632 B.R. 124
Bankr. S.D.N.Y.2021Background
- Avianca Holdings S.A. and affiliated debtors filed Chapter 11 and moved to approve a disclosure statement, solicitation/voting procedures, ballots, voting claim procedures, and to schedule confirmation procedures.
- The Debtors filed successive amendments, culminating in the Third Amended Disclosure Statement and Third Amended Plan; the Creditors’ Committee supports the Plan.
- The United States Trustee objected (timely) raising principal concerns about third-party releases (opt-in vs opt-out), binding unimpaired non-voting creditors, and an alleged "death-trap" voting incentive for Class 11.
- The Court required limited changes: extend Plan Supplement filing deadlines, clarify selection of post-confirmation directors/officers and regulatory approvals, allow unimpaired creditors to opt out of releases, and confirm that impaired non-voting (deemed rejecting) creditors are not bound.
- The Court approved the Third Amended Disclosure Statement as containing adequate information (subject to the changes) and scheduled confirmation for October 26, 2021.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Adequacy of disclosure statement | U.S. Trustee: fails to explain why non-voting or rejecting creditors can be bound by third-party releases; insufficient disclosure on releases and voting incentives | Debtors: disclosure includes full release text, opt-out procedures, liquidation analysis and projections; additional clarifications provided | Approved: Third Amended Disclosure Statement contains adequate information after limited changes; U.S. Trustee objections overruled |
| Opt-in vs opt-out for third-party releases | U.S. Trustee: creditors should affirmatively opt in to releases; opt-out risks trapping inattentive creditors | Debtors: opt-out is widely accepted; clear, prominent notice and ballot language is sufficient; inaction can constitute consent | Held: opt-out procedure permitted where notice is clear and prominent; opt-out here is adequate |
| Binding unimpaired or deemed-rejecting creditors to releases | U.S. Trustee: unimpaired and non-voting creditors should not be bound without explicit opt-in | Debtors: initially proposed opt-out for unimpaired; amended to allow unimpaired creditors to opt out | Held: unimpaired creditors will be given opt-out; impaired creditors deemed to reject and non-voting are not bound by releases |
| Timing and completeness of Plan Supplement | Concern that late filing (7 days before objection deadline) would not give voters time to evaluate complex documents | Debtors: sought shorter lead time | Held: Court ordered more time—portions due Oct 5 and remainder due Oct 12, 2021—to allow informed voting |
| "Death-trap" voting incentive (Class 11 $6M incremental recovery) | U.S. Trustee: inadequate explanation of inducement structure and potential coercion | Debtors: disclosure describes incremental recovery and added a risk factor explaining voting-outcome effects | Held: Disclosure revised to explain the mechanism; statement deemed adequate (no rejection at disclosure stage) |
Key Cases Cited
- Deutsche Bank AG v. Metromedia Fiber Network, Inc., 416 F.3d 136 (2d Cir. 2005) (third-party releases are proper only in rare cases; outlines factors supporting releases)
- Chassix Holdings, Inc., 533 B.R. 64 (Bankr. S.D.N.Y. 2015) (criticized plans that bind rejecting creditors without affirmative consent)
- In re SunEdison, Inc., 576 B.R. 453 (Bankr. S.D.N.Y. 2017) (non-voting creditors must be given an election whether to be bound by third-party releases)
- Phillips Petroleum Co. v. Shutts, 472 U.S. 797 (1985) (opt-out class procedures are consistent with due process when notice is adequate)
- Mullane v. Central Hanover Bank & Trust Co., 339 U.S. 306 (1950) (due process requires notice reasonably calculated to inform interested parties)
- In re Cardinal Congregate I, 121 B.R. 760 (Bankr. S.D. Ohio 1990) (disclosure statement must provide all material information bearing on plan's success or risks)