Constellation Enterprises’ official committee of unsecured creditors filed with the U.S. Bankruptcy Court an objection to (a) the motion Debtors’ motion to convert from Chapter 11 reorganization to a liquidation under Chapter 7 and (b) the joint motion of Kramer Levin Naftalis & Frankel and Richards, Layton & Finger to withdraw as counsel to the Debtors.
The committee asserts, “The only possibility of any recovery for unsecured creditors in these cases is for the Committee to prevail in the Appeal which is now pending before the United States District Court for the District of Delaware….The Conversion Motion imperils the Appeal because conversion may arguably result in the dissolution of the Committee and there is a significant risk that the Appeal may be dismissed for that reason alone. The Debtors do not have, as they claim, an absolute right to convert, and the Conversion Motion is in derogation of the commitment they made to the Committee when the Committee agreed to support the Settlement in exchange for valuable consideration – consideration already given by the Committee.”
In addition, “The Debtors are now taking positions which are entirely inconsistent with their obligation to support the Settlement, including their obligation not to take actions that will wipe out any possibility of a recovery for their general unsecured creditors. If the Conversion Motion is granted, the benefits of the Settlement, if the Committee is successful in the Appeal, will likely be lost in their entirety….Debtors’ Counsel should not be permitted to withdraw, because seeking to do so is inconsistent with their ethical obligations to their clients and in contravention of this Court’s order approving their retention. In the event the Court denies the Conversion Motion, the Debtors will require continued representation by counsel.”
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