According to the U.S. Bankruptcy Court docket, the U. S. Trustee assigned to the RCS Capital case filed an objection to the Company’s motion for an order to assume the restructuring support agreement (RSA) and enter into Amendment No. 1 of the restructuring support agreement and related exit financing letters.
The Trustee asserts, “Through assumption of the RSA and authorization to enter into the Exit Financing Letters, the Debtors seek approval of various fees and expenses to be paid to third parties as administrative expense claims….The Debtors cannot side-step these requirements….The Termination Payment is (a) if an alternate plan is confirmed, 4.0% of the common stock of Reorganized RCS; and (b) otherwise, either $4,500,000 or the number of shares of common stock of Reorganized RCS having a value of $4,500,000. In this case, the lenders under the Exit Financing documents consist of the Supporting Parties (and any other First Lien or Second Lien Lender who is not a Supporting Party but wishes to participate in the Exit Facility)….If the RSA is approved, the Debtors will be bound to support the Plan and not seek an alternative plan, unless to do so would breach the Debtors’ fiduciary obligations.”
The Trustee continues, “Unlike break-up fees, which are designed to permit the Debtors to shop the transaction and maximize value for the estate, the Termination Payment is more akin to a liquidated damages clause and serves only to induce the Debtors to perform under the existing agreement.”
Separately, the Trustee and certain securities litigation class action plaintiffs filed with the Court separate objections to the Debtors’ Disclosure Statement. The Trustee asserts, “The Debtors must provide an express ‘opt-in’ procedure for creditors to provide the broad third party releases….The Disclosure Statement does not provide sufficient information regarding the following: a. the relationship between the Debtors and Luxor must be fully disclosed. b. The ‘Excluded Parties’ to the releases must be disclosed….c. The causes of action being provided to the trust, as well as the causes of action being retained, must be disclosed.”
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