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First Guaranty Mortgage plan draws objection from U.S. trustee
By Sarah Lizee
Olympia, Wash., Oct. 27 – First Guaranty Mortgage Corp.’s Chapter 11 plan drew an objection from Regions 3 and 9 U.S. trustee Andrew R. Vara, according to documents filed with the U.S. Bankruptcy Court for the District of Delaware.
Vara said the debtors haven’t shown that the proposed plan is feasible.
In particular, the putative class action adversary proceeding brought under the WARN Act may render the plan not feasible under bankruptcy code. Allowed priority claims arising out of that action could total as much as $7 million and would have to be paid in full under the plan.
However, the plan doesn’t ensure enough funding to pay those claims in full, Vara said.
“Because the combined plan is dependent on the debtors’ successful defense of the WARN Act adversary proceeding in the future, the combined plan is not feasible,” the U.S. trustee said in his objection.
Vara also said the plan extinguishes direct claims of creditors in favor of numerous non-debtor parties without their affirmative consent.
“The lack of affirmative consent is especially problematic in this case because the combined plan is silent on the amount of distribution to be received by general unsecured creditors, which may be zero,” the U.S. trustee said.
“Without fair consideration, a creditor’s silence should not be deemed consent to give very broad releases of their direct claims against non-debtors.”
Vara also said he objects to the release provision in the plan because it includes a hidden non-consensual third-party release that negatively impacts the rights of all holders of claims.
He also took issue with the exculpation provisions, calling them excessively broad.
The combined hearing on final approval of the disclosure statement and confirmation of the plan is scheduled for Oct. 31.
The Plano, Tex.-based mortgage lender filed Chapter 11 bankruptcy on June 30 under case number 22-10584.
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