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September 6, 2022 – The Debtor filed a first amended Subchapter V Plan of Liquidation and separately filed a blackline of the document showing changes from the version filed on August 29, 2022 [Docket Nos. 121 and 123, respectively].
As discussed further below, on September 6th, the Debtor received Court approval for (i) bidding procedures in respect of a section 363 auction/sale process and (ii) stalking horse arrangements with VMWare, Inc.* That expected sale has left the Debtor with distributable proceeds that cascade farther than expected down the recovery waterfall; leaving general unsecured creditors unimpaired (and now not entitled to vote on the Plan) and common interests (deemed to reject and not entitled to vote) in line for an expected 9% recovery. NB: There remain some fairly significant drafting inconsistencies in the amended Plan and blackline (see further below).
* VMware touts itself as "a leading provider of multi-cloud services for all apps."
UPDATE: On September 12th, the Court hearing the 8e14 Networks case issued an order approving: (i) the Debtor’s proposed Plan solicitation and voting procedures and (ii) a proposed timetable culminating in an October 24th Plan confirmation hearing [Docket No. 155].
On August 4, 2022, 8e14 Networks, Inc. (d/b/a as Ananda Networks, “8e14” or the “Debtor”) filed for Chapter 11 protection (Subchapter V) noting assets between $10.0mn and $50.0mn; and liabilities between $10.0mn and $50.0mn. At filing, the Debtor “a software company focused on the development and commercialization of security features, including virtual private network connections, zero-trust access, and network optimization capabilities,” noted that “its operations do not yet generate sufficient working capital to be self sustaining” without providing further detail as to operational or macro-economic challenges.
On September 6th, the Court hearing 8e14 Networks case issued a final DIP order authorizing the Debtor to access up to $2.0mn in new money debtor-in-possession (“DIP”) financing provided by VMWare, Inc. The Debtor had earlier been allowed to tap $1.1mn of the financing by a pair on interim DIP orders issued on August 10th [$450k, Docket No. 30] and August 16th [$650k, Docket No. 62], respectively.
Also on September 6th, the Court hearing the 8e14 Networks case issued an order: (i) approving bidding procedures in respect of the Debtor's proposed sale of substantially all of its assets (the “Sale”), (ii) authorizing the Debtor to enter into a stalking horse arrangements with the Lender ($14.5mn cash and credit bid) and (iii) adopting a proposed auction/sale timetable culminating in an auction on October 19th and a sale hearing on October 24th.
Overview of the Liquidation Plan
The Amended Plan [Docket No. 121] states, “The Debtor is seeking Bankruptcy Court approval to conduct a Liquidation Transaction. The Debtor has filed a motion seeking court approval of a Stalking Horse APA and certain bid procedures, all of which contemplate an Asset Sale Liquidation subject to higher or otherwise better offers. Based upon the Debtor’s best understanding of its debts at this time, the Sale Proceeds from the Stalking Horse APA are sufficient to pay classes 1-2 under the Plan in full, and nearly all, if not all, of the claims in Class 3.
The Stalking Horse APA is subject to higher or otherwise better offers; therefore, the proposed treatment of Claims and Interests under the Plan may improve. Bids will be due on October 17, 2022. If multiple bids are received, an auction will be scheduled to occur on October 19, 2022, at which time a winning bidder will be selected (the ‘Winning Bidder’). A hearing to consider approval of the sale to the Winning Bidder will be held before the Bankruptcy Court on or about October 24, 2022 (the ‘Sale Hearing’). The Sale Hearing may be combined with the Confirmation Hearing if the Debtor and the Winning Bidder desire to consummate an Asset Sale Liquidation through the Plan”.
The following is an amended/updated summary of classes, claims, voting rights and expected recoveries showing highlighted changes (defined terms are as defined in the Plan and/or Disclosure Statement):
As amended, the Plan would appear to no longer have any voting classes; however there are some inconsistencies in the current drafting with the below table not apparently taking into account the fact that Class 3 is now unimpaired and Class 4 presumed to reject.
Notwithstanding (some blacklining missing)….
- Class 1 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $1.4mn and the estimated recovery is 100%.
- Class 2 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is $1k and the estimated recovery is 100%.
- Class 3 (“General Unsecured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan. The aggregate amount of claims is approximately $8.3mn and the estimated recovery is between 100%.
- Class 4 (“Common Interests”) is impaired, deemed to reject and not entitled to vote on the Plan. The aggregate amount of claims is approximately $9.09mn and the estimated recovery is 9%. If the Sale Proceeds from any Liquidation exceed the amount required to pay the Holders of all Allowed General Unsecured Creditors, holder shall receive his, her or its Pro Rata share of the remaining Sales Proceeds.
- Plan Supplement Deadline: October 7, 2022
- Voting Deadline: October 17, 2022
- Confirmation Objection Deadline: October 20, 2022
- Confirmation Hearing: October 24, 2022
The Ruppin Declaration [Docket No. 36] provides: "In the past, the Debtor has obtained financing through equity financing, a secured loan extended by Venture Lending & Leasing IX, Inc. (the 'Prepetition Lender') (with a balance as of the Petition Date of approximately $1.4 million), SAFE notes issued by the Debtor
in the amount of approximately $650,000 and convertible notes issued by the Debtor in the amount of approximately $6.3 million. In addition, the Debtor has approximately $1.4 million of other unsecured trade debt."
About the Debtor
According to the Debtor: “Our founding team spent decades creating multiple cybersecurity and networking companies and products. We started Ananda Networks after realizing our 20th century networking and security paradigms are simply no longer relevant for our 21st century distributed, cloud enterprise. Rather than continue 'patching' the old network with numerous point products, such as firewalls, VPNs, NAC, MPLS and SD-WAN, it’s time to 'fix the network' and build it right from the ground up."
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