In re M&G U.S. Corp.
In re M&G U.S. Corp.
Opinion of the Court
Before the Court is the Motion of the Construction Lienholder Group for Allowance and Payment of Administrative Expense for Substantial Contribution [Docket No. 1555]. By this Motion, the Construction *259Lienholder Group
BACKGROUND
M & G USA Corporation and its affiliates (hereinafter "the Debtors") were producers of polyethylene terephthalate resin ("PET") and one of its precursors, purified terephthalic acid ("PTA"). First Day Declaration of Dennis Stogsdill [Docket No. 3 at ¶ 8]. PET is a product used in the manufacture of plastic bottles and other plastic packaging.
On October 30, 2017, the Debtors filed for Chapter 11 protection. [Docket No. 1]. The Corpus Christi Plant remained substantially incomplete as of the Petition Date. First Day Declaration at ¶ 10. The Debtors claimed to be facing substantial liquidity concerns brought on, in large part, by delays in the Plant's completion.
In their First Day Declaration, the Debtors pointed to multiple factors contributing to the years-long construction delay: labor costs had been underestimated; design and technical problems necessitated changes; and damage and disruption from Hurricane Harvey had further impacted the project.
Some, but not all, of those mechanic's lienholders formed an ad hoc committee soon after the Petition Date in order to participate in the bankruptcy proceedings (the "Construction Lienholder Group" or the "CLG"). The membership of the CLG has varied throughout the proceedings, *260and has not at any point comprised the universe of all mechanic's lienholders. [Docket No. 2274 at ¶ 1]. Instead, it has consisted of a number of lienholders and claimed to represent the interests of all lienholders who were similarly situated.
The CLG filed a motion seeking to be appointed as an official committee pursuant to
The Debtors' cases were contentious from the outset. The record reflects that the Debtors entered bankruptcy short on cash and saddled with a partially-built (and non-revenue-producing) plant. First Day Declaration at ¶¶ 10-11. Secured and unsecured creditors, including the CLG, vigorously engaged with the Debtors to protect their interests in hopes of obtaining a recovery that seemed far from assured.
The Debtors pursued a sale and marketing process for the Corpus Christi Plant that yielded expressions of interest from several potential buyers. Each of those buyers, of course, demanded the "free and clear" protections available under Bankruptcy Code § 363(f) and sought to acquire the Plant without the massive liens (mechanic's and otherwise) that had been filed against it. The record reflects that the sale process led to a successful auction and ultimately to Court approval and closing of a sale of the Corpus Christi Plant for consideration of approximately $ 950 million. [Docket No. 1251 at ¶ 7]. The sale also provided for an escrow of certain proceeds in the amount of approximately $ 230 million that would be available to pay allowed claims of mechanic's lien claimants.
Following the closing of the sale, the Debtors drafted and proposed a plan and a disclosure statement. In broadest terms, the plan contemplated creation and funding of the litigation trust on a post-confirmation basis, and also provided for administration of the approximately $ 230 million escrow fund for mechanic's lien claimants. The record reflects that the CLG objected to both the disclosure statement and later to the confirmation of *261the plan on the ground that the Debtors had not provided for or articulated specific procedures for dealing with the mechanic's lien claimants. The CLG noted that the settlement agreement reached in the context of the sale of the Corpus Christi Plant required the establishment of claims administration procedures, and the Debtors essentially stated little more in the Plan than that these procedures would be determined at a later point. The Court overruled the CLG's objections to the disclosure statement, noting that the escrowed funds were safe from dissipation and that the interests of all stakeholders, including the mechanic's lien claimants, would not be served by delaying plan confirmation. November 5, 2018 Hearing Transcript [Docket No. 2046 at 80-83].
In the initial balloting on the plan, holders of claims in Class 4 (which included mechanic's lien claimants) voted overwhelmingly to reject the plan. [Docket No. 2144-1 at 2]. Separately, the CLG and numerous individual mechanic's lien claimants filed objections to plan confirmation.
The CLG has filed the Motion of the Construction Lienholder Group for Allowance and Payment of Administrative Expense for Substantial Contribution [Docket No. 1555] (the "Substantial Contribution Motion"). By the Substantial Contribution Motion, the Construction Lienholder Group requests that this Court enter an order allowing it an administrative claim in the amount of $ 1,166,297.08 pursuant to
JURISDICTION AND VENUE
Venue in this District and Court is proper pursuant to
DISCUSSION
A. Legal Standard
An ad hoc committee may be awarded an administrative claim for the "actual, necessary" expenses incurred in making a "substantial contribution" to a case under Chapter 11.
A party seeking an award of administrative expenses has the burden of proving its claim by a preponderance of the evidence. In re FF Holdings Corp. ,
The Bankruptcy Code does not define "substantial contribution," but nearly all courts and the leading bankruptcy treatise agree that the contribution must provide "tangible, clearly demonstrable benefits to the estate." 5 Collier on Bankruptcy, ¶ 503.10[a] (Alan N. Resnick & Henry J. Sommer eds., 15th ed. 2015) (collecting cases). As with all of the Bankruptcy Code's priority statutes, section 503(b)(3) is strictly construed to keep administrative expenses to a minimum. In re Columbia Gas Sys., Inc. ,
While the phrase "substantial contribution" does not lend itself to a set of exacting criteria, a well-developed body of case law teaches that the sort of contribution that reaches the substantial threshold is exceedingly narrow: extensive and active participation alone does not qualify, In re Bayou Grp., LLC ,
As this Court has noted, "expected or routine activities in a chapter 11 case-such as encouraging negotiation among parties, commenting and participating in successful plan negotiations, and reviewing documents-generally do not constitute a substantial contribution." In re RS Legacy Corp. , No. 15-10197 (BLS),
B. The Parties' Positions
The CLG contends that it has carried its evidentiary burden under
The M & G Litigation Trust opposes the Substantial Contribution Motion on several grounds. First, the Trust notes that the mechanic's lien creditors are slated to receive a full recovery. Given that, the Trust contends that payment of an additional $ 1.6 million to these claimants (which presumably cuts into unsecured creditor recoveries) constitutes a windfall. Additionally, the Trust contends that the CLG actually cost the estate significantly given the amount of litigation and motion practice pursued by the CLG. The Trust further asserts that no substantial contribution was conferred here because the Debtors were always prepared to protect the interests of mechanic's lienholders. Rather than acting to resolve existing issues, then, the Trust asserts that the CLG "stood [mechanic's lienholders] up in order to create" opposition to Plan confirmation and then "[cut] a deal" to resolve issues that the CLG created. April 11, 2019 Hearing Transcript [Docket No. 2381 at 59]. Finally, and relatedly, the Trust argues that the CLG's role in the confirmation of a consensual plan was unimportant, because the cooperation of the mechanic's lienholders with plan confirmation was unimportant. In a nutshell, the Trust contends that the CLG engaged in expensive motion practice and litigation in exchange for benefits that were either trivial or effectively already on the table.
C. Analysis
It is not meaningfully in dispute that the multitude of entities holding mechanic's liens against the Debtors' Corpus *264Christi Plant were important players in this restructuring. As noted in the Debtors' first day filings, the construction liens encumbering the Corpus Christi Plant were identified by the Debtors as a significant factor in the liquidity crisis which motivated the Debtors' filing. [Docket No. 3 at ¶¶ 10-11]. Mechanic's liens are creatures of state law and may often be senior to other security interests. In this case, the parties holding mechanic's liens against the Corpus Christi Plant alleged they were senior to all other creditors. Given their position as putative senior secured creditors, it is beyond cavil that the mechanic's lienholders were a significant constituency to this reorganization. The question is, thus, whether the ad hoc committee formed by some of those key players "foster[ed] and enhance[d] ... the process of reorganization" to the extent necessary to constitute a "substantial contribution." Lebron ,
The Court finds that the CLG provided a substantial contribution to this case by demonstrably and materially facilitating the process of reorganization. The CLG played a particularly significant role in at least two points in these proceedings. First, it negotiated for an additional $ 32 million cushion in the DIP Facility's lienholder reserve. Id. at ¶ 5. The negotiations that led to that reserve ultimately allowed for the sale of substantially all of the Debtors' assets free and clear from the claims of mechanic's lienholders. Mechanic's liens, like all liens, may pass through bankruptcy unaffected in certain circumstances. Without the cooperation of the lienholders, the existence of pre-bankruptcy liens may have served to discourage potential purchasers who were interested in reaping the benefits of a bankruptcy sale. In this case, the M & G Litigation Trust has acknowledged at several points that the number and complexity of these liens would make it challenging for a potential purchaser to determine the actual effect or liability outstanding, should that buyer not have the protections of a broad sale order. [Docket No. 1075-3 at ¶¶ 8-12].
The second significant role played by the CLG was in facilitating the consensual confirmation of the Plan. The Court finds that this is a significant consideration weighing in favor of a finding that the CLG made a "substantial contribution" to these cases. The CLG facilitated and encouraged the negotiations that led to a settlement between mechanic's lienholders and other economic stakeholders, and, ultimately, to the consensual confirmation of a plan. [Docket No. 2274 at ¶ 19]. The CLG's representation and the settlement it reached with other interested parties-described by the M & G Litigation Trust in its objection-smoothed the reorganization process at a key moment. [Docket No. 2274 at ¶ 5]. On the eve of the confirmation hearing, the class of mechanic's lienholders were almost unanimously opposed to the plan's confirmation, but ultimately, that class voted in favor of the plan. [Docket No. 2285 at 3]. Because they had negotiated for a sufficient reserve for mechanic's lienholders, and by settling avoidance actions against those same lienholders, the CLG provided those parties with little reason to oppose a consensual settlement and plan confirmation-a major boon to the estate, and by no means "largely beside the point," as alleged by the Trust. [Docket No. 2274 at ¶ 22].
The Court also finds that the CLG generally eased the burden upon the estate by providing a valuable coordinating function for the mechanic's lienholders, who were represented by various counsel and primarily based in Texas. As described by the Debtors, simply identifying and contacting all of the mechanic's lienholders was an arduous task. [Docket No. 1075 at ¶ 12]. The Debtors' successor-in-interest, the M
*265& G Litigation Trust, asserts in its objection that at the commencement of this case, the members of the CLG were facing a chaotic and challenging alternative to restructuring. [Docket No. 2274 at ¶ 2]. The Litigation Trust points out that the members of the CLG would have faced "inevitable litigation...among each other" had the Debtors not commenced these cases. Id. The Court largely agrees, but finds that this fact increases the value of the coordination that the CLG provided, given that inter-lienholder disputes did not play a meaningful role in the reorganization proceedings, at least in open Court.
Furthermore, the record supports a finding that the CLG committee undertook its actions without expectation of compensation, a factor that weighs in favor of a finding of "substantial contribution." See Lebron ,
Having determined that the CLG has provided a "substantial contribution" under section 503(b)(3)(D) the Court turns now to the standard for professional compensation found in section 503(b)(4). That statute permits the Court to allow administrative expense claims for attorneys and accountants who have provided services to a committee making a "substantial contribution" under section 503(b)(3)(D). The Court may allow a claim for an amount that reflects "reasonable compensation for professional services rendered by an attorney or an accountant...based on the time, the nature, the extent, and the value of such services, and the cost of comparable services other than in a case under this title" as well as for "reimbursement for actual, necessary expenses incurred by such attorney or accountant."
When considering whether the requirements of section 503(b)(4) have been met, the Court considers the fee and expense information that has been provided by the Movants. [Docket Nos. 2246; 2349]. The Court also takes notice of CLG's participation in the bankruptcy case, both by its numerous filings and its participation in various hearings before the Court.
CONCLUSION
For the reasons above, the Court hereby GRANTS the CLG's Motion for Allowance and Payment of Administrative Expense for Substantial Contribution [Docket No. 1555] as supplemented [Docket Nos. 2246; 2349]. The parties are requested to confer *266and provide the Court with a form of order consistent with this opinion within seven (7) days.
This Opinion constitutes the Court's findings of fact and conclusions of law, as required by the Federal Rules of Bankruptcy Procedure. See Fed. R. Bankr. P. 7052, 9014(c).
Capitalized terms are defined infra .
This figure represents the final aggregate amount requested in a supplement [Docket No. 2246] to the Motion.
See, e.g. , Docket Nos. 257; 341; 380; 684; 685; 686; 824; 825; 995; 1113; 1199; 1238; 1920; 2127.
The U.S. Trustee's objection [Docket No. 2286] centered on the CLG's failure to provide sufficient evidentiary support for the Substantial Contribution Motion, such as detailed billing reports or invoices. The Court finds the CLG's supplemental filings [Docket Nos. 2246; 2349] adequately address the U.S. Trustee's objection.
See, e.g. , Docket Nos. 257; 341; 380; 684; 685; 686; 824; 825; 995; 1113; 1199; 1238; 1920; 2127.
Reference
- Full Case Name
- IN RE: M&G USA CORPORATION, Debtors.
- Cited By
- 2 cases
- Status
- Published