In re AOG Entertainment, Inc., 558 B.R. 98

Background

Debtors (CORE entities including 19 Entertainment) entered into prepetition secured First and Second Term Loans in Dec. 2011 to refinance earlier acquisition debt; loan parties (including 19 Entertainment) guaranteed the debt. Loan balance ~ $398 million at petition.
Chapter 11 petitions filed Apr. 28, 2016. DIP orders (interim and final) included stipulations by Debtors as to the validity and extent of the prepetition secured debt and a 60-day challenge carve‑out; the Final DIP Order established an August 27, 2016 Challenge Deadline that the Court could extend for cause.
Official Committee of Unsecured Creditors investigated the liens, guarantees, valuation (including 2011 enterprise value), and potential avoidance causes of action and negotiated a settlement increasing recoveries to unsecured creditors.
Simon R. Fuller (former director/CEO and creditor of 19 Entertainment) sought (1) a Rule 2004 examination of AOG and CORE entities to investigate the prepetition loans and a 2015 UK audit, and (2) an extension of the Challenge Deadline to allow any adversary challenge. Fuller had earlier received a production of publicly available materials and shared his proposed 2004 requests with the Committee.
Debtors and prepetition lenders opposed both motions as untimely, duplicative of the Committee’s investigation, overly broad and prejudicial to the DIP-related bargain; the Committee declined to file Fuller’s motion and considered further 2004 discovery unnecessary.
The Court denied the Extension Motion (no cause shown: Fuller delayed, was not prevented from timely investigating, and the Challenge Deadline protects lenders’ bargained-for certainty). Because the challenge period expired, the Rule 2004 motion was held moot; alternatively the Court found no good cause to grant it (speculative claims, prior Delaware and Committee investigations, cost/delay).

Issues

Issue	Fuller’s Argument	Debtors’ / Lenders’ Argument	Held
Whether the Court should extend the Final DIP Order’s Challenge Deadline	Fuller: Extension needed because he needs Rule 2004 discovery and the Challenge Deadline expired before he could file an adversary proceeding	Debtors/Lenders: Fuller delayed, had prior notice and opportunity, and the deadline protects lenders’ reliance bargain — no third‑party obstruction	Denied — Fuller failed to show cause; tactical delay bars extension
Whether Fuller may obtain a Rule 2004 examination of CORE entities	Fuller: 2004 discovery is needed to evaluate claims re: prepetition loans and the UK audit; Committee’s inquiry was incomplete	Debtors: Request is duplicative, overbroad, burdensome, tangential to DIP stipulations and designed to harass/delay plan	Moot (because challenge period expired). Alternatively denied for lack of good cause
Whether Fuller has demonstrated prejudice or inability to pursue claims absent 2004 discovery	Fuller: Denial will prejudice his ability to timely commence adversary litigation	Debtors/Committee: Committee conducted a full investigation; Fuller could have sought appointment relief or acted earlier; litigation is speculative and of limited value	Rejected — no undue hardship shown; prior investigations mitigate need
Whether the asserted factual bases (enterprise value/solvency; UK Audit) justify discovery	Fuller: Questions about UK Audit and solvency at guaranty time bear on avoidance claims	Debtors/Lenders: Delaware appraisal and Committee findings support substantial 2011 enterprise value; guarantor had indemnity/contribution rights; no apparent insolvency	Court adopted Debtors’ view — enterprise value and guaranty indemnity arguments undercut the need for 2004 discovery

Key Cases Cited

In re Metiom, Inc., 318 B.R. 263 (S.D.N.Y. 2004) (Rule 2004 requires good cause; examination typically necessary to establish the claimant’s case or denial would cause undue hardship)
In re Dinubilo, 177 B.R. 932 (E.D. Cal. 1993) (Rule 2004 standard quoted for when examinations should be authorized)
In re Drexel Burnham Lambert Grp., Inc., 123 B.R. 702 (Bankr. S.D.N.Y. 1991) (courts must balance relevance and the burden of Rule 2004 discovery)
J.T. Moran Fin. Corp. v. Phonetel Techs., Inc. (In re J.T. Moran Fin. Corp.), 124 B.R. 926 (Bankr. S.D.N.Y. 1991) (guarantor’s right to seek indemnity from principal obligor discussed)
Varsames v. Palazzolo, 96 F. Supp. 2d 361 (S.D.N.Y. 2000) (if a guarantee is enforced guarantor may pursue remedies against the principal obligor)
Fredericks v. Shapiro, 160 F.R.D. 26 (S.D.N.Y. 1995) (enforcement of guarantees gives rise to indemnity remedies)
De Paris v. Wilmington Trust Co., 104 A. 691 (Del. 1918) (equitable principle of contribution among co‑guarantors)