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Venator Materials PLC – Settlement with Czech Shareholder, Facing a Contempt Ruling, Unlocks Impasse as to Plan Confirmed in July


September 25, 2023 – The Court hearing the Venator Materials PLC cases issued an order approving a settlement that will allow the Debtors to proceed with steps that are necessary to the implementation of their confirmed Plan [Docket No. 477, with confirmation order issued on July 25, 2023].

On August 18th, the Debtors filed an emergency motion asking the Court to enforce its July 25th confirmation order [Docket No. 422], with the Debtors citing statements made by minority shareholder J&T MS 1 SICAV A.S.'s ("J&T") in the Czech media that J&T intended to fight the cancellation of equity interests as contemplated by the Plan and noting that J&T was urging other equity holders to join it in voting against the Debtors' cancellation of existing shares (and issuance of new ones, each a necesary step in the Debtors' Prepackaged Plan of Reorganization).

The settlement means that we will not get full sight of the Court's view as to J&T's blocking actions, with Judge David R. Jones (who ordered J&T representatives to show cause as to why they were not in contempt of his confirmation order at an August 24, 2023 hearing) likely to have taken taken a dim view of efforts by a minority shareholder to: (in the Debtors' words) "fight consummation of the Plan attempting to use the very 'rights' as an equity security holder that were terminated by the Confirmation Order."

That said, Judge Jones made it clear that it was not his place to prohibit shareholders (the Debtors needed a 75% shareholder vote) from voting their equity as they saw fit at the Debtors' August 31st general meeting, and J&T's blocking position leaving the Debtors, as they informed the Court in an exclusivity extension motion, "in the process of effectuating the Plan through alternative means than originally anticipated…" Fortunately for the Debtors, that exploration of "alternative means," in respect of what was supposed to be a prepackaged Plan, is now moot.

Pursuant to the J&T settlement, J&T will (i) abstain (or vote) as necessary to ensure that shareholder resolutions pass, (ii) withdraw their opt outs as to third party releases and (iii) receive a $2.5mn cash payment (nominally to cover fees and expenses) that will have administrative claim status.

Case Evolution

On May 14, 2023, Venator Materials PLC and 23 affiliated debtors (NYSE: VNTR; together, “Venator” or the “Debtors”) filed for Chapter 11 protection (on a “prepackaged” basis) noting estimated assets of $1.42bn; and estimated liabilities of $1.53bn. At filing, the Debtors “a global manufacturer and marketer of [paint-related] chemical products,” cited macroeconomic trends (cost of energy/transport/raw materials and stockpiling by customers), the war in Ukraine and unsustainable debt levels as precipitating the need to seek bankruptcy shelter.

On June 12th, the Court issued an order authorizing the Debtors to access a further $175.0mn of new money, debtor-in-possession (“DIP”) financing being provided by prepetition lenders (the “DIP Lenders” owed approximately $954.0mn in respect of a prepetition debt) and continue using cash collateral. With a May 16th interim DIP order, the Court authorized the Debtors to access a first $100.0mn tranche of the $275.0mn new money DIP financing facility and roll up $190.mn of prepetition ABL debt.

On July 25, 2023, the Court issued an order confirming the Debtors’ Modified Prepackaged Plan of Reorganization [Docket No. 344].

The Settlement Order

The order notes, “At a hearing on July 19, 2023, the Court confirmed the Debtors’ Plan and on July 25, 2023, the Court entered the Confirmation Order. On August 18, 2023, the Debtors filed the Motion seeking entry of an order to enforce the Plan and Confirmation Order. At the August 24, 2023 hearing on the Motion, the Court granted a continuance on the Motion and ordered J&T representatives to show cause as to why they were not in contempt of the Confirmation Order (the 'Order to Show Cause'). In parallel with filing this Agreed Order and in furtherance of the Settlement…the Debtors will imminently notice a new meeting of shareholders at which the Debtors will seek shareholder approval for, among other things, the disapplication of pre-emption rights related to the issuance of the New Ordinary Shares and implementation of a buy-back for the Existing Equity Interests (together, the 'Shareholder Resolutions'). The Debtors believe the Shareholder Resolutions will effectuate the issuance of New Ordinary Shares and the cancelation of Existing Equity Interests as contemplated by the Plan.

The Debtors and J&T have agreed to the following terms to be effectuated and enforced by the Agreed Order, as follows:

  • J&T shall abstain from voting on the Shareholder Resolutions; provided that J&T shall cast a vote in favor of the Shareholder Resolutions only if necessary for such Shareholder Resolutions to pass;
  • J&T and its affiliates hereby withdraw their opt outs of the Third Party Release set forth in the Plan, and agree to be bound by, give and receive the benefits of such Third Party Releases upon the Plan Effective Date; and
  • On the Plan Effective Date, after the successful approval of the Shareholder Resolutions, the Debtors shall pay J&T $2.5 million in cash for the reimbursement of J&T’s professional fees and expenses, payable as an Allowed Administrative Claim; (collectively, the ‘Settlement’).”

Confirmation Enforcement Motion

The motion explains, "J&T is threatening to violate the Plan and Confirmation Order. The Plan and Confirmation Order provide for, among other things, the issuance of New Ordinary Shares and the cancelation of Existing Equity Interests. Following confirmation of the Plan, J&T publicly stated that it intends to fight consummation of the Plan attempting to use the very 'rights' as an equity security holder that were terminated by the Confirmation Order. Accordingly, the Debtors request that the Court enter an order enforcing the Plan and Confirmation Order by preventing J&T from using voting rights tied to its Existing Equity Interests to further interfere with consummation of the Plan and such other relief the Court deems necessary or appropriate.

J&T has made clear that, despite submitting to this Court’s jurisdiction, it has no intention of complying with the Confirmation Order and, absent relief, will continue to interfere with the Debtors’ implementation of the Plan. Mere hours after this Court rejected J&T’s frivolous valuation theory and advised that it would confirm the Debtors’ Plan, J&T — a minority equity holder of the Debtors — launched a collateral attack in blatant disregard of this Court’s authority and its clearly articulated oral ruling, stating in a Czech publication that equity holders could 'block the cancellation of our existing shares and the issuance of new units by ensuring that Venator does not obtain 75 percent of the votes for this proposal at the general meeting . . .' and further providing instructions on how to do so in a community group. The Debtors file this Motion not only because J&T’s actions shock the conscience, but because it is necessary to effectuate the Plan given J&T’s stated intention.

To this point, the Debtors and their advisors have spent hundreds of hours and millions of dollars fighting J&T’s baseless attacks on the Plan process. Before these cases commenced, the Debtors made repeated efforts to respond to J&T’s unrelenting requests, with the hope that J&T would not only understand the situation but, more importantly, provide the Debtors with desperately needed new capital — which, of course, it did not.

After the filing of these cases, J&T sought the U.S. Trustee’s appointment of an official equity committee. No equity committee was appointed. J&T then launched a discovery campaign, serving four sets of requests for production and taking two depositions of each of the Debtors’ CFO and investment banker. The Debtors complied in good faith with each and every one of J&T’s myriad requests. Ultimately, J&T objected to confirmation of the Plan.

J&T hired Mr. Quintero, who was willing to claim that the Debtors’ value was double what it was and is. After hours of testimony at the Confirmation Hearing, J&T produced nothing that in good faith suggested the Existing Equity Interests were close to being in the money. The Court confirmed the Plan, subject to modifications. The unequivocal defeat at the Confirmation Hearing should have been the end of J&T’s opposition to the Plan and its public vitriol against the Debtors and their management team. But it was not.

First, J&T immediately started making public statements in violation of the automatic stay to incite a campaign to stop implementation of the Plan and Confirmation Order and the cancelation of Existing Equity Interests provided for by section 1141(d) of the Bankruptcy Code. J&T’s co-founder and investment manager — respectively, Michal Šnobr and Martin Seyček — have been quoted in Hospodářské noviny, an economic publication in the Czech Republic, as encouraging and taking affirmative steps to rally holders of Existing Equity Interests to interfere with the implementation of the Plan.9 An English translation of the Hospodářské noviny article, setting forth the statements and actions of Mr. Seyček, is attached hereto as Exhibit C….

Second, with respect to a shareholder meeting of Venator Materials PLC scheduled for July 25, 2023 (the 'Initial Shareholder Meeting'), J&T voted against the initial shareholder resolution that would have, consistent with the Plan and Confirmation Order, (i) adopted new articles of association for Venator Materials PLC; (ii) re-designated the Existing Equity Interests as Class B Ordinary Shares to allow for such shares to be repurchased by Venator Materials PLC and then cancelled; and (iii) approved the disapplication of shareholder preemptive rights.

The shareholder vote was necessary as an implementation mechanism because the Debtors need an emergence structure that would provide for cancelation of the Existing Equity Interests under the Confirmation Order in a tax-efficient and cost-effective (and therefore value-maximizing) means of effectuating the Restructuring Transactions that also complied with applicable law in the United Kingdom. Unfortunately, the Initial Shareholder Meeting could not be adjourned further, so J&T’s rejecting vote meant the shareholder resolution would fail, and the Debtors had to cancel the Initial Shareholder Meeting.

In preparation for emergence that the Debtors and Consenting Creditors seek to effectuate as quickly as possible, the Debtors scheduled another shareholder meeting for August 31, 2023 (the 'Upcoming Shareholder Meeting'), this time seeking approval of different and narrower resolutions than the ones noticed for the Initial Shareholder Meeting based on the comments of the Court at the Confirmation Hearing. These narrower implementation resolutions proposed for the Upcoming Shareholder Meeting seek approval only to (i) issue the New Ordinary Shares as mandated by the Plan and (ii) confirm that Holders of Existing Equity Interests’ prepetition preemption rights are terminated. These resolutions are the bare minimum necessary to effect the debt-for-equity swap contemplated in the Plan (although they do not fully implement the Plan as the Existing Equity Interests will not be cancelled).

Given this simple and narrowed request, and notwithstanding J&T’s public statements, the Debtors gave J&T further opportunity to affirm that it did not intend to vote against the proposed resolutions. Indeed, the revised resolutions do not require J&T to do anything (even though the Debtors could make such a request under section 1142 of the Bankruptcy Code) — the Debtors simply asked J&T not to take any affirmative actions in grievous violation of this Court’s Order. Despite repeated requests in an attempt to avoid having to file this Motion, J&T refused to provide the Debtors an answer, ultimately saying that it was 'not in a position to confirm its voting intention at this time and it reserves it rights.'

Other than serving as a purposely vague but transparent latest attempt at ransom, J&T’s response left the Debtors with nothing to rely on but its previous public statements that it intended to violate the Plan. Had J&T wished to continue to pursue its confirmation objections and stop implementation of the Plan, it could and should have appealed the Court’s decision. It did not, and the time for doing so has expired. What J&T does not have the right to do is now violate the Plan and Confirmation Order by voting against the proposed shareholder resolutions in a continued effort to extract nuisance value, let alone actively trying to incite others to violate the Plan and Confirmation Order, while celebrating in the press that it is doing exactly that. J&T’s commitment to defy this Court’s authority, the Confirmation Order, and the chapter 11 process must end here."

About the Debtors

According to the Debtors: “Venator is a global manufacturer and marketer of chemical products that comprise a broad range of pigments and additives that bring color and vibrancy to buildings, protect and extend product life, and reduce energy consumption. We market our products globally to a diversified group of industrial customers through two segments: Titanium Dioxide, which consists of our TiO2 business, and Performance Additives, which consists of our functional additives, color pigments and timber treatment businesses. Based in Wynyard, U.K., Venator employs approximately 2,800 associates and sells its products in more than 106 countries. “

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The post Venator Materials PLC – Settlement with Czech Shareholder, Facing a Contempt Ruling, Unlocks Impasse as to Plan Confirmed in July appeared first on Daily Bankrupt Company Updates | Bankrupt Company News.

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