Former Coda Holdings gets OK for WARN settlement; noteholders object

By Jim Witters

Wilmington, Del., Nov. 19 - Adoc Holdings, Inc., formerly Coda Holdings, Inc., received final approval for a $2 million settlement with claimants under the Worker Adjustment and Retraining Notification Act during a Nov. 19 hearing in the U.S. Bankruptcy Court for the District of Delaware.

The agreement calls for the WARN claimants to receive an allowed priority claim of $430,000 and a general unsecured claim of $1.57 million.

The workers said the company violated the WARN Act when it terminated their employment without providing the required 60 days' notice.

In issuing his ruling, judge Christopher S. Sontchi rejected arguments from noteholders FCO MA Coda Holdings, LLC that the settlement should be rejected or at least postponed until a Chapter 11 plan is considered for confirmation.

FCO is a Fortress Investment Group affiliate.

Jeremy E. Rosenthal, representing the noteholders, said the settlement should not be approved because the debtors have insufficient cash to pay the agreed amount to the WARN claimants.

Rosenthal also said the WARN settlement amount "creates a target" dollar figure goal for the debtors in their negotiations in other causes of action and could serve as a disincentive to press for larger settlements in those cases.

John P. Madden, the debtors' chief restructuring officer, testified during the hearing that the WARN settlement represented the best outcome for the debtors and their creditors, given the current state of the case.

Adoc has about $300,000 of cash on hand and cannot pay its administrative or priority claims or confirm a plan until it monetizes litigation against Tianjin Lishen Battery Joint Stock Co., Ltd. and causes of action against one large shareholder and the debtors' directors and officers.

Madden said the debtors' litigation against Lishen includes a preference claim of $11 million and a $3.8 million claim resulting from breach of contract.

Both Fox Rothschild LLP and White & Case LLP have expressed interest in pursuing the Lishen case under a contingency arrangement, but Madden told the court he hoped to negotiate a settlement and save the contingency fee.

Judge Sontchi said the Fortress objections were unconvincing.

The WARN claimants have a strong case that they will press in the absence of a settlement, further driving up professional fees for the debtors, he said.

The judge said he could "not find the magic" in the Fortress proposal to tie the settlement with a plan confirmation.

"This settlement is clearly in the debtors' best interest, and it clearly meets the criteria for approval in the bankruptcy code. There is no reason to delay it. The debtors can only get to confirmation if these types of claims are settled," Sontchi said.

Coda, a Los Angeles-based manufacturer of electric cars and energy products based on lithium-ion batteries, filed for bankruptcy on May 1, 2013. Its Chapter 11 case number is 13-11153.

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