Tops Holding II’s Official Committee of Unsecured Creditors filed with the U.S. Bankruptcy Court a motion for entry of an order authorizing the Committee to issue document requests, notices, and subpoenas compelling the production of documents and the provision of testimony by the Debtors and certain other entities and persons.
In support of the motion, the Committee states, “The Debtors commenced these chapter 11 cases on February 21, 2018 with the stated goal of emerging from bankruptcy by October. The Debtors have not yet entered into a restructuring support agreement with their secured lenders, nor have they provided the Committee with a draft plan or plan term sheet. Nonetheless, they contend that they remain on track for an October emergence date and have indicated that they do not believe there will be much, if any, value remaining for distribution to unsecured creditors under any confirmable plan. The question of value is not yet before the Court. In the meantime, the Committee has focused its efforts on identifying and investigating potential sources of recovery for unsecured creditors, including, but not limited to, estate claims and causes of action. Indeed, the Committee has already identified a series of prepetition transactions (the ‘Prepetition Transactions’) that appear to have resulted in a significant and improper transfer of value from the Debtors to various insiders, including, but not limited to: (a) the Debtors’ former private equity sponsor, a group of funds and individuals led by Morgan Stanley Global Private Equity (the ‘Morgan Stanley Group’); and (b) a group of six senior executives (the ‘Senior Executives’) who acquired ownership of the Debtors from the Morgan Stanley Group in late 2013. The magnitude of the Prepetition Transactions alone indicates that a full examination is warranted. In the six years during which the Morgan Stanley Group owned and controlled the Debtors, it extracted more than $380 million of dividends, fees, and other payments from the Debtors while simultaneously saddling the Debtors with hundreds of millions of dollars in secured and unsecured debt….To date, the Debtors have made just two productions, totalling less than 650 documents. Although the Committee is willing to continue working with the Debtors to streamline the discovery process and minimize unnecessary costs, the Committee is now operating under significant time constraints and is therefore in need of judicial supervision. The milestones in the Debtors’ DIP Term Loan require the Debtors to begin soliciting a plan of reorganization on July 21, 2018—just over one month away—and to confirm a plan of reorganization by September 19, 2018. If the Committee does not have the information necessary to complete its investigation prior to the commencement of plan solicitation, there is a significant risk that unsecured creditors will be asked to vote on a plan (including potential releases of parties involved in the Prepetition Transactions) without a complete understanding of the claims that might be brought for their benefit.” The Court scheduled a June 21, 2018 hearing on the motion.
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