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December 31, 2020 – The Debtors filed a Combined Plan of Liquidation and Disclosure Statement [Docket No. 301] and separately requested a Court order that would (i) conditionally approve the adequacy of the Disclosure Statement, (ii) approve Plan solicitation and voting procedures and (iii) approve a proposed timetable culminating in a March 8, 2021 combined hearing [Docket No. 303].
The Combined Document is based on a plan support agreement (the "PSA"). The Combined Document explains, "In late October, 2020, the Debtors determined to cease inflow and outflow of all digital Assets in order to assess their financial position and determine how to address their asset liability gap. Shortly thereafter, the Debtors filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code, initiating the Chapter 11 Cases. While the Debtors remain committed to working with other constituents in the capital structure on the terms of superior restructuring transactions, the Debtors believe that the Combined Plan and Disclosure Statement, which now incorporates the global settlement with the Committee outlined in the Plan Support Agreement, represents the best available alternative to maximize value for all stakeholders….
Promptly after its appointment, the Committee engaged in negotiations with the Debtors’ regarding a consensual path forward that would maximize the value of the Debtors’ Estates for the benefit of all Creditors. Such negotiations culminated in the execution of the Plan Support Agreement, which contemplates a chapter 11 plan of liquidation centered on an expeditious liquidation of the Debtors’ Assets, first through the Debtors’ Sale Transaction and, irrespective of whether the Sales Transaction comes to fruition, the transfer of all of the Debtors’ Assets into a liquidation trust. The Debtors and the Committee believe that the restructuring process set forth in the Plan Support Agreement is in the best interests of the Debtors’ Estates and all stakeholders. On December 23, 2020, the Debtors filed the Motion Pursuant to Bankruptcy Code Sections 363(b) and 105(a) for Authorization to Enter Into and Perform Under a Plan Support Agreement Term Sheet [Docket No. 279], which is set to be heard on January 6, 2020.
Sale Process On November 18, 2020, the Debtors filed the Sale Motion. Pursuant to the Sale Motion, the Debtors sought to establish certain deadlines and bidding procedures by which the Debtors could obtain proposals for the purchase of the Debtors’ businesses as a going concern or, alternatively, for the purchase of the Debtors’ Assets, to be sold at the Auction. On December 21, 2020, the Bankruptcy Court entered the Bid Procedures Order approving such relief [Docket No. 270]."
On December 31, 2020, the U.S. Trustee overseeing the Debtors' cases objected to the Debtors' motion for approval to enter into and perform under the PSA term sheet [Docket No. 302], pointing out that the PSA was reached before the Court has even approved the selection of an examiner who will conduct a court-ordered investigation in the Debtors' cases. See more on the U.S. Trustee's objection below.
The following is a summary of classes, claims, voting rights and expected recoveries (defined terms are as defined in the Plan and/or Disclosure Statement):
- Class 1 (“Other Priority Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 2 (“Secured Tax Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 3 (“Other Secured Claims”) is unimpaired, deemed to accept and not entitled to vote on the Plan.
- Class 4 (“General Unsecured Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $162.8mn and the estimated recovery is unknown. Each Holder will receive either: (i) a Cash payment equal to such Holder’s Distribution Pro Rata Share of Net Distributable Assets; or, (ii) with respect to any such Holder that makes a Cryptocurrency Election, an Equivalent Cryptocurrency Distribution.
- Class 5 (“Convenience Claims”) is impaired and entitled to vote on the Plan. The aggregate amount of claims is $500k and the estimated recovery is 50%. Each Holder will receive Cash in an amount equal to 50% of the amount of such Convenience Claim on or as reasonably practicable after the later of (i) the Effective Date or (ii) thirty (30) days after the date on which such Claim becomes Allowed.
- Class 6 (“Subordinated Securities Claims”) is impaired, deemed to reject and not entitled to vote on the Plan.
- Class 7 (“Equity Interests in Debtors”) is impaired, deemed to reject and not entitled to vote on the Plan.
Proposed Key Dates
- Deadline to object to the Disclosure Statement: January 14, 2021
- Interim Disclosure Statement Hearing: January 21, 2021
- Voting Deadline: March 1, 2021
- Combined Hearing: March 8, 2021
Exhibits attached to the Combined Document [Docket No. 301]:
- Exhibit A: Causes of Action List
- Exhibit B; Liquidation Analysis (to be filed)
U.S. Trustee Objection
The U.S. Trustee's objection to the PSA motion states, "This eve-of-trustee-motion-hearing plan support agreement ('PSA') between the Debtors and the Official Committee of Unsecured Creditors (the 'Committee') was designed to stave off the appointment of an independent fiduciary. What’s unclear is what the Debtors’ estates are getting from the Committee by entering into the PSA, beyond the ability to say that they have an agreed-upon game plan. A case management order can provide an agreed-upon game plan. The terms of the Motion and the accompanying PSA go well beyond a traditional case management order.
This Court recently entered an order directing the appointment of an examiner (the 'Examiner') [D.I. 281, entered 12/23/20]. The Examiner – whose appointment has yet to be approved by this Court – will conduct an investigation and file a report. The information contained in that report will be both central and critical to (i) any disclosure statement related to a chapter 11 plan contemplated by the plan support agreement ('PSA'), which is the subject of the Motion and (ii) by extension, informed voting on the plan….
A multitude of reasons support denial of the Motion.
- First, the Motion was filed in an incomplete form. As of the date of filing of this objection, the Debtors have yet to file the budget, which is an exhibit to the Term Sheet. Accordingly, parties in interest have not had an opportunity to review the budget as of the date this objection was filed – seven (7) days prior to the hearing. The hearing on the Motion should be continued so that other parties in interest – and this Court – may review the budget.
- Second, the Motion creates a situation where the Committee would play a role akin to a debtor-in-possession lender, with a cash flow forecast being approved by the lender each week which restricts the Debtors’ use of estate cash, including 'non-operating outflows' such as professional fees and expenses. In that regard, the Debtors and the Committee do not specifically acknowledge that this Court has directed the appointment of an Examiner by providing that the fees and expenses of the Examiner and the Examiner’s professionals allowed by this Court will be paid from the Debtors’ estates, as provided for in the Examiner Order…More generally, the Debtors and Committee provide no basis for usurping this Court’s own role – and the role of other parties in interest – in protecting unencumbered funds for the estates’ benefit and to determine which administrative expenses will be allowed/paid.
- Third, given that the Examiner has yet to be appointed, it is not a reasonable exercise of the Debtor’s business judgment to agree to milestones related to the plan process under the PSA – (i) the January 29, 2021 date for disclosure statement/combined hearing approval; (ii) the March 17, 2021 date for obtaining approval of the plan; and (iii) the March 31, 2021 date for the plan to go effective – which potentially are at odds with the timeline for the Court-ordered examination. This Court should refrain from considering the Motion until after the Examiner’s work plan has been presented to this Court. Mot. ¶ 11 (describing the 'Milestones'). And, while the establishment of milestones can be an important mechanism to ensure the timely and efficient administration of the case, the U.S. Trustee respectfully submits that the entry of a case management order after hearing an examiner’s plan for his or her investigation and reporting is a better alternative than approval of a 'plan support agreement' between estate fiduciaries who are free, in any event, to extensively cooperate in furthering the proper administration of the case.
- Fourth, nothing in the Motion provides evidentiary support as to why it is a reasonable exercise of the Debtors’ business judgment for the Debtors to bind themselves today – before the examination has even started – to a plan that will provide 'full customary debtor and ‘third party’ releases from liability in favor of the Debtors’ professionals, Grant Lyon as the Debtors’ independent director, the Debtors’ chief restructuring officer and any other temporary staff supplied by Sonoran Capital, the Committee’s professionals and each Committee member.'"
About the Debtors
According to the Debtors: “Cred is a global financial services platform serving customers in 183 countries. Cred is a licensed lender and leverages a substantial balance sheet and proprietary technology to provide business and retail credit and to allow its customers to earn a yield on more than 15 crypto and fiat currencies through its partner network.
Founded by former PayPal veterans and based in the San Francisco Bay Area, Cred brings together a diverse team of entrepreneurial leaders to leverage machine learning and the power of blockchain technology.
Cred’s mission is to harness the power of blockchain to allow everyone to benefit from low-cost credit products.
Using the power of partnerships and blockchain technology, we dream of an open, fair and global financial infrastructure.”
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