PFF Bancorp's joint plan of liquidation receives court confirmation

By Jim Witters

Wilmington, Del., April 25 - PFF Bancorp, Inc.'s joint plan of liquidation was confirmed on Wednesday during a hearing in the U.S. Bankruptcy Court for the District of Delaware.

The confirmation came despite initial objections from Holdco Advisors LP, manager for Financials Restructuring Partners, Ltd. and Financials Restructuring Partners III, Ltd.

Financials Restructuring Partners holds $7 million of unsecured debt and Financials Restructuring Partners III holds $15 million of unsecured debt, which the debtors have classified as trust preferred securities claims against PFF.

Debtors attorney Paul Noble Heath and Regina S. Kelbon, attorney for the official committee of unsecured creditors, characterized the Holdco objections as being without merit or basis in fact. And Kelbon questioned the legal standing of Holdco to even raise objections in the case.

At the conclusion of the hearing, judge Kevin J. Carey called the objections to confirmation filed by Holdco "an example of making an objection on the cheap."

Carey particularly objected to Holdco attorney Daniel R. Brown's telephonic appearance at the hearing. Local rules require that all objecting parties attend in person.

Brown said he obtained permission to appear telephonically from "someone in Your Honor's chambers."

Objections withdrawn

Brown withdrew Holdco's remaining objections after three things occurred:

• The debtors agreed to delete from the liquidation plan and confirmation order releases granted to directors and officers;

• Holdco received copies of the documents regarding creation of a post-confirmation creditors' trust; and

• Wilmington Trust Co., as indenture trustee for the trust preferred securities holders (TruPS), agreed to submit its fee requests to the court for determination of their reasonableness. The plan caps the trustee's fees at $150,000.

Separate trust sought

Brown also requested that a separate trust be established to segregate the proceeds of any actions against directors and officers.

The debtors and the creditors committee objected to that request, saying they had investigated the actions of the directors and officers and independently determined that no causes of action exist.

Carey denied the Holdco request for a separate trust.

Revisions needed

Carey agreed to grant confirmation of the liquidation plan, subject to his review of the revisions Heath needed to make as a result of the accession to the Holdco objection on releases for directors and officers.

Heath also said he needed to incorporate language requested by the Federal Deposit Insurance Corp. that preserves the FDIC's rights as the case moves forward.

Heath said he planned to have the revised confirmation order to Carey's chambers by the close of business April 25.

Remaining issue

The remaining issue of major significance in the case is a tax dispute between PFF and the Internal Revenue Service, Heath said.

John Clark, representing the FDIC receiver for PFF, said he has been working with the debtor on the IRS issue.

He said that confirming the liquidation plan and continuing the case in Chapter 11, rather than converting it to Chapter 7 allows those negotiations to move forward.

Creditor treatment

As previously reported, under the confirmed liquidation plan, treatment of creditors includes the following:

• Holders of administrative claims, priority tax claims and other priority claims will be paid in full in cash;

• Secured claims against PFF Bancorp will be deemed paid in full to the extent of any security interest;

• The Pension Benefit Guaranty Corp. will receive distributions from a PBGC general unsecured claim distribution amount after payments are made on account of the PBGC general unsecured claim distribution by the other debtor estates;

• Holders of general unsecured claims against PFF Bancorp will receive distributions from all remaining creditors trust assets held or collected by PFF Bancorp, plus all remaining creditor trust assets from other debtors;

• Holders of general unsecured claims against other debtors will be paid from creditors trust assets in full plus interest from the bankruptcy filing date through the plan effective date at the Federal judgment rate;

• Holders of TruPS claims will receive the same distributions from all remaining creditors trust assets as general unsecured creditors, provided that all amounts payable to holders of allowed TruPS claims will be paid first to M&I Marshall & Isley Bank until the bank receives 100% of its allowed general unsecured claim;

• Equity interests against PFF Bancorp will be canceled; and

• Holders of equity interests in other debtors will receive distributions from creditors trust assets only after payment in full of a PBGC allowed claim distribution amount and only after payment or reservation in full of all general unsecured claims.

Los Angeles-based PFF Bancorp is the holding company of PFF Bank & Trust, Glencrest Investment Advisors and Diversified Builder Services. The company filed for bankruptcy on Dec. 5, 2008 under Chapter 11 case number 08-13127.

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