RMH Franchise Holdings – Unsecured Creditors Object to Plan, Cite Failure to Identify Unencumbered Assets and Provide “Faith Value”

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November 9, 2018 – The Official Committee of Unsecured Creditors (the “Committee”) of RMH Franchise Holdings filed an objection [Docket No.742] to the Debtors’ First Amended Joint Chapter 11 Plan of Reorganization [Docket No. 618]. The objection states, “Throughout these cases, the Committee remained cautiously optimistic that the Debtors and ACON would be able and willing to propose a plan that provided unsecured creditors with both fair value and a viable business partner for the future. Notwithstanding these hopes and repeated assurances from the Debtors, the Plan fails to accomplish either of these goals, and therefore, fails to satisfy the Bankruptcy Code’s requirements for confirmation Because the Debtors have not, and cannot, meet their burden of demonstrating that the Plan complies with the strict requirements of section 1129 of the Bankruptcy Code, confirmation must be denied. 

The Debtors bear the burden of demonstrating that the value propositions set forth in the Plan with respect to all stakeholders are fair, appropriate and proposed in good faith. The Plan, however, clearly fails to provide general unsecured creditors with faith value. The Committee has identified a number of significant assets that are not encumbered by the Senior Lenders’ liens. Most critically, the Senior Lenders and the Debtors both concede that the Debtors’ Franchise Agreements, which the Debtors cannot operate without, and the potential termination of which was the critical gating issue for the first five months of these cases, are unencumbered. Given the: (i) $122 million book value of the Debtors’ assets, including over $40 million attributable to the Franchise Agreement; and (ii) Debtors’ $84 million enterprise valuation, the proposed $1.8 million proposed for unsecured creditors is inappropriate, inequitable and not proposed in good faith. The Debtors have yet to justify the adequacy of this proposed distribution.”

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