Smartours, LLC – U.S Trustee Objects to Disclosure Statement, Citing Opt-Out Releases and Lack of Key Financial Information

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November 10, 2020 – The U.S. Trustee assigned to the Smartours' Chapter 11 cases objected to the Debtors’ Disclosure Statement [Docket No. 115] citing the proposed Plan's opt out mechanism for third-party releases. 

The objection argues, "The most material defect in the third-party release provision at this stage of the proceeding is that parties in interest are not being given a choice to opt into the third-party releases. The concern is further heightened here where the vast majority of creditors in this case are the Debtors’ thousands of customers."

In addition, the U.S. Trustee said the proposed Plan releases cannot be approved until the Debtors can prove that each party to be released has made a "substantial contribution to the Plan."

Although the Plan is based on a "primarily consensual" restructuring of senior debt and payment of unsecured trade debt in full over a period of six months, the U.S. Trustee said in the objection that "the largest single constituency of claims is that of the Debtors’ thousands of customers who have made deposits for vacations which cannot presently take place because of the Covid-19 pandemic. For these claimants, the plan proposes to extend credits through the end of 2024. The Plan does not propose payments to Customer Priority Deposit Claims."

The objection further notes, “The Disclosure Statement should not be approved because the Plan it describes can not be confirmed. The Disclosure Statement was filed with no financial disclosures, which are at the heart of the disclosures required in this case. Without them creditors are bereft of the information they need to make an informed decision to vote for or against the Plan. To the extent that a primary purpose of a disclosure statement is to tell creditors what they are going to get and when they are going to get it the Disclosure Statement here is a failure. The Debtors’ unilateral decision to not file financial exhibits until the day prior to the objection deadline should not be condoned. The creditor body was also entitled to proper notice of the exhibits as a germane part of the document.

The Plan does not provide creditors with the choice to opt into the third-party releases as this Court ruled in Emerge Energy Services, supra. Finally, the Plan presents confirmation issues, as it contains non-consensual third-party releases from the many thousands of creditors in this case, in favor of non-debtors, and the Plan also contains exculpation provisions that are contrary to applicable law. ”

The Court scheduled a hearing to consider approval of the adequacy of the Disclosure Statement for November 17, 2020, with objections due by November 12, 2020.

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