fee Claims.
35such Allowed Priority Claim and the Plan Administrator, or (c) as otherwise ordered by a Final Order of the Bankruptcy Court. Class 2 is Unimpaired. (c) 503(b)(9) Claim: Class 3. Class 3 consists of holders of Allowed 503(b)(9) Claims. For avoidance of doubt, Class 3 consists of 503(b)(9) Claims identified in Debtor’s Plan Supplement, unless the Debtor or Plan Administrator agree with claimant on a different amount or the Court authorizes a different claim amount. Each Holder of an Allowed 503(b)(9) Claim will receive a pro rata share of the remaining Cash after all other claims and expenses of administration are paid pursuant to the terms of the Plan. Class 3 is Impaired. (d) Oil General Unsecured Claims: Class 4. Class 4 consists of holders of Allowed Oil General Unsecured Claims. Except to the extent that a holder of an Allowed Oil General Unsecured Claim agrees to a different treatment of such Claim, each holder of an Allowed Oil General Unsecured Claim against the Debtor shall receive Cash a pro rata share of Class 4 Distribution paid on or before the later of October 1, 2021 or as soon as practicable after the date such Claim becomes an Allowed Claim. Class 4 is Impaired. (e) Non-Oil General Unsecured Claims: Class 5. Class 5 consists of holders of Allowed Non-Oil General Unsecured Claims. Except to the extent that a holder of an Allowed Non-Oil General Unsecured Claim agrees to a different treatment of such Claim, each holder of an Allowed Oil General Unsecured Claim against the Debtor shall receive Cash a pro rata share of the Class 5 Distribution on or before the later of October 1, 2021 or as soon as practicable after the date on which the Claim becomes an Allowed Claim. Under no circumstances shall any holder of an Allowed Non-Oil General Unsecured Claim receive more than payment in full of such Claim. Class 5 is Impaired. (f) De Minimis Claims: Class 6: Class 6 consists of all De Minimis Claims (for avoidance of doubt means any creditor that Allowed claims in total are $25.00 or less). Class 6 is impaired and deemed to reject the Plan. (g) Lenders’ Secured Claim: Class 7: Class 7 consists of the Allowed Claim of the Lenders, which has been paid in full pursuant to the Pay Order. Class 7 is unimpaired and deemed to accept the Plan. (h) Equity Interests: Class 8. The Holders of Equity Interests in the Debtor shall be cancelled without further action or order of the Bankruptcy Court and all holders of Equity Interests shall not receive or retain any property under this Plan.
36Class 8 is Impaired and deemed to reject the Plan. G. Treatment of Executory Contracts and Unexpired Leases Rejection of Executory Contracts and Unexpired Leases. Pursuant to Sections 365 and 1123(b)(2) of the Bankruptcy Code, all executory contracts and unexpired leases that exist between the Debtor and another Person or Entity shall be deemed rejected by the Debtor as of the Confirmation Date (collectively, the “Rejected Contracts”), unless there is pending before the Bankruptcy Court on the Confirmation Date a motion to assume any executory contract or unexpired lease, or such executory contract or unexpired lease has previously been assumed by order of the Bankruptcy Court. Approval of Rejection of Executory Contracts and Unexpired Leases. Entry of the Confirmation Order shall, subject to and upon the occurrence of the Effective Date, constitute the approval, pursuant to Sections 365(a) and 1123(b)(2) of the Bankruptcy Code, of the rejection of the executory contracts and unexpired leases rejected pursuant to Article 8 of the Plan. Claims under Rejected Executory Contracts and Unexpired Leases. Any Claim for damages arising by reason of the rejection of any executory contract or unexpired lease must be filed with the Bankruptcy Court in accordance with the terms of the order authorizing such rejection and any applicable bar dates established during the Chapter 11 Case. Any Claims not filed within such time will be forever barred from assertion against the Debtor. All Allowed Claims arising from the rejection of executory contracts or unexpired leases shall be treated as General Unsecured Claims. The Plan and any other order of the Bankruptcy Court providing for the rejection of an executory contract or unexpired lease shall constitute adequate and sufficient notice to Persons or Entities which may assert a Claim for damages from the rejection of an executory contract or unexpired lease of the Bar Date for filing a Claim in connection therewith. H. Disallowed Claims The Debtor scheduled numerous claims as unknown as it relates to the claimant’s name and also scheduled numerous claims where Debtor’s books and records did not reflect an address for the claimant. If a claimant has not filed a Proof of Claim, no counsel of record has appeared on behalf of the claimant in the Chapter 11 Case and the Debtor’s books and records do not reflect any known mailing address or claimant name, said claim is disallowed in its entirety. Any Claims filed after the Bar Date, 503(b)(9) Claim Bar Date, or Administrative Expense Claims Bar Date, as applicable, shall be deemed disallowed and expunged in their entirety without further order of the Bankruptcy Court or any action being required on the part of the Debtor, unless the Person wishing to file such untimely Claim has received Bankruptcy Court authority to do so. Any Claims that fail to state an amount claimed greater than $0, or fail entirely to state an amount, that have not been amended prior to the Confirmation Hearing shall be deemed disallowed.
37Any claimed security interest based on Tex UCC 9.343, shall be disallowed regardless of whether a filing was made with the Delaware Secretary of State related to a lien granted by such statute. Any 503(b)(9) claim will be disallowed to the extent it differs from the list of Allowed 503(b)(9) Claims to be filed in the Plan Supplement. Any 503(b)(9) claimant may object to the amount of the claim on the list not later than fourteen (14) days following the Confirmation Hearing. I. Insurance The Plan Administrator shall receive all benefits otherwise payable to, or for the benefit of the Debtor under its insurance policies. None of the Disclosure Statement, Plan, or Confirmation Order shall: (a) modify the coverage provided under the Debtor’s current, unexpired insurance policies, (b) except as provided for in the Plan, alter in any way the rights and obligations of the Debtor’s insurers under their policies, or (c) except as provided in the Plan, alter in any way the rights and obligations of the Debtor, as applicable, under the insurance policies, including, without limitation, any duty of the Debtor, as applicable, to defend, at their own expense, against claims asserted under the insurance policies. The Debtor’s insurers shall retain any and all defenses to coverage that such insurers may have, including the right to contest and/or litigate with any party, including the Debtor and the Plan Administrator, as applicable, the existence, primacy, and/or scope of available coverage under any alleged applicable policy. Nothing in the Disclosure Statement, Plan or Confirmation Order in any way permits any holder of a Claim to recover the same amounts from the insurers and any other party including, but not limited to, the Debtor or the Plan Administrator. Nothing in the Disclosure Statement, Plan, or Confirmation Order shall modify the rights of the Debtor’s insurers with respect to the maintenance or use of any letters of credit, or other collateral and security provided to them, in connection with liabilities arising under the applicable insurance agreements. ARTICLE VII MEANS OF IMPLEMENTATION OF THE PLAN General Overview of Plan. The Plan is a liquidating plan that calls for the liquidation of the Assets of the Debtor. On the Effective Date of the Plan, the Plan Administrator shall be appointed to implement the terms of the Plan, as set forth in Article 9 of the Plan. Plan Administrator. The Plan Administrator shall act for the Liquidating Debtor in the same fiduciary capacity as applicable to a board of managers and officers, subject to the provisions of the Plan (and all certificates of formation, membership agreements, and related documents are deemed amended by the Plan to permit and authorize the same). On the Effective Date, the authority, power, and incumbency of the persons acting as managers and officers of the Debtor shall be deemed to have resigned, and Deborah Kryak shall be appointed as the sole manager and sole officer of the Liquidating Debtor and shall succeed to the powers of the Liquidating Debtor's managers and officers. From and after the Effective Date, the Plan Administrator shall be the sole representative of, and shall act for, the Liquidating Debtor.
38The powers of the Plan Administrator shall include any and all powers and authority to implement the Plan and to administer and distribute the Liquidating Debtor Assets and wind down the businesses and affairs of the Debtor and the Liquidating Debtor, including: (1) liquidating, receiving, holding, and investing, supervising, and protecting the Liquidating Debtor Assets; (2) taking all steps to execute all instruments and documents necessary to effectuate the distributions to be made under the Plan from the Liquidating Debtor Assets; (3) making distributions from the Liquidating Debtor Assets as contemplated under the Plan; (4) establishing and maintaining bank accounts in the name of the Liquidating Debtor, including the Liquidating Debtor Disputed Claims Reserve; (5) employing, retaining, terminating, or replacing professionals to represent it with respect to its responsibilities or otherwise effectuating the Plan to the extent necessary; (6) paying all reasonable fees, expenses, debts, charges, and liabilities of the Liquidating Debtor; (7) administering and paying taxes of the Liquidating Debtor, including filing tax returns; (8) representing the interests of the Liquidating Debtor or the Estate before any taxing authority in all matters, including any action, suit, proceeding or audit; (9) to exercise all power and authority that may be exercised, to commence all proceedings (including the power to continue any actions and proceedings that may have been commenced by the Debtor prior to the Effective Date) that may be commenced, to defend all proceedings, and to take all actions that may be taken by any officer or manager of the Liquidating Debtor with like effect as if authorized, exercised, and taken by unanimous action of such officers and managers, including consummating the Plan and all transfers thereunder on behalf of the Liquidating Debtor; (10) to use, manage, sell, abandon, convert to Cash and/or otherwise dispose of the Assets, for the purpose of liquidating all remaining property of the Estate; (11) to take all steps necessary to terminate the corporate existence of the Debtor; (12) to prosecute objections to Claims and Administrative Expenses and compromise or settle any Claims and Administrative Expenses (disputed or otherwise); (13) exercising such other powers as may be vested in it pursuant to order of the Bankruptcy Court or pursuant to the Plan, or as it reasonably deems to be necessary and proper to carry out the provisions of the Plan.
39The Plan Administrator may resign at any time upon 30 days; written notice delivered to the Bankruptcy Court, provided that such resignation shall only become effective upon the appointment of a permanent or interim successor Plan Administrator. In the event the Plan Administrator resigns or is removed, the Bankruptcy Court shall select a successor Plan Administrator. Upon its appointment, the successor Plan Administrator, without any further act, shall become fully vested with all of the rights, powers, duties, and obligations of its predecessor and all responsibilities of the predecessor Plan Administrator relating to the Liquidating Debtor shall be terminated. The Plan Administrator shall be compensated by the Liquidating Debtor at her current level of compensation from the Debtor, including reimbursement for actual, reasonable and necessary expenses. From and after the Effective Date, any professionals engaged or retained by the Plan Administrator shall be entitled to reasonable compensation to perform services for the Plan Administrator a. Tax Returns After the Effective Date, the Plan Administrator shall complete and file all final or otherwise required federal, state, and local tax returns the Debtor, and pursuant to section 505(b) of the Bankruptcy Code, may request an expedited determination of any unpaid tax liability of such Debtor or its Estate for any tax incurred during the administration of such Debtor’s Chapter 11 Case, as determined under applicable tax laws. b. Disputed Claims Reserve On the Effective Date or as soon as reasonably practicable thereafter, the Debtor or Plan Administrator shall fund, and the Plan Administrator shall thereafter maintain, the Disputed Claims Reserve with an authorized depository in the Western District of Texas, which funds shall vest in the Liquidating Debtor free and clear of all liens, Claims, encumbrances, charges, and other interests, except as otherwise specifically provided in the Plan or in the Confirmation Order. Funds in the Disputed Claims Reserve shall be used by the Plan Administrator for the payment of all or part of a Disputed Claim that becomes an Allowed Claim entitled to distribution under the Plan. If any Disputed Claims are not Allowed in whole or in part and to the extent any funds remain in the Disputed Claims Reserve after all of such Claims have been paid or otherwise satisfied in full, such remaining funds shall be distributed by the Plan Administrator pro rata to Allowed 503(b)(9) Claimants in accordance with the Plan. Notwithstanding anything to the contrary herein or in the Plan, neither the Plan Administrator, nor any other party in interest shall be obligated to fund the Disputed Claims Reserve in an aggregate amount in excess of the Disputed Claims Reserve Amount. c. D&O Policy Notwithstanding anything to the contrary contained herein, in the Plan, or in the Confirmation Order, Confirmation of the Plan shall not impair or otherwise modify any obligations arising under the D&O Policy. In addition, after the Effective Date, the Plan Administrator shall not terminate or otherwise reduce coverage under any D&O Policy, including, without limitation, any “tail policy,” in effect as of June 1, 2021, and all directors, managers, and officers of the Debtor who
40served in such capacity as of June 1, 2021 at any time prior to the Effective Date shall be entitled to the full benefits of any such policy for the full term of such policy regardless of whether such directors and officers remain in such positions after the Effective Date. d. Wind Down On and after the Effective Date, the Plan Administrator will be authorized to implement the Plan and any applicable orders of the Bankruptcy Court, and the Plan Administrator shall have the power and authority to take any action necessary to wind down and dissolve the Debtor’s Estate. As soon as reasonably practicable after the Effective Date, except with respect to the Liquidating Debtor as set forth in the Plan, the Plan Administrator shall: (1) file a certificate of dissolution or equivalent document, together with all other necessary corporate and company documents, to effect the dissolution of the Debtor under the applicable laws of their state of incorporation or formation (as applicable), including, but not limited to, any actions contemplated in sections 275--283 of the General Corporation Law of the State of Delaware (the “DGCL”); and (2) take such other actions as the Plan Administrator may determine to be necessary or desirable to carry out the purposes of the Plan. For purposes of clause (1) of the preceding sentence, the Plan shall constitute a plan of distribution as contemplated in the DGCL. The certificate of dissolution or equivalent document may be executed by thePlan Administrator without need for any action or approval by the equity holders or boards of directors or managers of any Debtor. From and after the Effective Date, except with respect to the Liquidating Debtor as set forth in the Plan, the Debtors (4) for all purposes shall be deemed to have withdrawn their business operations from any state in which the Debtor was previously conducting, or are registered or licensed to conduct, their business operations, and shall not be required to file any document, pay any sum, or take any other action in order to effectuate such withdrawal, (5) shall be deemed to have cancelled pursuant to the Plan all Interests, and (6) shall not be liable in any manner to any taxing authority for franchise, business, license, or similar taxes accruing on or after the Effective Date. For the avoidance of doubt, except with respect to the Liquidating Debtor as set forth in the Plan, (7) notwithstanding the Debtor's dissolution, the Debtor shall be deemed to remain intact solely with respect to the preparation, filing, review, and resolution of applications for Fee Claims. The filing of the final monthly report (for the month in which the Effective Date occurs) and all subsequent quarterly reports shall be the responsibility of thePlan Administrator. e. Exculpation; Indemnification; Insurance The Plan Administrator, all professionals retained by the Plan Administrator, and representatives of each of the foregoing shall be deemed exculpated and indemnified in all respects in a manner identical to the exculpation and indemnification may obtain, at the expense of the Liquidating Debtor and with funds from the Liquidating Debtor Reserve, commercially reasonable liability or other appropriate insurance with respect to the indemnification obligations of the Plan Administrator. The Plan Administrator may rely upon written information previously generated by the Debtor or the Liquidating Debtor.
41f. Dissolution of the Liquidating Debtor Upon a certification to be filed with the Bankruptcy Court by thePlan Administrator of all distributions having been made and completion of all its duties under the Plan and entry of a final decree closing the Chapter 11 Case, the Liquidating Debtor shall be deemed to be dissolved without any further action by the Liquidating Debtor, including the filing of any documents with the secretary of state for the state in which the Liquidating Debtor is formed or any other jurisdiction. The Plan Administrator, however, shall have authority to take all necessary actions to dissolve the Debtor in and withdraw the Debtor from applicable state(s). Pursuit of Causes of Action. Following the Effective Date, pursuant to the terms of the compromise neither the Debtor or the Plan Administrator will pursue any of the following (a) all avoidance actions and rights to recover transfers avoidable or recoverable under Sections 502, 542, 543, 544, 545, 547, 548, 549, 550, 551 and 553 of the Bankruptcy Code, including but not limited to causes of action against any party listed on Attachment A to the Debtor’s Statement of Financial Affairs [Dkt. No. 192], (b) all causes of action listed in response to Question 7 on the Debtor’s Statement of Financial Affairs [Dkt. No. 192], (c) all causes of action listed in Section 11 of the Debtor’s Schedules of Assets and Liabilities [Dkt. No. 191], (d) all claims against directors and officers of the Debtor, including all claims as of the Petition Date covered under the Debtor’s D&O, and (e) any and all other claims or rights of the Debtor of any value whatsoever, at law or in equity, against any Creditor or other third party. Likewise, for avoidance of doubt, the Debtor’s claims against directors and officers are forever released. Determination of Claims. The Debtor, the Plan Administrator and their professionals will have no obligation or duty to undertake a claim reconciliation process that compares creditors' claims with Debtor’s books and records to confirm or object to inconsistencies between claims filed by creditors and the Debtor’s schedule of liabilities or to file any objections to claims. The Debtor and Plan Administrator may, in their discretion, file objections to claims if they believe such is necessary or advisable in order to facilitate administration of the Plan consistent with intent of the Plan. Unless otherwise ordered by the Bankruptcy Court, and except as to any late-filed Claims and Claims resulting from the rejection of executory contracts or unexpired leases, if any, all objections to Claims shall be served and filed on or before the later of: (i) sixty (60) days after the Effective Date; and (i) such other date as may be fixed by the Bankruptcy Court, whether fixed before or after the date specified in clause (i) hereof. Notwithstanding any authority to the contrary, an objection to a Claim shall be deemed properly served on the Holder of the Claim if the Debtor or Plan Administrator effectuates service in any of the following manners (a) in accordance with Rule 4 of the Federal Rules of Civil Procedure, as modified and made applicable by Bankruptcy Rule 7004, (b) to the extent counsel for the Holder of a Claim is unknown, by first class mail, postage prepaid, on the signatory on the Proof of Claim or other representative identified on the Proof of Claim or any attachment thereto, or (c) by first class mail, postage prepaid, on any counsel that has filed a notice of appearance in the Liquidation Case on behalf of the Holder of a Claim. Disputed Claims shall be fixed or liquidated in the Bankruptcy Court as core proceedings within the meaning of 28 U.S.C. § 157(b)(2)(B) unless the Bankruptcy Court orders otherwise. If the fixing or liquidation of a contingent or unliquidated Claim would cause undue delay in the
42administration of the Liquidation Case, such Claim shall be estimated by the Bankruptcy Court for purposes of allowance and distribution. Upon receipt of a timely filed Proof of Claim, the Debtor, the Plan Administrator or other party in interest may file a request for estimation along with its objection to the Claim set forth therein. The determination of Claims in Estimation Hearings shall be binding for purposes of establishing the maximum amount of the Claim for purposes of allowance and distribution. Procedures for specific Estimation Hearings, including provisions for discovery, shall be set by the Bankruptcy Court giving due consideration to applicable Bankruptcy Rules and the need for prompt determination of the Disputed Claim. Unclaimed Distributions. If the Holder of an Allowed Claim fails to negotiate a check issued to such Holder within ninety (90) days of the date such check was issued, then the Plan Administrator shall provide written notice to such Holder stating that unless such Holder negotiates such check within ninety (90) days of the date of such notice, the amount of Cash attributable to such check shall be deemed to be unclaimed, such Holder shall be deemed to have no further Claim in respect of such check, such Holder’s Allowed Claim shall no longer be deemed to be Allowed, and such Holder shall not be entitled to participate in any further distributions under the Plan in respect of such Claim. If a Cash distribution made pursuant to the Plan to any Holder of an Allowed Claim is returned to the Plan Administrator due to an incorrect or incomplete address for the Holder of such Allowed Claim, and no claim is made in writing to the Plan Administrator as to such distribution within ninety (90) days of the date such distribution was made, then the amount of Cash attributable to such distribution shall be deemed to be unclaimed, such Holder shall be deemed to have no further Claim in respect of such distribution, such Holder’s Allowed Claim shall no longer be deemed to be Allowed, and such Holder shall not be entitled to participate in any further distributions under the Plan in respect of such Claim. Any unclaimed Cash distribution as described above originally sent by the Plan Administrator shall revert to payment to Class 3 (503(b)(9) Claims. In the event at the conclusion of the Chapter 11 Case the Plan Administrator determines the cost of making an additional distribution to 503(b)(9) claimants would exceed the cost of making said distribution the Plan Administrator may distribute the remaining monies to a charity or charities of her choosing. Transfer of Claim. In the event that the Holder of any Claim shall transfer such Claim on and after the Effective Date, such Holder shall immediately advise the Plan Administrator and Disbursing Agent in writing of such transfer and provide sufficient written evidence of such transfer. The Plan Administrator and Disbursing Agent shall be entitled to assume that no transfer of any Claim has been made by any Holder unless and until the Plan Administrator and Disbursing Agent shall have received written notice to the contrary. Each transferee of any Claim shall take such Claim subject to the provisions of the Plan and to any request made, waiver or consent given or other action taken hereunder and, except as otherwise expressly provided in such notice, the Plan Administrator shall be entitled to assume conclusively that the transferee named in such notice shall thereafter be vested with all rights and powers of the transferor under the Plan. One Distribution Per Holder. If the Holder of a Claim holds more than one Claim in any one Class, all Claims of such Holder in such Class shall be aggregated and deemed to be one Claim
43for distribution purposes, and only one distribution shall be made with respect to the single aggregated Claim. Effect of Pre-Confirmation Distributions. Nothing in the Plan shall be deemed to entitle the Holder of a Claim that received, prior to the Effective Date, full or partial payment of such Holder’s Claim, by way of settlement or otherwise, pursuant to an order of the Bankruptcy Court, provision of the Bankruptcy Code, or other means, to receive a duplicate payment in full or in part pursuant to the Plan; and all such full or partial payments shall be deemed to be payments made under the Plan for purposes of satisfying the obligations of the Debtor or the Plan Administrator to such Holder hereunder. No Interest on Claims or Equity Interests. Except as expressly stated in the Plan or otherwise Allowed by a Final Order of the Bankruptcy Court, no Holder of an Allowed Claim shall be entitled to the accrual of Post-petition interest or the payment of Post-petition interest, penalties, or late charges on account of such Allowed Claim for any purpose. Additionally, and without limiting the foregoing, interest shall not accrue or be paid on any Disputed Claim in respect of the period from the Effective Date to the date a final distribution is made when and if such Disputed Claim becomes an Allowed Claim. Compliance with Tax Requirements. In connection with the Plan, the Plan Administrator shall comply with all tax withholding and reporting requirements imposed by federal, state, local and foreign taxing authorities and all distributions hereunder shall be subject to such withholding and reporting requirements. Conditions Precedent to Confirmation of the Plan. The following is a condition precedent to Confirmation of the Plan which must be satisfied or waived in accordance with Article 11 of the Plan before the Plan can be confirmed. (a) The Bankruptcy Court shall have made such findings and determinations regarding the Plan as shall enable the entry of the Confirmation Order in a manner consistent with the provisions of the Plan and in a form satisfactory to the Debtor. Conditions Precedent to the Effective Date. The following are conditions precedent to the occurrence of the Effective Date, each of which must be satisfied or may be waived in accordance with Article 11.2 of the Plan: (a) The Confirmation Order shall have been entered by the Bankruptcy Court and the Confirmation Order and any order of the District Court shall be in form and substance acceptable to the Debtor and the Plan Administrator, and the Confirmation Order (and any affirming order of the District Court) shall have become a Final Order; provided, however; that the Effective Date may occur at a point in time when the Confirmation Order is not a Final Order at the option of the Debtor unless the effectiveness of the Confirmation Order has been stayed, reversed or vacated. The Effective Date may occur, again at the option of the Debtor, on the first Business Day immediately following the expiration or other termination of any stay of effectiveness of the Confirmation Order; and (b) The Plan Documents, if any, necessary or appropriate to implement the Plan shall have been executed and delivered; all conditions precedent to the effectiveness of each of such
44Plan Documents shall have been satisfied or waived by the respective parties thereto; and the Plan Documents shall be in full force and effect. The Plan Documents shall be acceptable to the Plan Administrator, Disbursing Agent and the Debtor. Waiver of Federal Rule of Civil Procedure 62(a) The Debtor may request that the Confirmation Order include (a) a finding that Fed. R. Civ. P. 62(a) shall not apply to the Confirmation Order, and (b) authorization for the Debtor to consummate the Plan immediately after entry of the Confirmation Order. Injunction, Exculpation from Liability and Releases. Article 12 of the Plan contains detailed exculpation and injunction provisions for the benefit of the Debtor and other parties. Set forth below is a summary of these provisions. Exculpation from Liability. The Debtor and its officers, directors, shareholders, agents and employees and their Professionals (acting in such capacity), shall neither have nor incur any liability whatsoever to any Person or Entity for any act taken or omitted to be taken in good faith in connection with or related to the formulation, preparation, dissemination, implementation, confirmation, or consummation of the Plan, the Disclosure Statement, any Plan Document, or any contract, instrument, release, or other agreement or document created or entered into, or any other act taken or omitted to be taken, in connection with the Plan or the Liquidation Case; provided, however, that this exculpation from liability provision shall not be applicable to any liability found by a court of competent jurisdiction to have resulted from gross mismanagement, breach of fiduciary duty, fraud or the willful misconduct of any such party; and, provided further, that this exculpation from liability provision shall not be applicable to any Insiders. The rights granted under Article 12.1 of the Plan are cumulative with (and not restrictive of) any and all rights, remedies, and benefits that the Debtor and its Professionals have or obtain pursuant to any provision of the Bankruptcy Code or other applicable law. This exculpation from liability provision is an integral part of the Plan and is essential to its implementation. Notwithstanding anything to the contrary contained herein, the provisions of Article 12.1 of the Plan shall not release or be deemed a release of any of the Causes of Action. Term of Certain Injunctions and Automatic Stay. All injunctions or automatic stays provided for in the Chapter 11 Case pursuant to Sections 105, 362 or other applicable provisions of the Bankruptcy Code, or otherwise, and in existence on the Confirmation Date, shall remain in full force and effect as provided in Section 362 of the Bankruptcy Code. Any preliminary or permanent injunction entered by the Bankruptcy Court shall continue in full force and effect following the Confirmation Date and the Final Decree Date, unless otherwise ordered by the Bankruptcy Court. No Liability for Tax Claims. Unless a taxing Governmental Authority has asserted a Claim against the Debtor before the Bar Date or Administrative Claims Bar Date established therefore, no Claim of such Governmental Authority shall be Allowed against the Debtor for taxes, penalties, interest, additions to tax or other charges arising out of (i) the failure, if any, of the Debtor, any of its Affiliates, or any other Person or Entity to have paid any tax due or to have filed any tax return
45(including any income, sales or franchise tax return) in or for any tax period ending on or prior to the Effective Date or (ii) an audit of any tax return of the Debtor for a tax period ending on or prior to the Effective Date. Section 1146 Exemption. Pursuant to Section 1146(a) of the Bankruptcy Code, the issuance, distribution, transfer, or exchange of any security or the making, delivery or recording of any instrument of transfer pursuant to, in implementation of, or as contemplated by the Plan or any Plan Document, or the revesting, transfer or sale of any real or personal Property of, by or in the Debtor pursuant to, in implementation of, or as contemplated by the Plan or any Plan Document, or any transaction arising out of, contemplated by or in any way related to the foregoing, shall not be subject to any document recording tax, stamp tax, conveyance fee, intangible or similar tax, mortgage tax, stamp act, real estate transfer tax, mortgage recording tax, Uniform Commercial Code filing or recording fee, or other similar tax or governmental assessment, and the appropriate state or local governmental officials or agents shall be, and hereby are, directed to forego the collection of any such tax or governmental assessment and to accept for filing and recording any of the foregoing instruments or other documents without the payment of any such tax or governmental assessment. Retention of Jurisdiction. The Plan provides for the retention of jurisdiction by the Bankruptcy Court following the Effective Date to, among other things, determine all disputes relating to Claims, Equity Interests, and other issues presented by or arising under the Plan. The Bankruptcy Court will also retain jurisdiction under the Plan for any actions brought in connection with the implementation and consummation of the Plan and the transactions contemplated thereby. See Article 13 of the Plan for a more detailed description. ARTICLE VIII CERTAIN FEDERAL INCOME TAX CONSEQUENCES HOLDERS OF CLAIMS AND EQUITY INTERESTS ARE URGED TO CONSULT THEIR OWN TAX ADVISORS REGARDING THE TAX CONSEQUENCES TO THEM OF THE TRANSACTIONS CONTEMPLATED BY THE PLAN, INCLUDING STATE, LOCAL, AND FOREIGN TAX CONSEQUENCES. THE DEBTOR IS NOT AWARE OF ANY ADVERSE TAX CONSEQUENCE TO IT RESULTING FROM CONFIRMATION OF THE PLAN. ARTICLE IX VOTING ON AND CONFIRMATION OF THE PLAN Confirmation and Acceptance by All Impaired Classes At the Confirmation Hearing, the Bankruptcy Court will confirm the Plan if all of the requirements of Bankruptcy Code Section 1129 are met. Among the requirements for confirmation of a Plan are that the Plan be accepted by all impaired classes of claims and equity interests, and satisfaction of the matters described below.
46Feasibility. A Plan may be confirmed only if it is not likely to be followed by the liquidation or the need for further financial reorganization of a debtor. The Debtor believes that the parties will be able to perform their obligations under the Plan without further financial reorganization. The Plan basically provides for the payment to Holders of Allowed Claims, including contingent, unliquidated, and Disputed Claims, to the extent they become Allowed Claims, in the order of their priority, giving effect to the proposed plan settlement described above. The Plan further authorizes and directs the Debtor to take all actions to implement the Plan. Accordingly, the Debtor believes that the Plan is per se feasible. The obligations under the Plan to Holders of contingent, unliquidated, and Disputed Claims cannot be ascertained without the determination of the validity and amount of those Claims by the Bankruptcy Court. Until the Claim determination process is complete, the exact amount to be received by Unsecured Creditors cannot be ascertained. Best Interests Standard. The Bankruptcy Code requires that the Plan meet the “best interest” test, which requires that members of a Class must receive or retain under the Plan, property having a value not less than the amount which the Class members would have received or retained if the Debtor was liquidated under Chapter 7 on the same date. As set forth in the attached liquidation analysis, the Debtor believes that distributions to all Impaired Classes of Claims in accordance with the terms of the Plan would exceed the net distribution that would otherwise take place in Chapter 7. Confirmation Without Acceptance by All Impaired Classes If one or more of the Impaired Classes of Claims or Equity Interests does not accept the Plan, the Plan may nevertheless be confirmed and be binding upon the non-accepting Impaired Class under the “cram-down” provisions of the Bankruptcy Code, if the Plan does not “discriminate unfairly” and is “fair and equitable” to the non-accepting Impaired Classes under the Plan. Discriminate Unfairly. The Bankruptcy Code requirement that a Plan not “discriminate unfairly” means that a dissenting class must be treated equally with respect to other classes of equal rank. The Debtor believes that the Plan does not “discriminate unfairly” with respect to any Class of Claims or Equity Interests because no class is afforded treatment which is disproportionate to the treatment afforded other Classes of equal rank. Fair and Equitable Standard. The “fair and equitable” standard, also known as the “absolute priority rule,” requires that a dissenting class receive full compensation for its allowed claims or interests before any junior class receives any distribution. The Debtor believe the Plan is fair and equitable to all Classes pursuant to this standard. With respect to the Impaired Classes of Unsecured Claims, Bankruptcy Code Section 1129(b)(2)(B) provides that a Plan is “fair and equitable” if it provides that (i) each holder of a claim of such a class receives or retains on account of such claim, property of a value as of the effective date of the Plan equal to the allowed amount of such claim; or (ii) the Holder of any claim or interest that is junior to the claims of such class will not receive or retain any property under the
47Plan on account of such junior claim or interest. The Debtor believes that the Plan meets these standards. With respect to Impaired Classes of Equity Interests, Bankruptcy Code Section 1129(b)(2)(C) provides that a Plan is “fair and equitable” if it provides that (i) each stockholder receives or retains on account of its stockholder interest, property of a value equal to the greatest of the allowed amount of any fixed liquidation preference to which such holder is entitled, any fixed redemption price to which such holder is entitled, or the value of such interest, or (ii) the holder of any interest that is junior to the interests of such class will not receive or retain any property under the Plan. The Debtor believes that the Plan meets these standards. Accordingly, if necessary, the Debtor believes that the Plan meets the requirements for Confirmation by the Bankruptcy Court, notwithstanding the non-acceptance by an Impaired Class of Claims or Holders of Equity Interests. The Debtor intends to evaluate the results of the balloting to determine whether to seek Confirmation of the Plan in the event that less than all the Impaired Classes of Claims or Equity Interests do not vote to accept the Plan. The determination as to whether to seek Confirmation under such circumstances will be announced before or at the Confirmation Hearing. ARTICLE X ALTERNATIVES TO CONFIRMATION AND CONSUMMATION OF THE PLAN If the Plan is not confirmed, the potential alternatives include (a) alternative Plan under Chapter 11 (including a liquidation Plan), (b) dismissal of the case, or (c) conversion of the case to case under Chapter 7 of the Bankruptcy Code. Alternative Amended Plans of Liquidation If the Plan is not confirmed, the Debtor or any other party in interest in the Liquidation Case could attempt to formulate and propose a different Plan or Amended Plans. The Debtor believes that the Plan will enable Creditors to be paid the maximum amount possible for their Allowed Claims. Liquidation under Chapter 7 or Chapter 11 If a Plan is not confirmed, the Liquidation Case may be converted to Chapter 7 liquidation case. In a Chapter 7 case, a trustee would be elected or appointed to liquidate the assets of the Debtor. Converting the Chapter 11 Case to Chapter 7 case would simply add an additional layer of administrative expenses to the Estate which would substantially reduce and possibly eliminate any funds available for distribution to Unsecured Creditors. The proceeds of the liquidation would be distributed to the Creditors and Holders of Equity Interests of the Debtor in accordance with the priorities established by the Bankruptcy Code. In general, the Debtor believes that liquidation under Chapter 7 would result in diminution of the value of the interests of the Creditors because of (a) additional administrative expenses
48involved in the appointment of trustees for each estate and attorneys, accountants, and other professionals to assist such trustees; (b) additional expenses and claims, some of which might be entitled to priority, which would arise by reason of the liquidation; (c) failure to realize the full value of the Debtor’s assets; (d) the inability to utilize the work product and knowledge of the Debtor’s Professionals; and (e) the substantial delay which would elapse before Creditors would receive any distribution in respect of their Claims. Significantly, the compromises which are incorporated in the Plan, are available only under the Plan. The Plan embodies a comprehensive, extensively negotiated settlement and compromise of myriad novel and complex legal and factual issues, including, among other things, relating to (i) all potential causes of auction under 11 U.S.C. § 547 (Preferences), (ii) all potential causes of action under 11 U.S.C. § 548 (Fraudulent Transfers), (iii) Causes of Action, (iv) 503(b)(9) Claim liability, and (v) objections to claims filed in this Chapter 11 Case. In the event of a conversion, the chapter 7 Trustee, would have to confront the pursuit of extensive and costly litigation to resolve these and other issues. This process would be extremely time-consuming and costly, and would reduce and delay any recoveries available for 503(b)(9) and secured creditors and likely leave no distributions to unsecured creditors. ARTICLE XI SUMMARY, RECOMMENDATION AND CONCLUSION The Plan provides for an orderly and prompt distribution to Holders of Allowed Claims against the Debtor. The Debtor believes that its efforts to maximize the return for Creditors have been full and complete. The Debtor further believes that the Plan is in the best interests of all Creditors, because, among other things, it is anticipated that all Unsecured Creditors will be paid more than they would receive under any alternative. In the event of a liquidation of the Debtor’s assets under Chapter 7 of the Bankruptcy Code, the Debtor believes there would be little or no distribution to Unsecured Creditors. For these reasons, the Debtor urges that the Plan is in the best interests of all Creditors and that the Plan be accepted.
49Dated as June 30, 2021 Respectfully submitted FIRST RIVER ENERGY, LLC By: Deborah Kryak Deborah Kryak /s/ David W. Parham David W. Parham, SBN: 15459500 Esther McKean, SBN: 24122145 2001 Ross Avenue, Suite 3600 Dallas, TX 75201 Telephone: (214) 720-4300 Facsimile: (214) 981-9339 firstname.lastname@example.org email@example.com Counsel for the Debtor
50EXHIBIT A LIQUIDATION ANALYSIS
51First River Energy, LLC Comparison of Chapter 11 Plan of Liquidation to Chapter 7 Amount ($000s) Chapter 11 of Conversion to Liquidation Chapter 7 Estimated Cash Proceeds Available for Distribution $ 7,730 $ 7,730 Chapter 11 of Plan Liquidation Administrative Expense Claims 0 Fee Claims20 350 Debtor wind down costs21 $ 15 - Plan Administrator Fees 90 - Professional Fees for Plan Administrator 40 Claims, Noticing, Distribution22 300 - United States Trustee Fees 270 Priority Tax Claims 140 -490 Oklahoma Owner Secured Claims 867 Oil General Unsecured Claims 38 Non-Oil General Unsecured Claims 675 503(b)(9) Claims (receive remainder) 4,595 –4,945 Subtotal $ 7,730 - Chapter 7 Trustee, Counsel and Claims Debtor wind down costs to store records - 200 Chapter 7 Professional Fees - 800 Chapter 7 Trustee Fees - 255 OklahomaOwner Secured Claims 867 Claims management & distribution - 290 503(b)(9)Claims 7,000 Chapter 11 administrative / fee claims - $ 350 Priority Tax Claims 0 Subtotal $ - $ 9,762 Total $ 7,730 $ 9,762 Estimated Percentage Recovery to Unsecured 3.0% 0% Creditors 20 Akerman LLP and Donlin, Recano & Company, Inc. fees and costs pursuant to Court approved applications for compensation. 21 Estimate of costs to store records for months of June – August 2021 and costs of destruction of records in September 2021. In addition, costs to prepare final tax return. 22 This amount is dependent on the solicitation method approved by the Court.