Envelope Maker's 3rd-Party Releases Draw Ch. 11 Trustee's Ire
The U.S. Trustee’s Office objected in New York bankruptcy court Wednesday to envelope maker Cenveo Inc.’s Chapter 11 plan disclosure statement, saying its “overbroad” third-party liability releases bind creditors that cannot or do not vote for the plan.
Trustee William Harrington said Cenveo’s plan disclosures fail to adequately explain a number of points in the plan, including provisions imposing third-party liability releases on both supposedly unimpaired creditors and creditors that vote against or abstain from voting on the plan.
“Not only are the proposed releases extremely overbroad, there is no information establishing that the released parties have a connection to the debtor’s reorganization or provided consideration for the releases,” he said.
The 99-year-old company — one of the largest U.S. printing and envelope companies — declared bankruptcy on Feb. 2 with the hope of shedding $700 million in debt.
In his objection Wednesday to Cenveo’s plan disclosures, Harrington argued it lists Class 1 and Class 2 creditors as unimpaired and therefore not entitled to a vote on the plan, but also releases all their legal claims against the parties specified in the plan unless they file opt-out forms. This provision “undeniably” impairs their rights, he said.
“Accordingly, the disclosure statement cannot be approved until the debtors amend the plan to permit Classes 1 and 2 to vote for or against the plan, or strike Classes 1 and 2 from the definition of releasing party,” he said.
The disclosures also fail to explain the basis for imposing releases with a similar opt-out provision on voting creditors who vote against the plan or abstain from voting, he said.
He also said the disclosure fails to adequately explain the amount of asserted claims and expected recoveries of all the classes of creditors or how the plan’s provision providing stock-based incentives for company management when Cenveo emerges from Chapter 11 meets legal standards.
“The debtors must show that stock granted at emergence is a ‘pay for value’ plan that offers incentives based on performance rather than a ‘pay to stay’ plan,” he said.
Counsel for Cenveo and representatives of the U.S. Trustee’s Office did not immediately respond to requests for comment late Thursday.
Cenveo is represented by Jonathan S. Henes, Joshua A. Sussberg, George Klidonas, Natasha Hwangpo, James H.M. Sprayregen, Melissa N. Koss and Gregory F. Pesce of Kirkland & Ellis LLP.
Harrington is represented by Paul K. Schwartzberg of the United States Trustee's Office.
The case is In re: Cenveo Inc. et al., case number 7:18-bk-22178, in the U.S. Bankruptcy Court for the Southern District of New York.
REPRINTED WITH PERMISSION FROM THE APRIL 19, 2018 EDITION OF LAW360 © 2018 PORTFOLIO MEDIA INC. ALL RIGHTS RESERVED. FURTHER DUPLICATION WITHOUT PERMISSION IS PROHIBITED. WWW.LAW360.COM
