September 13, 2022 – The RiverStone Insurers ("RiverStone") filed a motion to dismiss the Debtors’ Chapter 11 cases, arguing that in addition to the Debtors' demonstrable failure over three years to progress their cases towards a confirmable Plan…the Debtors, lacking a "valid reorganizational purpose" have no right to be in a bankruptcy court at all and should go back to the tort system; even if that system cannot offer the Debtors’ parent company, Imerys S.A. the releases that are the ultimate driver of the Debtor's decsion to file for bankruptcy [Docket No. 5052].
RiverStone sums up: "Even disregarding the efforts by non-debtor parties to use the bankruptcy cases for their own tactical advantage, these cases simply are not about either of the two legitimate uses of chapter 11: to preserve a business or maximize going-concern value….Congress’s manifest purpose in enacting the chapter 11 of the Bankruptcy Code was to provide a means by which the value of a debtor’s business assets could be maximized for the benefit of its creditors. Rather than serving that objective, these cases are an effort by claimants’ groups to obtain a result they could not obtain in the tort system and for Imerys S.A. to absolve itself of potential liability. That is not what a good faith bankruptcy case is supposed to be about. The bankruptcy cases should be dismissed, with each of the non-debtor combatants left to protect its interests in an appropriate non-bankruptcy forum under applicable non-bankruptcy law.
A hearing to consider the motion is scheduled for October 12, 2022, with objection due by October 5, 2022.
The dismissal motion [Docket No. 5052] explains, “Despite having been in bankruptcy for over three years, the Debtors have accomplished little other than liquidating their ongoing business and incurring professional fees and other expenses that account for more than half the value of the companies. The Debtors have filed at least ten different proposed plans, none of which have been confirmable. The Debtors’ last plan failed to achieve a necessary vote in October 2021. Since then, the Debtors have been engaged in mediation efforts to no effect. During this time, the value of their estates has continued to diminish by millions of dollars per month. Enough is enough. This case is inappropriate for chapter 11 and should be returned to the tort system.
Multiple grounds for dismissal of each individual debtor’s case exist under 11 U.S.C. § 1112, including diminution of the debtors’ estate, the inability to confirm a plan, and the lack of a proper bankruptcy purpose. Dismissal is appropriate because the assets of the estates are rapidly dwindling. The Debtors have had years and over ten attempts to confirm a plan but have been unable to do so. Nor is there any possibility of rehabilitation of the Debtors’ talc business. The Debtors already have liquidated. Dismissal is appropriate for that reason alone.
Dismissal also is appropriate because the cases lack a valid reorganizational purpose. The Bankruptcy Code contains an implicit requirement that a debtor must file a bankruptcy case, and the case must proceed, in ‘good faith.’ The term ‘good faith,’ in this context, is a term of art that means that a bankruptcy case must serve a valid and recognized bankruptcy purpose. For a case filed under chapter 11, it requires that the case be directed towards the reorganization of the debtor’s ongoing business or the preservation of value that might otherwise be lost, for the benefit of the debtor’s creditors. The Debtors stated that their purpose in filing these cases is ‘to confirm a plan of reorganization that will maximize the value of the Debtors’ assets for the benefit of all stakeholders and, pursuant to sections 524(g) and 105(a) of the Bankruptcy Code, will include a trust mechanism to address Talc Personal Injury Claims in a fair and equitable manner.’ Unstated in that purpose, but obvious from the Debtors’ actions in this case, is the effort to obtain a release for the Debtors’ parent company, Imerys S.A. To get the claimants to go along with this, the Debtors agreed to a highly favorable trust structure, which led the TCC’s expert to opine that the trust would have liability in excess of $16 billion (despite very little being paid by any debtor on prepetition claims) and the FCR’s expert to opine that the value of claims exceeded $190 billion.
Even disregarding the efforts by non-debtor parties to use the bankruptcy cases for their own tactical advantage, these cases simply are not about either of the two legitimate uses of chapter 11: to preserve a business or maximize going-concern value. There is no serious suggestion that the Debtors here can do either. None of the three Debtors has any operating business or any employees. The only significant tangible assets owned by any Debtor are two parcels of land leased to Dollar General stores that were purchased by ITV post-hoc as passive investments intended to potentially satisfy a requirement of § 524(g). ITC and ITA have no business of any sort. The Debtors are now fundamentally shell companies that exist only to manage legacy liabilities and pay attorneys’ fees. But the events that have unfolded over the past three years, culminating in the failure of the Tenth Plan to obtain a vote, are more than enough to resolve any lingering doubt that there is no legitimate bankruptcy purpose here.
The Debtors’ primary assets available to pay their asbestos and environmental-related claims are insurance contracts. The coverage provided under those insurance contracts has, to date, covered nearly all the Debtors’ tort-related liabilities, including the costs of defense, and likely will do so forever. No bankruptcy tool allows Debtors to alter the terms of their insurance coverage. Properly understood, a bankruptcy filing should neither increase nor decrease the rights or obligations of any party to an insurance contract. Insurance is therefore not an asset whose value can properly be ‘maximized’ in a bankruptcy case. Accordingly, to the extent insurance is the only material asset available to satisfy claims, the bankruptcy makes no difference as to the availability of insurance.
Congress’s manifest purpose in enacting the chapter 11 of the Bankruptcy Code was to provide a means by which the value of a debtor’s business assets could be maximized for the benefit of its creditors. Rather than serving that objective, these cases are an effort by claimants’ groups to obtain a result they could not obtain in the tort system and for Imerys S.A. to absolve itself of potential liability. That is not what a good faith bankruptcy case is supposed to be about. The bankruptcy cases should be dismissed, with each of the non-debtor combatants left to protect its interests in an appropriate non-bankruptcy forum under applicable non-bankruptcy law.”
On February 13, 2019, Imerys Talc America, Inc. and two affiliated Debtors (“Imerys” or the “Company”) filed for Chapter 11 protection noting estimated assets between $100mn and $500mn; and estimated liabilities between $50mn and $100mn.
On September 16, 2021, the Debtors filed their Tenth Amended Plan of Reorganization and a related blackline showing changes from the version of the Plan filed on January 28, 2021 [Docket Nos. 4099 and 4100, respectively].
In a declaration in support of the Chapter 11 filing (the “Picard Declaration”) [Docket No. 10], Alexandra Picard, Imerys’ Chief Financial Officer, further commented on the rationale for a Chapter 11 filing, "The Debtors’ decision to commence the Chapter 11 Cases was prompted by certain recent developments arising from the growing number of Talc Claims [ie, claims by plaintiffs alleging personal injuries caused by exposure to talc mined, processed, and/or distributed by one or more of the Debtors] in the United States. These developments include: (i) the significant increase in settlement demands with respect to cosmetic Talc Claims in the wake of recent verdicts, including a multi-billion dollar verdict rendered against Johnson & Johnson ('J&J'), and the ensuing media focus on talc for cosmetic applications; (ii) the increased unwillingness of the Debtors’ insurers and third party contractual indemnitors to provide coverage for the Debtors’ mounting defense costs and potential liability exposure; and (iii) recent constructive discussions with a proposed future claims representative that led the Debtors to conclude that the Chapter 11 Cases would be the optimal path for resolving their historical talc-related liabilities in a manner that maximizes distributable value for all stakeholders.
In a nutshell, however, the problem is that there are holes in Imersys' insurance coverage and J&J is not rushing to embrace Imersys' view of the J&J indemnities; it is these uncertainties that put the Company at risk and militated towards a Chapter 11 filing.
The Picard Declaration states, “The Debtors are among the defendants in thousands of actions brought before several U.S. federal and state courts by multiple plaintiffs asserting Talc Claims. The Debtors believe this litigation is without merit and their strategy has consistently been to mount a vigorous defense to all such claims. Given the increasing number of Talc Claims asserted, the rise in settlement demands in cosmetic talc lawsuits, and the increased unwillingness of the Debtors’ insurers and third party contractual indemnitors to provide coverage for the Debtors’ mounting defense costs and potential liability exposure, the Debtors determined that the commencement of these Chapter 11 Cases was their best option to protect their estates and preserve value for all stakeholders. The Debtors lack the financial wherewithal to remain in the tort system."
Talc Claims Overview
One or more of the Debtors also have certain indemnity rights against J&J or one of its affiliates for OC Claims and Mesothelioma Claims. For example, under a 1989 stock purchase agreement pursuant to which the Debtors purchased the entity known today as ITV, J&J agreed to indemnify one or more of the Debtors for all liabilities arising out of use or exposure to talc-containing products supplied to J&J prior to the January 6, 1989 closing date. In addition, under various talc supply agreements, J&J agreed to indemnify one or more of the Debtors for all liabilities arising out of the supply of talc to J&J during the term of the supply agreements. While the Debtors have additional protection from the Talc Claims through these indemnification agreements with J&J and its affiliates, the Debtors’ ability to recover under these indemnification agreements in a timely fashion is uncertain. As of the Petition Date, J&J has refused to acknowledge or accept its indemnification obligations and has disputed the scope of coverage available to the Debtors under these agreements (or denied indemnification altogether). As such, the Debtors’ recovery under these indemnification agreements has been significantly delayed."
The Debtors had hoped to engage with plaintiffs firms prior to the commencement of these Chapter 11 Cases to determine if a pre-arranged chapter 11 plan could be achieved. The Debtors did not have sufficient time, however, to conduct the diligence process that would be necessary for the parties to engage in meaningful discussions given the pending trial calendar (and risk of incurring a judgment for which the Debtors could not post an appeal bond) and the ever-increasing costs of settlement and defense. Nevertheless, the constructive discussions with the Proposed FCR confirmed, from the Debtors’ perspective, the viability of using Chapter 11 to resolve the Talc Claims in a manner that will maximize the distributable value for all stakeholders and will provide fair and equitable treatment of the Talc Claims.
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