Refco unsecured creditors, institutional investor object to Refco Capital Markets' Chapter 7 conversion

By Caroline Salls

Pittsburgh, Feb. 1 - Refco, Inc.'s official committee of unsecured creditors and institutional investor Abadi & Co. objected to the company's request to convert Refco Capital Markets, Ltd.'s Chapter 11 case to a Chapter 7 stockbroker liquidation, according to Wednesday filings with the U.S. Bankruptcy Court for the Southern District of New York.

The committee said the Chapter 11 plan approach will not only provide a final resolution to the issues currently pervading Refco Capital Markets' Chapter 11 case, but will yield maximum recoveries through an effective management, rather than forced liquidation, of RCM's securities portfolio.

The committee said it has expended considerable time and effort attempting to formulate a term sheet for a Chapter 11 plan for RCM, and it hopes to distribute a plan term sheet that will serve as a basis to negotiate a global resolution of these cases that would avoid the need to litigate the conversion motion.

Abadi said it has conceived its own plan that will allow parties to pending litigation to focus on creating value while aggressively pursuing the many RCM causes of action for the benefit of all of its creditors.

Abadi said its plan takes into account the risks to various creditors if the conversion motion is granted and assigns values to their claims accordingly.

According to the objection, the plan also gives creditors a variety of choices about how their claims can be treated and provides for a mechanism for prosecution of claims "arising from the way that RCM appears to have been used as a piggyback for the rest of the Refco enterprise."

Abadi said the court cannot ignore the possibility that an agreement might be reached based on its plan, as there has been "considerable market interest" in its proposal.

In addition, Abadi said the company faces the burden of proving that Refco Capital Markets served as a stockbroker before the motion can be granted.

A hearing on conversion of the case is scheduled for Feb. 14.

Refco, a New York-based commodities brokerage company, filed for bankruptcy on Oct. 17. Its Chapter 11 case number is 05-60006.

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