1. Class 18 Bankruptcy, Spring, 2009 Disclosure, Solicitation and Voting Randal C. Picker Leffmann Professor of Commercial Law The Law School The University of Chicago 773.702.0864/r-picker@uchicago.edu Copyright © 2005-09 Randal C. Picker. All Rights Reserved.

2. September 15, 2015Copyright © 2005-09 Randal C. Picker2 1125 n Postpetition disclosure and solicitation u (a) In this section - w (1) ‘adequate information’ means information of a kind, and in sufficient detail, as far as is reasonably practicable in light of the nature and history of the debtor and the condition of the debtor’s books and records including a discussion of the potential material Federal tax consequences of the plan to the debtor, any successor to the debtor, and a hypothetical investor typical of the holders of claims or interests in the case, that would enable such a hypothetical investor of the relevant class to make an informed judgment about the plan, but adequate information need not include such information about any other possible or proposed plan

3. 1125 w and in determining whether a disclosure statement provides adequate information, the court shall consider the complexity of the case, the benefit of additional information to creditors and other parties in interest, and the cost of providing additional information; and September 15, 2015Copyright © 2005-09 Randal C. Picker3

4. September 15, 2015Copyright © 2005-09 Randal C. Picker4 1125 (cont.) n Postpetition disclosure and solicitation (cont.) u (a) (cont.) w (2) ‘investor typical of holders of claims or interests of the relevant class’ means investor having - (A) a claim or interest of the relevant class; (B) such a relationship with the debtor as the holders of other claims or interests of such class generally have; and (C) such ability to obtain such information from sources other than the disclosure required by this section as holders of claims or interests in such class generally have.

5. September 15, 2015Copyright © 2005-09 Randal C. Picker5 1125 (cont.) n Postpetition disclosure and solicitation (cont.) u (b) An acceptance or rejection of a plan may not be solicited after the commencement of the case under this title from a holder of a claim or interest with respect to such claim or interest, unless, at the time of or before such solicitation, there is transmitted to such holder the plan or a summary of the plan, and a written disclosure statement approved, after notice and a hearing, by the court as containing adequate information. The court may approve a disclosure statement without a valuation of the debtor or an appraisal of the debtor’s assets.

6. September 15, 2015Copyright © 2005-09 Randal C. Picker6 1125 (cont.) n Postpetition disclosure and solicitation (cont.) u (e) A person that solicits acceptance or rejection of a plan, in good faith and in compliance with the applicable provisions of this title, or that participates, in good faith and in compliance with the applicable provisions of this title, in the offer, issuance, sale, or purchase of a security, offered or sold under the plan, of the debtor, of an affiliate participating in a joint plan with the debtor, or of a newly organized successor to the debtor under the plan, is not liable, on account of such solicitation or participation, for violation of any applicable law, rule, or regulation governing solicitation of acceptance or rejection of a plan or the offer, issuance, sale, or purchase of securities.

7. New 1125(g): Prepetition Solicitations n (g) u Notwithstanding subsection (b), an acceptance or rejection of the plan may be solicited from a holder of a claim or interest if such solicitation complies with applicable nonbankruptcy law and if such holder was solicited before the commencement of the case in a manner complying with applicable nonbankruptcy law. September 15, 2015Copyright © 2005-09 Randal C. Picker7

8. September 15, 2015Copyright © 2005-09 Randal C. Picker8 1126 (cont.) n Acceptance of plan (cont.) u (e) On request of a party in interest, and after notice and a hearing, the court may designate any entity whose acceptance or rejection of such plan was not in good faith, or was not solicited or procured in good faith or in accordance with the provisions of this title.

9. September 15, 2015Copyright © 2005-09 Randal C. Picker9 Metrocraft n The Factors u (1) the events which led to the filing of a bankruptcy petition; u (2) a description of the available assets and their value; u (3) the anticipated future of the company; u (4) the source of information stated in the disclosure statement; u (5) a disclaimer;

10. September 15, 2015Copyright © 2005-09 Randal C. Picker10 Metrocraft u (6) the present condition of the debtor while in Chapter 11; u (7) the scheduled claims; u (8) the estimated return to creditors under a Chapter 7 liquidation; u (9) the accounting method utilized to produce financial information and the name of the accountants responsible for such information; u (10) the future management of the debtor;

11. September 15, 2015Copyright © 2005-09 Randal C. Picker11 Metrocraft u (11) the Chapter 11 plan or a summary thereof; u (12) the estimated administrative expenses, including attorneys’ and accountants’ fees; (13) the collectibility of accounts receivable; u (14) financial information, data, valuations or projections relevant to the creditors’ decision to accept or reject the Chapter 11 plan;

12. September 15, 2015Copyright © 2005-09 Randal C. Picker12 Metrocraft u (15) information relevant to the risks posed to creditors under the plan; u (16) the actual or projected realizable value from recovery of preferential or otherwise voidable transfers; u (17) litigation likely to arise in a nonbankruptcy context; u (18) tax attributes of the debtor; u (19) the relationship of the debtor with affiliates.

13. September 15, 2015Copyright © 2005-09 Randal C. Picker13 Century Glove n Core Facts u Nov. 85: Century Glove files C11 u Aug 86: CG files proposed plan and draft disclosure statement u Afterwards, Bank sends alternative plan to creditors’ committee; CC rejects u Dec 86: B Ct approves CG plan and DS, sent to all creditors

14. September 15, 2015Copyright © 2005-09 Randal C. Picker14 Century Glove u Bank attorney Bloxom contacts Latham Four and BTNY seeking to convince them to vote against plan u Mentioned Bank plan which is distributed to these creditors u CG seeks to bar votes under 1126(e)

15. September 15, 2015Copyright © 2005-09 Randal C. Picker15 Century Glove n Key Questions u When does a soliciation take place? u Did Bank solicit a “no” vote in its initial discussion with the creditors? u Did Bank solicit a “yes” vote on its alternative plan? u Is 1125 an information floor? Ceiling? Something else?

16. September 15, 2015Copyright © 2005-09 Randal C. Picker16 1126 n Acceptance of plan (cont.) u (c) A class of claims has accepted a plan if such plan has been accepted by creditors, other than any entity designated under subsection (e) of this section, that hold at least two-thirds in amount and more than one-half in number of the allowed claims of such class held by creditors, other than any entity designated under subsection (e) of this section, that have accepted or rejected such plan.

17. September 15, 2015Copyright © 2005-09 Randal C. Picker17 1126 (cont.) n Acceptance of plan (cont.) u (e) On request of a party in interest, and after notice and a hearing, the court may designate any entity whose acceptance or rejection of such plan was not in good faith, or was not solicited or procured in good faith or in accordance with the provisions of this title.

18. September 15, 2015Copyright © 2005-09 Randal C. Picker18 Rule 3001(e)(2) n Transfer of claim other than for security after proof filed u If a claim other than one based on a publicly traded note, bond, or debenture has been transferred other than for security after the proof of claim has been filed, evidence of the transfer shall be filed by the transferee. The clerk shall immediately notify the alleged transferor by mail of the filing of the evidence of transfer and that objection thereto, if any, must be filed within 20 days of the mailing of the notice or within any additional time allowed by the court

19. September 15, 2015Copyright © 2005-09 Randal C. Picker19 Rule 3001(e)(2) u If the alleged transferor files a timely objection and the court finds, after notice and a hearing, that the claim has been transferred other than for security, it shall enter an order substituting the transferee for the transferor. If a timely objection is not filed by the alleged transferor, the transferee shall be substituted for the transferor.

20. September 15, 2015Copyright © 2005-09 Randal C. Picker20 Buy Them All? n Hypo u Debtor files for C11 u Secured creditor offers to buy all prepetition claims at 100 cents on the dollar n Key Questions u What possible basis does the debtor have to complain?

21. September 15, 2015Copyright © 2005-09 Randal C. Picker21 Buy Them All? u Would it matter if the purchase price was 80 cents instead? u Should we have a mandatory purchase right at 100 cents? u What should be the scope of private reorganization? u What should a two-party bankruptcy case look like?

22. September 15, 2015Copyright © 2005-09 Randal C. Picker22 Figter n Core Facts u Figter files C11 plan u TIAA owed $15.6mm, secured by real estate and some cash u B Ct values real estate at $19.3mm; TIAA doesn’t believe it u Figter proposes plan to pay TIAA in full

23. September 15, 2015Copyright © 2005-09 Randal C. Picker23 Figter u Class 3 USC claims to be paid at 80% u TIAA offers to buy all USC claims at 100 cents on the dollar u Buys 21 of 34 claims for $14,500 u TIAA votes them to block class 3 approval

24. September 15, 2015Copyright © 2005-09 Randal C. Picker24 Figter n Key Questions u Should the B Ct designate TIAA’s votes under 1126(e)? u How does the 1126(c) numerosity requirement apply to purchased claims?

25. September 15, 2015Copyright © 2005-09 Randal C. Picker25 Legit Purchase? n Hypo u Firm has 8 creditors, each owed $1000 u Firm’s assets are worth $4,000 u Outsider offers to buy three claims for $600 each u After purchase, Outsider threatens to block confirmation unless it gets 80 cents on the dollar

26. September 15, 2015Copyright © 2005-09 Randal C. Picker26 Legit Purchase? n Key Questions u Will three creditors sell? u Should the court designated the votes under 1126(e)? u Is this Allegheny International?

27. September 15, 2015Copyright © 2005-09 Randal C. Picker27 Allegheny International n Core Facts u Dec 89: Debtor files C11 plan u Feb 90: Approves disclosure statement u 30 Mar 90: Last day for voting on plan u Japonica has alternative plan u 23 Feb 90: Japonica starts buying claims

28. September 15, 2015Copyright © 2005-09 Randal C. Picker28 Bank Claim Purchases BankDateFacePrice% CIBC2/23/90$12.6MM$10.1MM80.24 Israel2/23/90$2.8MM$2.2MM80.16 Northern2/26/90$5.6MM$4.5MM80.24 Harris2/26/90$11.2MM$8.9MM79.97 NCNB3/13/90$8.4MM$6.7MM80.23 Boston3/23/90$9.8MM$8.3MM85 Contin.3/26/90$12.6MM$11.9MM95 HawaiiLater$2.2MM$1.8MM82

29. September 15, 2015Copyright © 2005-09 Randal C. Picker29 Additional Purchases n Class 4.AI.2 u Senior unsecured creditors class u Unsecured creditors committee has sued bank group u Japonica buys $21.7MM face for $14.3MM (66%) u Not sufficient to block class approval but pivotal

30. September 15, 2015Copyright © 2005-09 Randal C. Picker30 Additional Purchases n Key Questions u Why did they pay so much for the Continental Bank claim? u Why did the Hawaii price drop? u What does that tell us? u Why did Japonica buy into the unsecured creditors class?