George L. Miller, Trustee
Eight Penn Center, Suite 950
1628 John F. Kennedy Boulevard
Philadelphia, PA 19103
Phone: (215) 561-0950
Fax: (215) 561-0330
Email: [email protected]
January 18, 2008
STATUS UPDATE #17
NOTE: The Status Updates are cumulative. Please read all seventeen updates.
I unfortunately cannot comment on pending litigation other than to describe the procedural status of such matters. Please review updates #1 through #16 for additional information.
A. STATE COURT ACTION
On September 20, 2007, the State Court Judge ruled on the Preliminary Objections and Motion for Judgment on the Pleadings of all Defendants. We obtained a ruling which would allow the Bankruptcy Trustee to continue with the prosecution of the State Court Action against the Directors and Officers and the Financial Institutions on behalf of the bankruptcy estate.
After the ruling, the Defendants for a second time have filed to remove the State Court Action to Federal Court. In my opinion, I believe the Federal Court should rule the same as it did the first time the Defendants removed the matter and return the litigation to the appropriate forum, namely, the Court of Common Pleas of Philadelphia County, Pennsylvania.
B. BANKRUPTCY COURT ACTIONS
The major litigation in Bankruptcy Court is the (i) Disbursement Motion, (ii) the Greenwich et al Adversary and (iii) Preferences.
(i) Disbursement Motion
The Bankruptcy Trustee in the Disbursement Motion (Docket Entry No. 3305) seeks permission to have a non-debtor affiliated company (ABFS 2003-2, Inc.) pay the debts which it owes to the Debtors in the amount of at least $4,021,392.95 and to enable the Bankruptcy Trustee’s use of the funds in part to fund the litigation expenses of pursuing recovery in the State Court Action, the Greenwich, et al. Adversary and other costs of administration. Hearings on the Bankruptcy Trustee’s Disbursement Motion were held throughout the Summer and concluded in August. Post hearing briefs were submitted throughout the Fall and final briefing was concluded on November 15, 2007. Greenwich and the Indenture Trustees each opposed the Bankruptcy Trustee’s Disbursement Motion. The Indenture Trustees as part of the Indenture Trustee Settlement (see discussion below) have agreed to withdraw their opposition to the Disbursement Motion leaving Greenwich as the sole party opposing the Disbursement Motion. Greenwich in its opposition to the Disbursement Motion claims to be entitled under the Chapter 11 financing agreements to be paid and indemnified for all obligations owed to Greenwich (including its fees and costs) which according to Greenwich would include indemnification for any amount which Greenwich is adjudicated in the Greenwich, et al. Adversary to owe the bankruptcy estate. I do not believe Greenwich is owed any additional monies for indemnity or otherwise. I am awaiting a decision from the Bankruptcy Court on the Disbursement Motion.
(ii) Greenwich et al Adversary
Pre-trial discovery and depositions have begun in the Greenwich, et al. Adversary. A trial date has not been set but I am hopeful that a trial will occur in late 2008 or early 2009.
On November 6, 2007, the Bankruptcy Trustee and the Indenture Trustees’ entered into a settlement agreement (“Indenture Trustees’ Settlement”, a copy of which is attached to this website) which was approved by the Bankruptcy Court on December 19, 2007 wherein the Bankruptcy Trustee agreed to dismiss the Greenwich, et al. adversary against the Indenture Trustees and the Indenture Trustees agreed to withdraw their opposition to the Bankruptcy Trustee’s Disbursement Motion. In addition, the Indenture Trustees’ Settlement provides the Bankruptcy Trustee with access to certain assets, and other benefits which are more fully set forth in the Indenture Trustees’ Settlement.
The following points are my interpretation of the most significant elements of the Indenture Trustees’ Settlement from the estate’s perspective:
1) The IT’s have withdrawn their objections to the Disbursement Motion.
2) The Bankruptcy Trustee has dismissed with prejudice the lawsuit against the IT’s as Defendants in the Greenwich et al Adversary.
3) The Indenture Trustees’ Settlement resolves the dispute as to the amount and classification of the IT’s claims by providing that the IT’s Proofs of Claim will be allowed as follows:
(i) $40,000,000 Chapter 11 Super Priority Claim;
(ii) $58,149,685 General Unsecured Claim.
4) The first $1,000,000 available for distribution from ABFS 2003-2, Inc. will be paid to the Indenture Trustees on account of the IT’s Proofs of Claim.
5) Collections on certain defined assets identified as Liquidation Proceeds and Litigation Proceeds will be split with 40% being paid to the Indenture Trustees by the Bankruptcy Trustee on account of IT’s Proofs of Claim and 60% being available to the Bankruptcy Trustee for administrative and litigation expenses.
6) The Bankruptcy Trustee will be allowed to retain up to $5,000,000 of other identified miscellaneous assets to pay administrative and litigation expenses. After collection of the $5,000,000, any additional collections will be split 40/60 as described in paragraph No. 5.
7) The first $3,000,000 of preference collections, net of expenses to collect, will be available to the Bankruptcy Trustee. Any amount collected over $3,000,000 in preference recoveries will be split 40/60 as described in paragraph No. 5.
There are many other terms of the IT Settlement which can be read in totality as a separate attachment to this website.
Payments by the Bankruptcy Trustee to the Indenture Trustees on account of the IT’s Proofs of Claim pursuant to the Indenture Trustees’ Settlement will not begin until after the Disbursement Motion is decided by the Bankruptcy Court. Thereafter, the Bankruptcy Trustee will not be making disbursement directly to the collateralized noteholders but rather will be making disbursements to the Indenture Trustees who in turn will be responsible for making distribution to the collateralized noteholders.
The Trustee is prosecuting, the preferential payments under Sections 547, 548, 549, and 550 of the Bankruptcy Code. See Status Update #13 for more information.
I will periodically post the detail and aggregate payments made on behalf of the IT’s Proof of Claim in future Status Updates.