December 10, 2019 – The Debtors filed a Second Amended Plan and a related blackline showing pages changed from the version filed on November 1, 2019 [Docket Nos. 682 and 683, respectively]. The changes all relate to the treatment of third-party releases; the Debtors' Court-rejected Plan having included an affirmative opt-out requirement…meaning that the failure to notice, complete and return an opt-out form would leave holders of claims (notably those in classes 6 and 9, general unsecureds and equity holders, respectively) treated as having given their implied consent to third-party releases.
In respect of the amended Plan and Plan voting requirements, the Debtors' separate opt-out forms (and a requirement to complete them) now no longer exist. A word of warning, however, to general unsecured creditors (ie class 6) completing their ballots; if a creditor does in fact vote, they must also tick the opt-out box on their ballot, failure to do so will mean that a creditor will be deemed to have consented to treatment as a "Releasing Party."
Assuming the changes pass Court muster, and they do appear to address the issues addressed in the objections discussed below, the Debtors' Plan is expected to be swiftly approved.
Background
As previously reported: "On December 5, 2019, further to objections from the Debtors’ Official Committee of Unsecured Creditors, the U.S. Trustee assigned to the Debtors’ cases and the Securities and Exchange Commission, the Court issued an order denying the confirmation of the Debtors’ Second Amended Joint Plan of Reorganization and an opinion explaining the grounds for doing so [Docket No. 672 and 671, respectively]. For the Debtors, a simple fix conceptually; modify the Plan's third-party release provisions by removing the existing affirmative opt-out mechanism…and the Court has committed to approving the Plan.
For practitioners, an interesting examination of an issue that has yet to be settled, but would appear to be shifting towards the view expressed by Judge Karen Owens who stated (having acknowledged that her view remains in the minority): 'A party’s receipt of a notice imposing an artificial opt-out requirement, the recipient’s possible understanding of the meaning and ramifications of such 24 notice, and the recipient’s failure to opt-out simply do not qualify [as a waiver of rights in respect of third-party releases]'.
The Court opines: 'The Debtors’ Plan proposes that certain creditors and interest holders provide third-party releases to a number of non-debtor parties. Namely, Article X, Section B.2 of the Plan provides that, unless they complete and return a form (‘Opt-Out Form’) or ballot indicating their affirmative opt-out, holders of general unsecured claims in Class 6 and holders of the Partnership’s equity interests in Class 9 will be deemed to have consented to the release and waiver of current and future claims against the ‘Released Parties’ (which include HPS and Insight).
The Debtors argue that they should be approved as typical, customary, and routine. The objecting parties disagree, asserting that consent cannot be inferred by the failure of a creditor or equity holder to return a ballot or Opt-Out Form. The Court agrees with the objecting parties.
The Court understands that its position is a minority amongst the judges of this District. However, the Court must respectfully disagree with its colleagues who have held differently as it has concluded that a waiver cannot be discerned through a party’s silence or inaction unless specific circumstances are present. A party’s receipt of a notice imposing an artificial opt-out requirement, the recipient’s possible understanding of the meaning and ramifications of such 24 notice, and the recipient’s failure to opt-out simply do not qualify.
…with the exception of the proposed third-party releases, the Court finds that the Debtors have carried their burden to demonstrate that the Plan is fair and equitable, satisfies the Best Interests Test, has been proposed in good faith, and otherwise is sufficient for confirmation. An appropriate order will follow denying confirmation so that the third-party release provision may be revised.'
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