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January 25, 2022 – The Debtors' Official Committee of Unsecured Creditors (the “Committee”) has filed a pair of objections, the first attacking the Debtors’ Disclosure Statement as failing, inter alia, to adequately disclose transactions uncovered by the Committee in the early stages of its ongoing investigation (with those transactions giving "rise to colorable claims and objections to the allowance of claims," notably in respect of Plan "co-proponent" Itaú*) and which generally describes a "deathtrap" Plan that "invests heavily in a favorable outcome for Itaú" [Docket No. 451]. The second related objection is to the Debtors request for an extension of its Plan exclusivity periods, with this objection suppementing an earlier January 11th objection [Docket no. ] to note that the Committee now not only objects to the extension of exzclsuivity but also wants exclsuivity terminated "to permit the Committee to file and solicit its own plan in parallel with the Debtors’ Plan" [Docket No. 452].
*The Debtors own approximately 26.2% of the common equity of Itaú Corpbanca ('Itaú Corpbanca'), a publicly traded Chilean bank controlled by Itaú Unibanco S.A. and its affiliates (collectively, 'Itaú'). They also own, directly and indirectly, approximately 10.3% of the common equity of Itaú Corpbanca Colombia S.A., a Colombian bank subsidiary of Itaú Corpbanca ('Itaú Corpbanca Colombia' and together with Itaú Corpbanca, the 'Bank')."
Objection to Disclosure Statement
The Committee’s objection to the Disclosure Statement reads: “The Debtors and Itaú have proposed a Disclosure Statement and Plan that is long on maximizing value for Itaú (their primary secured creditor), but very short on informing other creditors of causes of action and claims that could significantly alter recoveries. Filed on December 23rd, the Committee’s Standing Motion and accompanying objections to the allowance of proofs of claim filed by Itaú and other secured creditors, represents the results of the Committee’s initial investigation—where the Debtors had completed none before—into the Debtors’ long prepetition history of complex financial transactions.
There is no dispute that the Debtors were routinely used for years to finance other entities within greater Corp Group for no benefit. This included, without limitation, numerous intercompany transfers that funneled assets out the estates, the pledge of a majority of Debtor CGB’s equity interests in a Chilean bank to Itaú and other financial institutions to secure borrowing by non-Debtor Corp Group affiliates, and most recently, Debtor CGB’s $50 million purchase of worthless shares in a Corp Group affiliate that are avoidable under section 548 of the Bankruptcy Code. These and other transactions give rise to colorable claims and objections to the allowance of claims, and not a single one is disclosed to creditors with any meaningful detail.
What the Disclosure Statement does do is describe a Plan that invests heavily in a favorable outcome for Itaú, which is a co-proponent pursuant to a Plan Support Letter. Under the Plan, Itaú’s deficiency claim against Debtor CGB has not one but two sources of recovery: one on account of its unsecured deficiency claim in Class 7A and the other through the assignment of all distributions from an unsecured intercompany claim in Class 7C of highly questionable merit owed to CGB’s direct parent, CG Interhold. Both of these unsecured claims work to massively dilute recoveries for Holders of CGB Unsecured Notes in Class 7B. In addition, Itaú collects from the assignment of a variety of other intercompany claims and so-called acknowledgments of indebtedness in connection with an out-of-court restructuring of CG Interhold under Chilean law, which appears to be driven by a desire of the Saieh Family to leverage these cases to restructure their greater business empire. These assignments and/or acknowledgments aggregate to hundreds of millions of U.S. dollars in their face amount, but the Disclosure Statement provides nothing but cryptic details on value.
The Plan then attempts to lock in distributions to Itaú, as well as to the Holders of Non-Recourse Secured Claims, by conditioning confirmation of the Plan to the allowance of their claims. The Standing Motion contains colorable estate claims against Itaú and certain Non-Recourse Secured Claims that, if granted, must be preserved under the Plan through placement in the Plan’s Litigation Trust. And as set forth in its recently filed claim objections, the Committee disputes the allowance of Itaú’s claims and certain of the Non-Recourse Secured Claims. Nonetheless, it is the position of the Debtors and Itaú that the Plan is subject to confirmation only if Itaú’s claims and all other presently allowed claims remain that way notwithstanding the outcome to the Committee’s challenges.
The Committee flatly rejects the Debtors and Itaú’s apparent solicitation death trap. These estates, which have been in bankruptcy since late June 2021, can ill-afford to embark on a wasteful and time consuming solicitation only for its proponents to pull the Plan if the Court determines Itaú’s claims and the other disputed claims should ultimately be disallowed or that the Committee’s claims and objections should be preserved for full adjudication after the Effective Date. The proponents need to fix this intentionally crippling defect of their own making so that the Plan can move forward even upon (i) the disallowance of Itaú’s claims, the Non-Recourse Secured Claims or the Class 7C claim (either in whole or in part); and/or (ii) the preservation of the Committee’s challenges. Failing this, the Committee must be given the opportunity to move these cases to their prompt conclusion by proposing a chapter 11 plan that is both confirmable and does not extinguish viable affirmative claims and objections through flawed mandatory claim allowance. On top of the patent unconfirmability of the Plan, the Disclosure Statement must be further revised so that the Holders of CGB Unsecured Notes know there is an alternative to the broad releases and minimal recoveries proposed by the Debtors. Most significant, these unsecured creditors need to understand that the Debtors—which are controlled by the Saieh Family—may seek to ‘settle’ and release colorable claims against the affiliates of Corp Group and the Saieh Family that are outlined in the Standing Motion (including the above referenced $50 million fraudulent transfer action). Although it is unclear if a so-called SP Settlement will be pursued by the Debtors, any settlement consideration offered will likely pale in comparison to causes of action that may significantly improve recoveries for creditors under the Plan.”
The objection continues., “The same holds true regarding the Committee’s opposition to Itaú’s claims and the colorable estate claims in the Standing Motion. If successful, one or more of these challenges would likely disallow Itaú’s $670 million unsecured deficiency claim and result in a markedly different landscape for creditor recoveries. The Disclosure Statement, therefore, must be further modified to include additional information regarding, among other matters, the following:
- The Debtors not only have colorable estate claims against non-Debtor affiliates of Corp Group, the Saieh Family and Itaú as referenced above, but also against certain Holders of Non-Recourse Secured Claims for the avoidance of pledges of equity by Debtor CGB and Saga in the aggregate amount of $19.7 million. If successful, these claims could result in materially increased returns to unsecured creditors.
- If the Debtors intend to proceed with a SP Settlement, and a non-consensual third party release of the non-Debtor affiliates of Corp Group and the Saieh Family (which is so broad as to include criminal liability in Chile and otherwise contains no customary carve out for fraud, willful misconduct and gross negligence), any rationale must address the Third Circuit’s strong presumption against the grant of non-consensual releases, and why such presumption would be satisfied under applicable law in connection with the release of millions of dollars of colorable claims.
- The Committee’s objection to the Debtors’ insertion of the Class 7C intercompany claim allegedly owed by Debtor CGB to its direct parent, CG Interhold, in the amount of $72 million, which only serves to increase Itaú’s recovery on its deficiency claims under the Plan.
- Additional disclosure or modification of the Disclosure Statement and related solicitation procedures as is necessary to address deficiencies in other areas that include: (i) the failure to provide any means for Holders of CGB Unsecured Notes Claims to opt-in or otherwise consent to the Debtors’ inappropriate third party releases; (ii) the very tight Voting Deadline given what is required for Holders of CGB Unsecured Notes Claims to timely submit a ballot, either through a Nominee or otherwise; and (iii) the insufficient amount of time provided for Holders of CGB Unsecured Notes Claims to submit the Noteholder Questionnaire and ATOP Notice, and the unnecessarily draconian forfeiture provisions to any recoveries under the Plan if these deadlines are missed.
The Committee, although largely sidelined of late in formulating the Plan, will seek to work constructively with the Debtors and Itaú in an effort to find common ground (both as to the Disclosure Statement and the Committee’s other issues with the Plan to be addressed at confirmation if not before). But the first step in this process must be the prompt resolution of the patent unconfirmability of the Plan that is purposefully built in with respect to the take-it-or-leave-it allowance of Itaú’s claims and the other disputed claims. If this gating issue is resolved, and it easily should be, the Disclosure Statement must still be revised to provide unsecured creditors with adequate information on what they stand to lose (and conversely, what Corp Group, the Saieh Family, Itaú and others improperly stand to gain) under the present Plan. The Committee also requests that the solicitation package include a letter to be provided that will contain the Committee’s recommendation that Holders of CGB Unsecured Notes Claims vote against the Plan.”
Termination of Exclusivity
The Committee argues: "In the [initial January 11th] Objection, the Committee objected to an additional 76-day extension of the Debtors’ Exclusive Periods given that these cases were filed over six months ago in late June 2021 and explained the Committee’s principal issues with the Plan….given recent discussions amongst the Debtors, the Committee and other interested parties (including Itaú), it has become clear that the Debtors have no intention of making modifications to the Plan that would ensure that, at the time of the confirmation hearing, this Court will have before it a confirmable plan. Thus, the Committee supplements its Objection to request that the Court not only deny the Motion, but now also moves to terminate exclusivity and permit the Committee to file and solicit its own plan in parallel with the Debtors’ Plan."
Events Leading to the Chapter 11 Filing
In their declaration the Debtors detailed the events leading to Inversiones CG Financial Chile Dos’s Chapter 11 filing. The Declaration provides: “Corp Group Banking S.A. ('CGB') and Inversiones CG Financial Chile Dos S.P.A. ('CGFC 2,' and together with CGB, the 'Debtors') are subsidiaries of Corp Group ('Corp Group'), domiciled in Chile and headquartered in Santiago, Chile. The Debtors own approximately 26.2% of the common equity of Itaú Corpbanca ('Itaú Corpbanca'), a publicly traded Chilean bank controlled by Itaú Unibanco S.A. and its affiliates (collectively, 'Itaú'). They also own, directly and indirectly, approximately 10.3% of the common equity of Itaú Corpbanca Colombia S.A., a Colombian bank subsidiary of Itaú Corpbanca ('Itaú Corpbanca Colombia' and together with Itaú Corpbanca, the 'Bank'). The Debtors’ revenue is almost exclusively dependent on dividends paid by the Bank….
Over the past several years, the financial performance of the Bank has deteriorated dramatically. In turn, the share price of Itaú Corpbanca has decreased, and the Debtors have received far smaller dividends than expected when CGB issued the Notes and incurred obligations to Itaú. Based on the current condition of the Bank, the Debtors are unable to repay their obligations in full.
Beginning in the third quarter of 2020, the Debtors and their subsidiaries (collectively, 'Corp Group Financial') urged their two primary creditor constituencies — Itaú and an ad hoc group of Noteholders (the 'Ad Hoc Group') — to engage in discussions aimed at achieving a consensual restructuring or orderly liquidation of Corp Group Financial. While Itaú has participated in difficult negotiations with Corp Group Financial for several months, the Ad Hoc Group has been unwilling to negotiate on the basis of Corp Group Financial’s proposals. Over the past several weeks, Corp Group Financial has had productive discussions with Itaú on the terms of a transaction to be implemented through Chapter 11 proceedings. In recent days, rumors of a potential transaction have begun to leak into the Chilean press.
In January 2021, certain Noteholders in the Ad Hoc Group commenced proceedings in Santiago, Chile (the 'Chilean Action') by filing a pre-judicial discovery motion requesting certain information from CGB and certain of its affiliates. On June 15, 2021, the Ad Hoc Group filed a complaint in the Chilean Action seeking to avoid numerous transactions made by CGB over the past seven years, and on June 23, 2021, the Ad Hoc Group filed a request for an emergency injunction appointing an administrator over CGB and freezing its assets (including assets that are pledged to Itaú and other secured creditors).
The Debtors believe — and will ultimately demonstrate — that the claims asserted by the Ad Hoc Group are without merit. Unfortunately, the Ad Hoc Group’s attempts to collect on their unsecured claims3 have forced the Debtors to expedite the filing of these Chapter 11 cases (the 'Chapter 11 Cases') to protect the value of the Debtors’ estates and to ensure that all of their creditors are treated fairly, in accordance with their respective priority under applicable law."
The Declaration further explains, "The Debtors intend to continue to pursue a consensual transaction during the Chapter 11 Cases. While the Ad Hoc Group’s decision to pursue litigation over negotiation is unfortunate, the Debtors are hopeful that the breathing room created by the automatic stay and exclusivity will encourage all of their stakeholders to engage in negotiating a fair, orderly and fully-consensual wind down of Corp Group Financial."
As of the Petition Date, the Debtors’ capital structure consists of the following debt obligations of CGB. The Debtors have no trade debt.
Corpgroup Interhold SpA owns 228,623,711 shares (99.9999996%) of CGB.
About the Debtors
According to the Debtors: “Corp Group Banking S.A. ('CGB') and Inversiones CG Financial Chile Dos S.P.A. ('CGFC 2' and, together with CGB, the 'Debtors') are subsidiaries of Corp Group ('Corp Group'), domiciled in Chile and headquartered in Santiago, Chile. The Debtors own approximately 26.2% of the common equity of Itaú Corpbanca ('Itaú Corpbanca'), a publicly traded Chilean bank controlled by Itaú Unibanco S.A. and its affiliates (collectively, 'Itaú'). They also own, directly and indirectly, approximately 10.3% of the common equity of Itaú Corpbanca Colombia S.A., a Colombian bank subsidiary of Itaú Corpbanca ('Itaú Corpbanca Colombia' and together with Itaú Corpbanca, the 'Bank')."
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