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January 20, 2023 – The Debtor filed a motion to extend (for a third time) the periods during which it has an exclusive right to file a Plan and solicit acceptances thereof, through and including July 31, 2023 and September 29, 2023, respectively [Docket No. 630]. Absent the requested relief, the Plan filing and solicitation periods are scheduled to expire on January 31, 2023, and March 2, 2023, respectively.
Taking a "glass is half full" view as to these already lengthy cases, the Debtor argues that it "has made substantial progress," before suggesting that it, as a debtor prosecuting a section 524(g) case (ie looking to definitively resolve legacy tort liability using the US bankruptcy court system), needs more time than most. In this respect anyway, the Debtor agrees with many who posit that the U.S. bankruptcy courts are not an appropriate tool for the [mass tort resolution] job.
The Debtor argues it has: "had just over nine months to progress its chapter 11 case, which is not nearly sufficient to resolve a section 524(g) case." This timing challenge, the Debtor argues significantly exacerbated by a failed mediation process which chewed three months off the clock before allowing it to pick up with an estimation process (described by the Debtor as a "tried-and-true process" in section 524(g) cases) that it has sought from the outset of its case with considerable, and continuing, opposition.
That estimation process, however, now comes with its own set of dates which have a greater bearing on the Debtor's case than the requested exclusivity periods.
An initial estimation hearing is currently scheduled for May 10, 2023 with the Court's subsequent estimation ruling triggering a 51-day timetable which, if not adhered to, will result in dismissal of the Debtor's case. To wit, the Court's "Initial Estimation Proceeding Order" provides that "Within 30 days of the Court’s ruling on the estimation issues, Hess is required to file a notice on the docket “committing to fund a chapter 11 plan premised on a § 524(g) injunction….Within 21 days of Hess’ compliance with such requirement, the Debtor is required to file a proposed chapter 11 plan and disclosure statement on the docket...If either Hess or the Debtor fails to satisfy those requirements, the chapter 11 case will be dismissed…."
On April 28, 2022, HONX, Inc. (“HONX” or the “Debtor”) filed for Chapter 11 protection noting estimated assets between $10.0mn and $50.0mn; and estimated liabilities between $500.0mn and $1.0bn. At filing, the Debtor, a non-operating, wholly-owned subsidiary of Hess Corporation (“Hess”), noted that it “intends to use the breathing spell and other tools afforded by chapter 11 of the Bankruptcy Code to establish a claims trust consistent with the requirements of section 524(g) of the Bankruptcy Code that would be approved pursuant to a chapter 11 plan;” with the 524(g) trust used to channel claims related to asbestos and other toxic tort-related injuries filed by former employees of the Debtor’s U.S. Virgin Islands refinery.
On September 15th, the co-mediators appointed in the Debtor’s Chapter 11 case notified the Court that the mediation has been terminated, effective September 15th [Docket No. 296]. The notice states that the Debtor, Hess, the Debtor’s official committee of unsecured creditors (the “Committee”), the Court appointed future claimants’ representative (the “FCR”), and counsel to certain asbestos claimants (collectively, the “Mediation Parties”) “participated in a mediation (the ‘Mediation’) led by Judge David R. Jones and Mr. Kenneth Feinberg (the ‘Co-Mediators’) in an effort to resolve certain issues presented in the chapter 11 case, including potential liabilities related to alleged exposure to asbestos….[T]he Mediation Parties have not been able to reach a consensual resolution and, consistent with the authority granted pursuant to the Mediation Order, the Co-Mediators terminated the Mediation on September 15, 2022.”
On September 22nd, the Committee filed a motion to dismiss the Debtors’ cases, or in the alternative, convert it to a case under Chapter 7 [Docket No. 324, with a related seal motion filed at Docket No. 325]. As covered in earlier reporting, the Committee views the Debtor’s use of the bankruptcy process as a “particularly stark” example of a bad faith filing, by a Debtor that is not a going concern, has no employees, has no chance of rehabilitation and has been non-operational for more than decade. The filing, the Committee continues is just to protect the Debtor’s parent, Hess Corp, “a financially robust global behemoth, generating about $4 million in unlevered free cash flows each day, with a market capitalization of some $37 billion. The financial exposure Hess faces in connection with its former USVI operations, while meaningful to its victims, is microscopic to Hess itself….” A hearing to consider the dismissal motion is scheduled for November 2, 2022.
The Extension Motion
The motion [Docket No. 630] notes, “For over thirty years, the Debtor has been a named defendant in thousands of asbestos-related personal injury lawsuits (the ‘Asbestos Claims’) arising from the Debtor’s prior ownership and operation of an oil refinery in St. Croix, U.S. Virgin Islands (the ‘Refinery’). After exhausting all other options, the Debtor filed its voluntary petition in good faith, intending to utilize section 524(g) of the Bankruptcy Code to provide efficient and fair compensation for all meritorious asbestos-related claims.
The Debtor has made substantial progress in this chapter 11 case since it last requested an extension of the Exclusivity Periods, including (i) successfully contesting an attempt to dismiss the chapter 11 case, (ii) establishing a bar date for the filing of proofs of claim against the Debtor and providing notice thereof, and (iii) obtaining an initial estimation proceeding before the court.
One of the Debtor’s key objectives since the termination of mediation in September has been obtaining an estimation proceeding for the court to estimate the asbestos claims that have been or may be asserted against the Debtor, and obtaining appropriate discovery with respect to such claims. Since the last extension of the Exclusive Periods, the Committee and the FCR opposed the Debtor’s request to conduct an estimation proceeding, and, in the event that an estimation proceeding was set, the Committee requested that it include so-called bellwether trials in the United States Virgin Island territorial court. The parties briefed the issue and the Court heard the Debtor’s motion and the Committee’s cross-motion at a hearing on January 4, 2023. The Court granted, in part, the Debtor’s request for an estimation proceeding over the objections of the Committee and the FCR and denied the Committee’s cross-motion for bellwether trials, in each case without prejudice.
Estimation is the baseline process in section 524(g) cases. From the commencement of this case, the Debtor has sought to go down this tried-and-true process, while the Committee and Burns Charest have repeatedly sought to block, hinder, and delay the inquiry into the Asbestos Claims that an estimation process provides. The estimation proceeding will provide an opportunity for the Debtor to obtain and prepare adequate information to propose, negotiate, and ultimately confirm a chapter 11 plan. Furthermore, the Initial Estimation Proceeding Order requires the Debtor to file a plan and disclosure statement within a specific time period.
The Debtor has had just over nine months to progress its chapter 11 case, which is not nearly sufficient to resolve a section 524(g) case. In fact, given the contested nature of the chapter 11 case, it took the the Debtor over three months from renewing its estimation scheduling motion on October 7, 2022 [Docket No. 343] to obtain an order scheduling an estimation hearing on May 10, 2023 [Docket No. 603]. The Debtor had previously sought to schedule an estimation proceeding at the beginning of the chapter 11 case in May 2022, but put its efforts on hold as a condition to the mediation. Now that the Court has scheduled an estimation proceeding for May 10, 2023, and has established a schedule for the Debtor to propose a plan after that hearing, the Debtor can focus on several of the key factual and legal issues at the heart of the chapter 11 case.”
On the "Initial Estimation Proceeding Order," and its timing requirements, the motion adds: "…an initial estimation hearing is currently scheduled for May 10, 2023….Within 30 days of the Court’s ruling on the estimation issues, Hess is required to file a notice on the docket 'committing to fund a chapter 11 plan premised on a § 524(g) injunction.' Within 21 days of Hess’ compliance with such requirement, the Debtor is required to file a proposed chapter 11 plan and disclosure statement on the docket. If either Hess or the Debtor fails to satisfy those requirements, the chapter 11 case will be dismissed….Accordingly, the Debtor is pressing ahead with discovery and preparing to present its case in chief at the May 10, 2023 initial estimation hearing, in addition to managing other case workstreams, including preparing to analyze the claims filed against the Debtor after the March 17, 2023 bar date. In order to follow the procedure set forth in the Initial Estimation Proceeding Order, culminating in proposal of a chapter 11 plan no later than 51 days after the Court’s ruling on the estimation issues set for hearing on May 10, 2023, the Debtor seeks to further extend the Exclusive Filing Period and Exclusive Solicitation Period to July 31, 2023, and September 29, 2023, respectively. This extension both complies with the Court’s previous directions and allows the Debtor, and all parties in interest, to focus on the upcoming estimation proceeding."
About the Debtor
According to the Debtor's complaint for injunctive relief, "HONX is a New York corporation with its principal place of business in Houston, Texas. HONX is a non-operating, wholly-owned subsidiary of Hess. Almost all of the Debtor’s current liabilities are legacy liabilities of HOVIC stemming from HOVIC’s ownership of the Refinery from 1965 to 1998. HONX currently has no operations, no employees, minimal assets other than the assets provided via the Funding Agreement and no funded debt.
Hess is a Delaware corporation with its principal place of business in New York, New York, and regional headquarters in Houston, Texas. Hess is a global exploration and production company engaged in exploration, development, production, transportation, purchase and sale of crude oil, natural gas liquids and natural gas."
From the Snyder Declaration, "In May 2020, for efficiency reasons and to consolidate its corporate entities closer to its business operations, Hess effectuated a plan of merger pursuant to which HOVIC merged with and into a newly-formed New York corporation, HONYC. Prior to the commencement of this chapter 11 case, HONYC changed its name to HONX in an effort to (a) avoid confusion between HONX and the large public company, Hess, and (b) recognize that although HONX remains a New York-incorporated entity, its principal place of business is in Houston, Texas, where its officers that are responsible for managing its litigation docket are located. Virtually all of HONX’s alleged liabilities are legacy liabilities of HOVIC stemming from HOVIC’s ownership and operation of the Refinery from 1965 to 1998."
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