556 B.R. 94
Bankr. S.D.N.Y.2016Background
- SunEdison, a holding company with ~436 million shares outstanding, and numerous affiliates filed chapter 11 in April 2016; two principal non-debtor subsidiaries ("Yieldcos") had publicly traded shares and substantial non-debtor shareholder interests.
- Prepetition consolidated financial statements showed billions in shareholder equity, but post-10‑Q 8-Ks disclosed material weaknesses in controls, incomplete audit, DOJ and SEC inquiries, and unreliable consolidation of Yieldco assets.
- Ad hoc equity groups petitioned for an official committee of equity security holders under 11 U.S.C. § 1102(a)(2), arguing lack of reliable valuation information, complex intercompany structures, and potential conflicts of interest for creditors’ advisers.
- Debtor, creditors’ committee, and other parties opposed, arguing SunEdison appears hopelessly insolvent, existing committees and management adequately represent equity-related interests, and estate should not fund equity professionals if creditors are unpaid.
- Evidence at an evidentiary hearing included financial adviser testimony valuing realizable assets at up to $1.5 billion; total funded and trade debt exceeded $4 billion with contingent liabilities possibly adding ~$1.2 billion; debt traded at deep discounts.
- Court found the movants failed to meet their burden to show an Equity Committee was "necessary" to assure adequate representation; denied appointment without prejudice.
Issues
| Issue | Plaintiff's Argument | Defendant's Argument | Held |
|---|---|---|---|
| Whether appointment of an official equity committee is "necessary" to assure adequate representation under §1102(a)(2) | Equity: shareholders lack reliable valuation info, need organized representation to protect potential recovery and investigate prepetition misconduct | Debtors/Creditors: shareholders can participate as parties in interest or ad hoc groups; creditors’ committee and management will protect value; estate should not fund pointless fees | Denied — movants did not prove necessity; equity adequately represented without committee |
| Whether SunEdison appears solvent or "hopelessly insolvent" (relevance to need for committee) | Equity: prepetition statements showed substantial shareholder equity; solvency disputed, so equity needs committee to protect potential value | Debtors/Creditors: post‑10K disclosures, audits, DOJ/SEC inquiries, and market/valuations indicate insolvency; creditors would absorb any committee fees | Held SunEdison appears hopelessly insolvent (value estimates <$ debt); unlikely equity will receive distribution |
| Whether the cost of an Equity Committee should be borne by the estate when creditors likely unpaid | Equity: fees are small relative to existing professional fees and needed to protect equity interests | Debtors/Creditors: appointing committee will spawn professionals whose administrative fees (if allowed) dilute creditor recovery; inappropriate if estate insolvent | Court emphasized cost concern: estate/creditors should not fund committee when equity unlikely to recover |
| Whether creditors’ committee and ad hoc shareholders can adequately represent equity interests | Equity: potential conflicts of interest, creditor advisers’ prior ties, and creditors may not zealously pursue equity claims | Debtors/Creditors: creditors’ committee shares interest in maximizing value; shareholders can litigate or act as ad hoc committees and seek substantial contribution awards | Held adequate representation exists via creditors’ committee and ad hoc participation; no need for official committee now |
Key Cases Cited
- Williams Commc’ns Grp., Inc. v. 281 B.R. 216 (Bankr. S.D.N.Y. 2002) (provides factors for appointing equity committees and presumes such appointments are rare)
- Johns-Manville Corp. v. 68 B.R. 155 (S.D.N.Y. 1986) (court discretion to appoint equity committee explained)
- Beker Indus. v. 55 B.R. 945 (Bankr. S.D.N.Y. 1985) (discusses when equity representation is needed where debtors claim solvency)
- Genesis Health Ventures, Inc. v. 266 B.R. 591 (Bankr. D. Del. 2001) (absolute priority corollary: seniors cannot receive more than full compensation)
- Exide Technologies v. 303 B.R. 48 (Bankr. D. Del. 2003) (solvency considerations in equity committee decisions)
- Pilgrim’s Pride Corp. v. 407 B.R. 211 (Bankr. N.D. Tex. 2009) (denied equity committee where solvency was apparent and creditors’ committee adequate)
- Saxon Indus. v. 39 B.R. 945 (Bankr. S.D.N.Y. 1984) (appointment often followed by costly retention of professionals)
- Roblin Indus. (Lawson v. Ford Motor Co.) v. 78 F.3d 30 (2d Cir. 1996) (defines fair market value test for insolvency under §101(32))
- Rubin v. Manufacturers Hanover Trust Co. v. 661 F.2d 979 (2d Cir. 1981) (book value does not equal market value)
- Pittsburgh Coke & Chemical Co. v. Bollo v. 560 F.2d 1089 (2d Cir. 1977) (GAAP book values differ from fair market valuations)
- Spansion, Inc. v. 426 B.R. 114 (Bankr. D. Del. 2010) (claims trading not dispositive of value but may be considered)