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Memorandum

Client Alert: Roust Corporation's Prepackaged Chapter 11 Plan Approved in 1 Week

January 31, 2017

On January 6, 2017, Judge Drain of the United States Bankruptcy Court for the Southern District of New York (the "Court") approved Roust Corporation's and certain of its affiliates' (collectively, the "Debtors") chapter 11 prepackaged plan (the "Plan") a mere one week after their bankruptcy filing based on a finding that Bankruptcy Rule 2002(b)'s requirement of 28 days' notice of a confirmation hearing can be satisfied before a petition for chapter 11 relief is filed. The speed of this confirmation may set a precedent for future prepackaged bankruptcy cases.

The Debtors distributed the Plan and a corresponding Disclosure Statement to the appropriate parties as part of a pre-bankruptcy solicitation on December 1, 2016.  The Debtors filed for bankruptcy protection on December 30, 2016 seeking confirmation and approval of the Debtors' assumption of a restructuring support agreement supported by holders of approximately 90% of the Debtors' senior notes and approximately two-thirds of the Debtors' convertible notes, in one week at a confirmation hearing on January 6, 2017 (the "Confirmation Hearing"). The senior noteholders and convertible noteholders were the only applicable creditors impaired under the Plan.

The U.S. Trustee filed an objection to confirmation and the related relief sought, arguing that the Plan was being pushed through at an "unprecedented speed" without a proper notice period.  The U.S. Trustee went as far as stating that approval of the unjustified expedited relief sought would "make a mockery of the bankruptcy process."

Despite the U.S. Trustee's objection, the Court confirmed the Plan at the Confirmation Hearing holding that the Plan was properly solicited to creditors and notice was sufficient under the applicable rules.  Bankruptcy Rule 2002(b) requires 28 days' notice of a confirmation hearing and disclosure statement hearing.  The Court held that this rule calls only for 28 days' notice, not 28 days' notice after the bankruptcy petition date.  This notice requirement was satisfied by the solicitation process beginning on December 1, 2016.  Judge Drain noted that he found three unreported cases where the debtors' plans were confirmed even quicker than the Debtors' Plan.

Indenture trustees, agents, and investors should be aware of the Court's ruling as this could set a new precedent for confirming chapter 11 prepackaged bankruptcy plans in extremely short timeframes.  It should be noted that Judge Drain emphasized that his decision on the timing of this case was based on the particular facts of this case, including the sophistication and limited number of affected creditors, as general unsecured creditors are to have their claims reinstated and paid in full.

Seward & Kissel is available to assist you with any inquiries regarding this client alert.  Please contact Kal Das at das@sewkis.com (212-574-1391); John Ashmead at ashmead@sewkis.com (212-574-1366); Ronald Cohen at cohen@sewkis.com (212-574-1515); or Gregg Bateman at bateman@sewkis.com (212-574-1436).

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