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SquareTwo Financial Objections Filed

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The SEC, UMB Bank and the State of Oregon filed with the U.S. Bankruptcy Court separate objections to SquareTwo Financial’s Joint Prepackaged Chapter 11 Plan of Reorganization.

The SEC asserts, “Section 524(e) of the Bankruptcy Code provides that only the debts of the debtor are affected by Chapter 11 discharge provisions. Non-debtor third party releases therefore generally contravene this provision. Such releases also have special significance for public investors because they may enable non-debtors to benefit from a debtor’s bankruptcy by obtaining releases with respect to past misconduct, including violations of the federal securities laws or breaches of fiduciary duty under state law.”

In addition, “But in this case there is no evidence that all of the released parties have provided substantial consideration. And the Second Lien Noteholders and U.S. general unsecured creditors – potentially including the Commission and other governmental entities – who appear to be bound by the release provisions are not expected to receive any consideration under the Plan, are deemed to reject the Plan, and may not vote on the Plan or opt out of the releases. In these circumstances, the release provisions cannot be considered ‘important’ to the reorganization and should be deleted from the Plan. Alternatively, the Plan should be amended to state that the Second Lien Noteholders and U.S. general unsecured creditors are not bound by these provisions.”

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