Corp Group Banking disclosure statement draws committee objection

By Sarah Lizee

Olympia, Wash., Jan. 24 – Corp Group Banking SA’s disclosure statement for its Chapter 11 plan of liquidation drew an objection on Monday from the official committee of unsecured creditors, according to a filing with the U.S. Bankruptcy Court for the District of Delaware.

The committee said the debtors and Itau, their primary secured creditor, have proposed a disclosure statement and plan that maximizes value for Itau but doesn’t inform other creditors of causes of action and claims that could significantly alter recoveries.

The committee filed a standing motion and accompanying objections on Dec. 23 to the allowance of proofs of claim filed by Itau and other secured creditors. The committee said this followed the results of its initial investigation 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,” the committee said in its objection.

The group said this included numerous intercompany transfers that funneled assets out the estates, the pledge of a majority of debtor Corp Group Banking’s equity interests in a Chilean bank to Itau and other financial institutions to secure borrowing by non-debtor Corp Group affiliates, and most recently, Corp Group Banking’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,” the committee said.

“What the disclosure statement does do is describe a plan that invests heavily in a favorable outcome for Itau, which is a co-proponent pursuant to a plan support letter.”

Under the plan, Itau’s deficiency claim against Corp Group Banking has 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 Corp Group Banking’s direct parent, CG Interhold.

“Both of these unsecured claims work to massively dilute recoveries for holders of CGB unsecured notes in class 7B,” the committee said.

In addition, Itau collects from the assignment of a variety of other intercompany claims and so-called acknowledgments of debt 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,” the committee added.

“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 committee said.

“The plan then attempts to lock in distributions to Itau, as well as to the holders of non-recourse secured claims, by conditioning confirmation of the plan to the allowance of their claims.”

The committee said it “flatly rejects the debtors and Itau’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 Itau’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 committee said.

The committee said it also wants the solicitation package to include a letter to be provided that will contain the committee’s recommendation that holders of Corp Group Banking unsecured notes claims vote against the plan.

The Santiago, Chile-based bank filed bankruptcy on June 25, 2021 under Chapter 11 case number 21-10969.

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