In Re Sentinel Management Group, Inc.
MEMORANDUM OPINION
This matter comes before the Court on the contested confirmation of an amended plan submitted by Frederick J. Grede, the Chapter 11 Trustee (the “Trustee”) for Sentinel Management Group, Inc. (“Sentinel”) and the Official Committee of Unsecured Creditors (the “Committee”) (the Committee together with the Trustee, collectively referred to as the “Plan Proponents”). For the reasons set forth herein, the Court confirms the plan, as amended and discussed herein, with an additional amendment and overrules the objections. Namely, the Court directs the Plan Proponents to amend the “catch-up” provision in the plan as discussed
infra.
The Plan Proponents are directed to file a Fourth Amended Plan within seven days from the date of this Opinion, and shall file a proposed order of confirmation that conforms with the appropriate Official Form pursuant to
The Plan Proponents filed a Chapter 11 Plan of Liquidation on May 12, 2008 [Docket No. 499] and related Disclosure Statement on May 13, 2008 [Docket No. 501]. A number of creditors objected to the plan which led to the Plan Proponents filing an Amended Chapter 11 Plan of Liquidation on June 9, 2008 [Docket No. 571] and related Disclosure Statement [Docket No. 573], which was followed by a further Modified Chapter 11 Plan of Liquidation [Docket No. 591] (the “First Amended Plan”) and related Disclosure Statement [Docket No. 592] (the “Disclosure Statement”) on June 18, 2008.
On June 19, 2008, the Court entered an order approving the Disclosure Statement as containing adequate information within the meaning of
The objections to confirmation were significant. Specifically, ten SEG 1 Customers (defined infra), collectively referred to as the Ad Hoc Committee of SEG 1 Customers
1
(the “Ad Hoc Committee”) filed
A hearing was held on August 12, 2008 and August 13, 2008 to consider confirmation of the Amended Plan (the “Confirmation Hearing”). On August 25, 2008, pursuant to agreements reached with certain objecting parties, the Plan Proponents filed a Second Amended Chapter 11 Plan of Liquidation [Docket No. 1018]. The Plan Proponents also filed the Liquidation Trust Agreement on August 25, 2008 [Docket No. 1020].
On October 27, 2008, the Trustee filed a motion to approve, among other things, BNY’s objection to the First Amended Plan [Docket No. 1151]. BNY’s objection to the First Amended Plan was resolved on November 20, 2008 based upon a settlement entered into between the Trustee and BNY and approved by the Court (the “BNY Settlement”) [Docket No. 1215]. On November 20, 2008, upon approval of the BNY Settlement, the Plan Proponents filed a Third Amended Chapter 11 Plan of Liquidation (the “Third Amended Plan” or “Plan”), which incorporates the amendments made in the Second Amended Plan, plus the agreements reached between the Trustee and BNY [Docket No. 1210].
Despite the settlement with BNY, many objections remain unresolved. Specifically, the Ad Hoc Committee, Penson, Penson Financial, Farr Financial, and IPGL (collectively the “Plan Objectors”) filed a joint post-Confirmation Hearing brief (the “Post^Confirmation Hearing Submission”). 3
Based upon the number of objections that remain unresolved in the Plan Objectors’ PosNConfirmation Hearing Submission, the Court will address each objection by category in turn. Upon the testimony and evidence presented to the Court at the Confirmation Hearing, the Court makes the following findings of fact and conclusions of law.
I. JURISDICTION AND PROCEDURE
The Court has jurisdiction to decide this matter pursuant to
II. FACTS AND BACKGROUND
A. Sentinel and Its Customers
Sentinel was an Illinois corporation, headquartered in Northbrook, Illinois and
a privately held corporation, thinly capitalized, owned and operated by its founder, Philip Bloom, and his son, Eric Bloom, both of whom owned a significant percentage of its stock. Its chief trader, Charles Mosley, and the Blooms controlled day-to-day operations of Sentinel including its website, accounting systems, investments, dealings with [BNY], customer statements and various financial arrangements.
Grede v. McGladrey & Pullen LLP,
No. 08 C 2205,
As a FCM, and an entity managing other FCM investments, Sentinel was required to strictly segregate the investments of its customer groups from each other and from Sentinel’s own funds. In fact, however, it did not segregate customer funds. Rather, Sentinel commingled customer funds with its own funds and used the customer funds as collateral for its loans from BNY. (Confirmation Hearing Trans. Aug. 12, 2008 at 35:1-37:14.)
The principals of Sentinel divided its customers into four groups. The first customer group, known within Sentinel as SEG 1 (the “SEG 1 Customers”), was to consist solely of the funds and property of customers of FCMs, which typically invested their customers’ funds through Sentinel. The second customer group, known as SEG 2 (the “SEG 2 Customers”), was to consist solely of the funds and property of customers of FCMs that were engaged in trading at foreign exchanges. The third group, known as SEG 3 (the “SEG 3 Customers”), was to consist of the funds and property of all other types of clients, including FCM house (non-customer) funds, as well as the funds and property of hedge funds, trust accounts, endowments, and individuals. The fourth customer group, known as SEG 4 (the “SEG 4 Customers”), was to consist of the funds and property of SEG 3 Customers whose property was denominated in Euros. In addition to managing investments for the SEG 1, SEG 2, SEG 3, and SEG 4 Customers’ portfolios, Sentinel owned a “house” or “street” portfolio of securities which it traded for the benefit of Philip Bloom, Eric Bloom, and Charles Mosley, the officers, directors, and insiders of Sentinel.
B. Sentinel’s Collapse and the Citadel Sale
On August 13, 2007, Eric Bloom, the president and chief executive officer of Sentinel, sent a letter to Sentinel’s customers. The letter provided that Sentinel was halting redemptions out of a concern for the liquidity crisis in the credit markets. Sentinel was fearful that it would not be able to meet significant redemption requests without resorting to discount sales, which would cause unnecessary losses to its customers. This resulted in immediate demands for redemption by numerous customers.
C. Sentinel’s Bankruptcy Filing
Thereafter, on August 17, 2007, Sentinel filed a voluntary Chapter 11 bankruptcy petition. On August 21, 2007, Sentinel filed an emergency motion to appoint a Chapter 11 trustee [Docket No. 36]. On August 23, 2007, the Court granted Sentinel’s motion for the appointment of a Chapter 11 Trustee [Docket No. 56]. On August 29, 2007, the Court approved the appointment of the Trustee as Chapter 11 trustee of Sentinel’s estate by the United States Trustee [Docket No. 105]. On September 6, 2007, the United States Trustee appointed the Committee pursuant to
D. The Citadel Distribution to SEG 1 Customers
• On the petition date, Sentinel transferred $22,524,942 in cash to certain SEG 1 Customers from a SEG 1 account at Sentinel (the “August 17 Transfers”). (Disclosure Statement p. 14.) Three days later, on August 20, 2007, Sentinel filed an Emergency Motion for Approval of Turnover and Distribution of Certain Third Party Assets in order to compel the distribution of the Citadel Proceeds to the SEG 1 Customers [Docket No. 7]. BNY was holding the Citadel Proceeds pending an order of the Court. The Court held a hearing on the motion that same day. After considering the allegations of the motion and the arguments of counsel, the Court entered an order allowing BNY, in its discretion, to make the distribution of the Citadel Proceeds to the SEG 1 Customers, less a $15.6 million holdback amount pending further order of the Court (the “Citadel Distribution Order”) [Docket No. 18]. On August 21, 2007, certain SEG 1 Customers (the “Citadel Beneficiary Customers”) received the BNY transfer of $297,050,808 (the “August 21 Transfers”) (the August 17 Transfers and August 21 Transfers, collectively referred to as the “August 2007 Transfers”). The August 2007 Transfers were made to a specific set of FCMs. Not all SEG 1 Customers or Class 3 claimants benefitted from these transfers. The Class 3 Customers who did not receive the August 21 Transfers shall be known as the “NonCitadel Beneficiary Customers.”
E.The Third Amended Plan
The Third Amended Plan, like the prior iterations, is a liquidating plan. It incorporates a pro rata distribution scheme for all of Sentinel’s customers. The principal witness who testified in support of the Plan was the Trustee. The Court finds him both knowledgeable and credible. The Plan provides for Sentinel’s property to be liquidated and for the proceeds of the liquidation and any recoveries obtained from litigation against third-parties to be distributed to holders of allowed claims in accordance with the terms of the Plan and the Bankruptcy Code. Further, the Plan provides that all of Sentinel’s property will
The Plan provides for distributions to creditors on the effective date or as soon thereafter as practicable. Additionally, allowed claimants will receive distributions at several intervals after the initial distributions. The essence of the Plan Proponents’ efforts is to treat Sentinel’s customers equally, giving them pro rata treatment based on the amount of their allowed claims. In this regard, the Third Amended Plan includes a proposed settlement to ensure that the SEG 1 Citadel Beneficiary Customers who received distributions from the proceeds of the Citadel Sale will not be entitled to receive distributions until the other customers who did not receive distributions from the Citadel Sale have achieved a similar percentage recovery, including interest from the dates of those distributions. (Confirmation Hearing Trans. Aug. 12, 2008 at 143:8-144:19.) In this regard, the Plan provides a provision in which the NonCi-tadel Beneficiary Customers can “catchup” and receive treatment equal to the Citadel Beneficiary Customers. Further, the Plan provides the Citadel Beneficiary Customers the opportunity to settle and limit their potential exposure to avoidance or other claims in the event insufficient funds are recovered to permit all customers to achieve the same percentage recovery.
The Plan divides the creditors of Sentinel’s estate into six classes. Class 1 of the Plan consists of priority claims other than administrative claims and priority tax claims. (Third Amended Plan § 2.3(a).) Class 2 of the Plan consists of secured claims.
(Id.
§ 2.3(b).) Both Class 1 and 2 are unimpaired.
(Id.
§ 2.3.) Holders of claims in Class 1 and 2 are deemed to have accepted the Plan under
III. APPLICABLE STANDARDS
Section 1129 of the Bankruptcy Code sets forth the substantive requirements for confirmation of a Chapter 11 plan. In order to be confirmed, a plan must satisfy § 1129(a)(1)-(16).
See In re 203 N. LaSalle St. P’ship,
The proponent of the plan bears the burden of establishing that each requirement set forth in § 1129(a) has been met.
In re Vita Corp.,
IV. DISCUSSION
A. Section 1129(a) Objections to the Third Amended Plan
Section 1129(a)(1) mandates that “[t]he plan complies with the applicable provisions of this title.”
1. Whether the Third Amended Plan violates
The Plan Objectors argue that the Third Amended Plan violates
Section 4.5(a) of the Plan is simply known as a “catch up” provision and provides that no distributions will be made to SEG 1 Customers unless and until:
[A]ll Holders of Allowed Class 3 Customer Claims that are NonCitadel-Ben-eficiary Customers [i.e., SEG 3 Customers] shall have received a Percentage Recovery on account of such Claims equivalent to the Percentage Recovery of such Claims equivalent to the Percentage Recovery of such Citadel-Beneficiary Customer taking into account allof such Citadel-Beneficiary Customers’ Class 3 Customer Claims.
(Third Amended Plan § 4.5(a).) 6
This provision allows SEG 3 Customers to recover the percentage distribution equal to that of the Citadel Beneficiary Customers who benefitted from the August 17 Transfers and/or the August 21 Transfers. The Plan Proponents contend that the Third Amended Plan was drafted to allow the NonCitadel Beneficiary Customers to realize a value equal to that of the SEG 1 Customers that are the Citadel Beneficiaries. The Trustee testified that, based on his forensic analysis of Sentinel’s business dealings, all customers should be treated similarly and share pro rata in distributions from Sentinel’s estate. (Confirmation Hearing Trans. Aug. 12, 2008 at 37:19-38:9; 48:9-20.) The difficulty with this, however, lies in the fact that $297 million and the August 17 Transfers were distributed to certain SEG 1 Customers at the beginning of this case. Thus, in order to accomplish the equality of treatment mandated by the Code, the Third Amended Plan calculates a “point of parity” at which it would be fair for Citadel Beneficiary Customers to share in further distributions with the other Class 3 claimants who, unlike the Citadel Beneficiary Customers, have received nothing so far. The Trustee testified that pursuant to this provision of the original and now the Third Amended Plan, Citadel Beneficiary Customers do not share in any distributions made under the Plan until NonCitadel Beneficiary Customers “catch up” to the amounts yielded by the Citadel Sale distri-buttons plus interest calculated for the period commencing on the dates of such distributions. (Id. at 48:9-20.)
On its face, the “catch up” does not violate
However, the definition of “Percentage Recovery” is troubling as it relates to “[ijnterest commencing on the date of such distributions [i.e., the August 17 Transfers or the August 21 Transfers].” (Third Amended Plan § 1.1.) Charging interest against the SEG 1 Customers who rejected the settlement encapsulated in the Third Amended Plan is appropriate. However, as the Third Amended Plan currently reads, the Plan Proponents charge the imputed interest against all the SEG 1 Customers, even those FCMs which did not receive a distribution as a part of the August 17 Transfers and/or the August 21 Transfers.
There is no basis under the Bankruptcy Code to charge interest for such a post-petition transfer from the date
After the Confirmation Hearing the Trustee filed a number of adversary proceedings to avoid, among other things, the August 2007 Transfers (the “Adversary Proceedings”).
8
So, while initially there was no basis for imputing interest to any of the SEG 1 Customers in the Third Amended Plan, if the Trustee succeeds in these Adversary Proceedings, there now is a foundation for setting aside interest on the transfers received by the SEG 1 Customers who are defendants in those Adversary Proceedings. Because the Trustee apparently did not send any demand let
Therefore, the Court finds that the Third Amended Plan improperly charges all SEG 1 Customers with interest, as defined in the Third Amended Plan, under the “catch up” provision. However, in light of the Adversary Proceedings, this problem has been remedied, in part. Rather than including interest in the “catch up” provision, the Plan Proponents may set aside or escrow interest on the August 17 Transfers and/or the August 21 Transfers from the date that the Adversary Proceedings were filed by the Trustee. The Trustee may recover the es-crowed amount if he successfully recovers the August 2007 Transfers. Obviously, should the Trustee be unsuccessful in the Adversary Proceedings, such escrowed funds will be distributed to those defendants after a non-appealable final and judgment is entered in their favor.
2. Whether the Third Amended Plan violates
The Plan Objectors argue that the Third Amended Plan violates
a. Classifying SEG 1 and SEG 3 Customers in Class 3 of the Third Amended Plan
The Plan Objectors contend that the difference in these claims exists as a result of the following: (1) the SEG 1 claims could be paid in full, depending on the outcome of the Adversary Proceedings, before the claims of the SEG 3 Customers; (2) the SEG 1 Customers’ relationship with Sentinel was governed by the requirements of the Commodity Exchange Act (“CEA”) and CFTC regulations, as well as the investment restrictions set forth in Rule 1.25, which did not apply to the SEG
Section 1123(a)(1) of the Code requires that “a plan shall ... designate, subject to
(a) Except as provided in subsection (b) of this section, a plan may place a claim or an interest in a particular class only if such claim or interest is substantially similar to the other claims or interests of such class.
(b) A plan may designate a separate class of claims consisting only of every unsecured claim that is less than or reduced to an amount that the court approves as reasonable and necessary for administrative convenience.
“Every plan proponent creates its classification scheme with the goal of maximizing the probability that its plan will be confirmed.”
In re Bloomingdale Partners,
The Seventh Circuit Court of Appeals addressed the classification of claims in the Chapter 11 context and stated as follows:
A debtor in bankruptcy has considerable discretion to classify claims and interests in a chapter 11 reorganization plan. While a debtor may not separately classify claims solely in order to “gerrymander an affirmative vote on reorganization,” claims may be classified separately if “significant disparities exist between the legal rights of the holders of the different claims] which render the two claims not substantially similar.” Claims may also be separately classified if there are “good business reasons” to do so or if the claimants have sufficiently different interests in the plan.
In re Wabash Valley Power Ass’n, Inc.,
While many tests have been adopted by other courts, the Seventh Circuit has not endorsed a test. Rather, the Seventh Circuit has opined “that this is one of those areas of the law in which it is not possible to do better than to instruct the first-line decision maker, the bankruptcy judge, to seek a result that is reasonable in light of the purposes of the relevant law....”
In re Crawford,
The question then turns on how a court should determine whether claims are “substantially similar.” “Similarity is not a precise relationship, and the elements by which we judge similarity or resemblance shift[] from time to time in bankruptcy.”
Woodbrook,
In other words, the emphasis is not upon the holder of the claim so much as it is upon what type of claim the holder has against the estate.
Coram Healthcare,
The Court finds that the SEG 1 Customers’ claims and the SEG 3 Customers’ claims are “substantially similar,” and the classification scheme set forth in the Third Amended Plan does not violate
The Plan Objectors inappropriately focus on the claim holders themselves instead of the type of claims the holders have against Sentinel’s estate. These claims are similar in their legal nature, character, and effect. The SEG 1 and SEG 3 claims are simply unsecured claims. Hence, these claims share common legal rights against Sentinel’s assets.
The Plan Objectors cite to
Steelcase Inc. v. Johnston (In re Johnston),
In this case, these special circumstances do not exist. First, the claims at issue here are all unsecured claims. None of the SEG 1 claims or the SEG 3 claims are secured by a security interest in other property of Sentinel. Second, while some of the SEG 1 Customers are involved in
b. Allowing Class 3 and Class 4 claimants to share pro rata in the distribution of “Customer Property”
Next, the Plan Objectors argue that the Third Amended Plan materially changes the entire classification and distribution structure of the Plan. Specifically, the Plan Objectors contend that the First Amended Plan provided that Customer Property would be distributed solely to Sentinel’s customers in Class 3. The general unsecured creditors were placed in Class 4 and shared only in non-customer property pari passu with the deficiency claims of the customers in Class 3. According to the Plan Objectors, however, the Third Amended Plan contains the following material amendments: (1) the general unsecured creditors in Class 4 share in all assets of Sentinel’s estate, including “Customer Property,” pari passu with the customers in Class 3; and (2) the unsecured deficiency claims of customers from Class 4 are extinguished.
The Plan Objectors maintain that these amendments eliminate any distinction between Class 3 and Class 4 claims, thereby violating
The Court rejects the Plan Objectors’ argument that the Third Amended Plan eliminates any distinction between Class 3 and Class 4. The Third Amended Plan defines Class 3 as “all Claims arising from Customer deposits with Sentinel (the ‘Customer Claims’).” (Third Amended Plan § 4.4.) Class 4, on the other hand, consists of “all unsecured Claims against Sentinel that do not constitute Administrative Claims, Priority Tax Claims, Other Priority Claims, Customer Claims, or Subordinated Claims (‘General Unsecured Claims’).”
(Id.
at § 4.5.) Clearly, the Plan Proponents designated separate classes for customer claims and general unsecured claims. Indeed, the Plan Objectors admit that Class 3 and Class 4, which are not substantially similar, are separate classes. Therefore, the Court finds that the Plan Proponents have not violated
The real thrust behind the Plan Objectors’
In conclusion, the Court finds that the Third Amended Plan does not violate
3. Whether the Third Amended Plan incorporates material modifications to the First Amended Plan that require a new disclosure statement and re-solicitation of votes under
Next, the Plan Objectors argue that the Third Amended Plan violates
The Plan Objectors argue that the Plan Proponents have re-written the entire distribution scheme with respect to Sentinel’s Customers in the Third Amended Plan and it would be improper to confirm the Third Amended Plan without issuing a new disclosure statement and re-solicitation of creditor votes. Specifically, under the First Amended Plan, Sentinel’s customers shared exclusively in the “Customer Property,” and also shared
pari passu
with general unsecured creditors with respect to their deficiency claims. On the eve of the Confirmation Hearing, in order to settle certain disputes with at least one general unsecured claimant, the Plan Proponents amended § 4.5(a) of the Plan, to allow Class 4 general unsecured claimants to share equally with Class 3 claimants in the property of Sentinel’s estate. The Plan Objectors contend that the Plan Pro
Generally, “a creditor or stockholder who voted for or against a plan is deemed to have accepted or rejected the modifying proposal. But if the modification materially and adversely affects any of their interests, they must be afforded an opportunity to change their vote.... ” S.Rep. No. 95-989, at 124 (1978),
reprinted in
1978 U.S.C.C.A.N. 5910. Bankruptcy Rule 3019 implements the plan modification codifications of
In a ... chapter 11 case, after a plan has been accepted and before its confirmation, the proponent may file a modification of the plan. If the court finds after hearing on notice to the trustee, any committee appointed under the Code, and any other entity designated by the court that the proposed modification does not adversely change the treatment of the claim of any creditor or the interest of any equity security holder who has not accepted in writing the modification, it shall be deemed accepted by all creditors and equity security holders who have previously accepted the plan.
In other words, a court may deem a claim or interest holder’s vote for or against a plan as a corresponding vote with respect to a modified plan.
Enron Corp. v. New Power Co. (In re New Power Co.),
If modifications made to a plan prior to confirmation (but after the ballots have been counted) are minor, impact only a creditor who has been fully involved, and do not adversely impact any other creditor, then it is not necessary to solicit new acceptances.
In re Sherwood Square As
socs.,
The analysis found in
American Solar King
echoes this sentiment. In
American Solar King,
the court held that Bankruptcy Rules 3018 and 3019 are “not to be enforced with blind routine [but] must instead be applied with an eye toward the fundamental principles of Chapter 11.”
Am. Solar King,
In essence, the issue before the Court is whether the modifications proposed by the Plan Proponents are material and adverse to Class 3 claimants. Finding
The Class 3 Customer claimants would have the right to reconsider their vote if the proposed modification would have a material impact on their respective share of the Customer Property, as defined in the Plan. The Disclosure Statement estimates that Class 3 consists of approximately $1.2 billion in claims. (Disclosure Statement p. 37.) While the general unsecured creditors in Class 4 roughly comprise $10 million in claims {id. at p. 38), Class 3 claimants consist of approximately $739 million in SEG 3 Customer claims and $427 million in SEG 1 Customer claims. (Id. at p. 37.) The Plan Proponents project a thirty-five percent distribution to the SEG 3 Customers or roughly $257.5 million will be distributed to the SEG 3 claimants. 11 {Id. at p. 7.)
Absent the Class 3 Customer deficiency claims, outlined in the Notice of Deficiency Class 4 General Unsecured Claims on Account of Class 3 Customer Claims [Docket No. 725], the general unsecured creditors in Class 4 hold roughly $10 million in unsecured claims against the estate. {Id. at p. 38.) The general unsecured claims will increase the distribution of Customer Property from $739 million in allowed Class 3 SEG 3 Customer claims to approximately $749 million. By allowing the general unsecured claimants to participate in the distribution of Customer Property, the SEG 3 Customers will receive approximately thirty-four cents for every dollar of their claim, or an approximate one cent reduction in the amount of their distribution under the Plan. 12 Therefore, the SEG 3 Customers will not suffer any meaningful or material dilution of their pro rata share as a result of the general unsecured creditors sharing in the approximate $257.5 million that is available to be distributed to these claimants on the effective date of the Plan.
The adverse impact flowing from the modification of allowing the general unsecured claimants to share pro rata with the Class 3 claimants in the Customer Property is a minuscule dilution of the amount that was to be distributed to Class 3 claimants under the First Amended Plan. The impact, while adverse, is not material, but is de minimis, and will not cause the Class 3 claimants to reconsider their vote.
In conjunction with the
Some courts have strictly construed
Congress did not intend to fashion a minefield out of the provisions of the Bankruptcy Code. In fact, the legislative history mentions the provision only in passing, offering as an example of compliance that the debtor meet the disclosure requirements of
In re Landing Assocs., Ltd.,
Because the Court found that the Third Amended Plan does not violate
4. Whether the Third Amended Plan violates
Next, the Plan Objectors claim that the Third Amended Plan violates
Notwithstanding anything to the contrary herein, Claims on account of SEG 2, SEG 3, or SEG 4 Customer accounts held by Citadel-Beneficiary Customers that are Electing Holders shall be treated under the Plan as if such Claims were held by NonCitadel-Beneficiary Customers only with respect to distributions as provided for in Section 4.5 of the Plan[.]
(Third Amended Plan § 10.10Q).) In essence, § 10.10(j) of the Third Amended Plan prevents SEG 1 Customers, who do not enter into the settlement encapsulated within the Plan, from receiving distribution of their other claims against the estate.
In response to the Plan Objectors’ concerns, the Plan Proponents amended the First Amended Plan to create a reserve for any distribution amounts that would be payable on the Plan Objectors’ SEG 3 Claims (the “SEG 3 Reserve”). The Third Amended Plan provides in pertinent part:
With respect to each distribution that is made to Holders of Class 3 Claims, the Liquidation Trustee shall hold back and create a reserve equal to the distribution that Holders of Citadel Beneficiary Class 3 Customer Claims attributable to SEG 3 or SEG 4 accounts (the principal amount of such claims calculated consistent with Section 4.4 of this Plan) which voted against the Plan and/or lodged objections thereto, would have received had the portion of its Class 3 Customer Claims attributable to a SEG 3 or SEG 4 account been Allowed and received a distribution.
(Id.
§ 7.20(a)(iii).) Despite the Plan Proponents’ amendment to the Plan, the Plan Objectors maintain their objection and believe the SEG 3 Reserve is insufficient to overcome the plain reading of
To be confirmed, a plan must “provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest[.]”
The Court finds that § 10.10(j) of the Third Amended Plan does not violate
The Court finds that temporarily disallowing the Plan Objectors’ Class 3 claims does not result in a discriminatory impact.
The creation of the SEG 3 Reserve by the Plan Proponents is simply a protective measure to ensure compliance with any order that may be entered by this Court in the Adversary Proceedings. Delayed receipt of a distribution for this purpose does not result in discriminatory treatment.
New Power Co.,
5. Whether the Plan Proponents violated
The Plan Objectors contend that the Third Amended Plan violates
The Third Amended Plan provides for the creation of a Liquidation Trust Committee. (Third Amended Plan § 6.16; Liquidation Trust Agreement § 3.1 et seq.) In the instant case, the Liquidation Trust Committee consults with the “Liquidation Trustee,” as defined in the Third Amended Plan, regarding all material aspects of the continued operations of Sentinel’s estate and all material activities of the Liquidation Trustee. (Third Amended Plan §§ 2.2 & 6.16; Liquidation Trust Agreement § 3.3.) In addition, the Liquidation Trustee must consult with, reach agreement, or obtain approval from the Liquidation Trust Committee with respect to several aspects of the operation of Sentinel’s estate, including: (1) settlement of claims or causes of action (Liquidation Trust Agreement § 2.2(d)); (2) extending the statute of limitations with respect to certain actions (Liquidation Trust Agreement § 2.4(b)); (3) winding up affairs and paying certain professional fees (Liquidation Trust Agreement § 2.7); (4) retaining counsel and other professionals (Liquidation Trust Agreement § 2.10); (5) disallowing, in specific circumstances, inspection of the Liquidation Trust’s books and records by a beneficiary of the trust (Liquidation Trust Agreement § 5.3); (6) making distributions after the initial distribution date (Liquidation Trust Agreement § 8.2); and (7) modifying and amending the Liquidation Trust Agreement regarding the value of assets transferred into the fund (Liquidation Trust Agreement § 9.4.). Further, the Liquidation Trust Committee has certain powers of its own, including the authority to initiate causes of action on behalf of the Liquidation Trust where the Liquidation Trastee has declined to pursue such action. (Third Amended Plan § 6.16(b); Liquidation Trust Agreement § 3.3(b).) If the Liquidation Trust Committee disagrees with any decision or exercise of power by the Liquidation Trustee, the Court decides the issue at the request of the Liquidation Trust Committee. (Id.)
The composition of the proposed Liquidation Trust Committee includes three representatives from the Creditors’ Committee: Discus Master Ltd.; Jump Trading, LLC; and Kottke Associates, LLC. (Third Amended Plan § 6.16.) In addition, JEM Commodity Relative Value Fund LP, Rotchford Baker, BC Capital Fund A LLC (collectively the “Ex Officio SEG 3 Members”), and Vision Financial Markets LLC (the “Ex Officio SEG 1 Member”), all members of the Creditors’ Committee, are ex officio members of the proposed Liquidation Trust Committee with no voting rights. (Id.) Only one member of the extant Creditors’ Committee, Penson, one of the Plan Objectors, is excluded from the Liquidation Trust Committee.
The Plan Objectors argue that the Third Amended Plan improperly excludes Pen-son from the Liquidation Trust Committee and fails to include any SEG 1 Customer who objected to the settlement encapsulated in the Plan as either a voting or
ex-officio
member of the Liquidation Trust Committee. According to the Plan Objectors, the failure to include representation for non-electing SEG 1 Customers is inconsistent with the interests of creditors and public policy under
Furthermore, the Plan Objectors point to the Disclosure Statement, which articulates that Penson was excluded from the Liquidation Trust Committee because it did not support the Third Amended Plan. (Disclosure Statement p. 42.) The Plan Objectors allege that excluding Penson from the Liquidation Trust Committee “appears to be nothing more than a vindictive maneuver to punish Penson” for its unwillingness to agree to all provisions of the Third Amended Plan. (Post-Confirmation Hearing Submission p. 19.) The Court rejects this contention. The Plan Objectors failed to present any evidence in support of this argument. This cursory argument fails to contain any meaningful legal discussion, and is therefore waived.
See Bretford Mfg., Inc. v. Smith Sys. Mfg. Corp.,
The Plan Proponents, on the other hand, contend that the constitution of the Liquidation Trust Committee was the subject of extensive negotiations and is representative of Sentinel’s customers. Moreover, according to the Plan Proponents, Penson’s concern about its lack of a SEG 1 voice on the Liquidation Trust Committee has been alleviated because Vision Financial Markets LLC, a SEG 1 Customer, has been added to the Liquidation Trust Committee as an ex officio SEG 1 member.
The Plan Objectors do not dispute that the Liquidation Trust Agreement identifies Frederick J. Grede, the Trustee, as the Liquidation Trustee. The Third Amended Plan proposes that on the effective date, all property of Sentinel shall be transferred to the Liquidation Trust. (Third Amended Plan § 6.4.) Sentinel would cease to exist, and all management responsibility would transfer to the Liquidation Trustee. (Id. § 6.5.)
After considering the parties’ arguments, the Court finds that
Because
Nevertheless, assuming
arguendo
that
The Plan Objectors failed to show that the Liquidation Trustee and the Liquidation Trust Committee are not consistent with the interests of creditors and public policy. The Plan Objectors maintain that Sentinel’s customers have been split into two groups: SEG 1 Customers and SEG 3 Customers. According to the Plan Objectors, the Creditors’ Committee was comprised mainly of SEG 3 Customers, and those Customers were able to control the voting on the Creditors’ Committee. The Plan Objectors maintain that the Third Amended Plan was drafted by SEG 3 Customers and it generally benefits their interests. The Court rejects the argument that the Plan was drafted by SEG 3 Customers and benefits their interests. The Plan Objectors failed to proffer any evidence to demonstrate this point. The Trustee testified that the negotiations that led to the Plan were “at arm’s length” and “were fair and reasonable.” (Confirmation Hearing Trans. Aug. 12, 2008 at 47:18-48:1.) More importantly, the Trustee, when asked whether he accepted what the SEG 3 Customers proposed as their plan, answered “absolutely not.” (Id. at 48:2-4.)
Indeed, Vision Financial Markets LLC, a SEG 1 Customer, has been added to the Liquidation Trust Committee as an
ex officio
SEG 1 member. While Vision Financial Markets LLC is a SEG 1 Customer that accepted the settlement and voted in favor of the Plan, it certainly represents a portion of the SEG 1 constituency. Thus, the Plan Objectors’ argument that SEG 1 Customers are not represented on the Liquidation Trust Committee fails.
The Court finds that the Liquidation Trust Agreement contains sufficient safeguards with respect to post-confirmation governance of Sentinel’s estate to ensure that the interests of creditors and equity security holders are protected. Accordingly, the Court finds that the Plan Proponents have satisfied the requisites of
Next, the Plan Objectors argue that the lack of the Liquidation Trustee’s experience in litigation matters, the lack of a bond underlying his actions, and the hundreds of millions of dollars at issue require the appointment of an institutional co-trustee to work with the Liquidation Trustee to administer the Liquidation Trust. According to the Plan Objectors, because this case could proceed for years, and an individual could suffer from potential health related issues, the appointment of an institutional co-trustee mitigates the undue risk to the estate from relying on a single individual. The Plan Objectors reference the testimony of the Trustee where he admitted that he has no experience supervising outside counsel in litigation, budgeting for large litigation, or serving as a Chapter 11 trustee or receiver. (Confirmation Hearing, Aug. 12, 2008 Transcript at 151:21-152:8.)
In conjunction with the
6. Whether the Third Amended Plan’s treatment of the prime portfolio claims violates
In the instant matter, the Plan Objectors assert that the Plan Proponents’ act of pooling all funds held by Sentinel results in the Third Amended Plan distributing an amount less than the amount that the Plan Objectors would receive in a Chapter 7 liquidation. Essential to this analysis is a basic understanding of the rules and regulations by which Sentinel
Pursuant to the CEA (
Because Sentinel was an FCM managing funds required to be segregated for the benefit of its SEG 1 Customers, Sentinel, was subject to the provisions of the CEA and CFTC rules and regulations promulgated pursuant to the CEA,
Despite the statutory requirements of the CEA and CFTC Rules, the Plan Proponents selected a “net investment” method for calculating investors’ claims. According to the Disclosure Statement, this method computes a customer’s claim by adding cash deposits less cash withdrawals. (Disclosure Statement p. 31.) The Plan Proponents justify the use of the “net investment” method as a result of the alleged significant commingling and misuse of Customers’ money by Sentinel’s principals. The Trustee supported the Plan Proponents’ point of view by providing the following testimony at the Confirmation Hearing:
[T]here was significant misappropriation of customer assets at Sentinel.... [T]he daily operating procedures of Sentinel involved commingling of different customer groups with the ... proprietary activity or house activity of Sentinel. With respect to statements that were sent to customers, those statements were very inaccurate, particularly as far as the values of assets that were reported to customers ... I don’t believe thatthe segregation rules were complied with at all by Sentinel.
(Confirmation Hearing Trans. August 12, 2008 at 35:1-14.)
The Trustee expounded upon his overview by providing:
Significant portions of customer securities were removed from custody — from customer segregated fund accounts and were held in a ... commingled, all inclusive loan and collateral account that was not segregated.... Deposits would be made into a customer segregated account. They would be immediately transferred to an account that was called the SEN account. And in this particular account, which was a nonsegregated account, all customer deposits, all customer withdrawals went through this account. And that was without regard to what segregation category they were or without regard to whether these were house funds or customer funds. In addition, all purchases and sales of securities went through this single, commingled account.... [The SEN] account also served as the loan account and the collateral account for the Bank of New York. So often customer deposits would go into this account and would be used to reduce the loan amount from the Bank of New York.
(Id. at 41:13-42:19.)
The Plan Objectors responded by asserting that the Plan Proponents have not established that Customer Property cannot be traced
16
and that the “net investment” method for calculating claims fails the “best-interest-of-creditors” test pursuant to
In response, the Plan Proponents assert that the administrative costs associated with converting a case of this magnitude would be so great that it would offset, and
I believe that they receive as much under this plan as they would under a Chapter 7 plan.... I think converting to a Chapter 7 is going to entail significant administrative expenses in that regard, potentially restarting from the beginning. And, obviously, I don’t see, obviously, a value in doing that.
(Confirmation Hearing Trans. Aug. 12, 2008 at 52:15-25.)
The Court finds that the Trustee’s response coupled with the liquidation analysis attached as Exhibit B of the Disclosure Statement to be credible. Additionally, the Court overrules the Plan Objectors’ argument because they failed to provide any substantive factual or evidentiary support. Specifically, the Plan Objectors failed to cite any case law, provide any expert analysis, or present any expert testimony to contradict the liquidation analysis (and specifically the Chapter 7 trustee administrative expenses) presented in the Disclosure Statement. Therefore, the Plan Proponents have demonstrated by a preponderance of the evidence, as required under
Moreover, the Court notes that the calculation of claims methodology is “an inextricable part of the global compromise and settlement embodied in the Plan”. (Disclosure Statement p. 31.) Accordingly, the Plan Proponents do not necessarily need to demonstrate by a preponderance of the evidence that the claims calculation methodology satisfies the best-interest-of-creditors test. Rather, the Court must find that, as a part of the settlement embedded in the Third Amended Plan, the claims calculation proposed by the Plan Proponents is fair and equitable and in the best interest of the bankruptcy estate. See Protective Comm. for Indep. Stockholders of TMT Trailer Ferry, Inc. v. Anderson,
Therefore, based on the foregoing, the Court finds that the “net investment” methodology — proposed as a part of the settlement in the Third Amended Plan — is fair, equitable and in the best interest of the bankruptcy estate. In this regard, the Court also agrees with the analysis provided in
In re Trending Cycles for Commodities, Inc.,
“If the books and records of [the Debt- or] are not sufficient to substantiate customer claims for profits and to determine the owners of contracts with losses, this Court should permit distribution based upon an amount equal to the total out-of-pocket deposit made by a customer minus withdrawals with respect to such contracts.”
Id. at 710.
The “net investment” method employed by the Plan Proponents is very similar to the “customer deposit” computation analysis set forth in
Trending Cycles.
Without determining here whether the Customers’ money can be traced, the Court notes the factual similarities between
Trending Cycles
and the instant matter. On this basis, the Court finds that the claims calculation process, as a part of the settlement in the Plan, is fair and reasonable. Hence, the Court overrules the Plan Objectors’ argument that the Plan arbitrarily computes claims and violates
B. Additional Objection Raised by the Plan Objectors
1. Whether the Plan Proponents have failed to establish that the SEG 1 Customers received the August 2007 Transfers
Next, the Plan Objectors contend that the Third Amended Plan is premised on the assertion that BNY, at Sentinel’s direction, distributed $320.5 million of estate property to the Citadel Beneficiary Customers in the August 2007 Transfers, shortly before and after Sentinel filed its bankruptcy petition. The Plan Objectors maintain that the Plan Proponents failed to present any evidence at the Confirmation Hearing to show that the $320.5 million was distributed to the Citadel Beneficiary Customers as opposed to bank accounts in which the Citadel Beneficiary Customers had no ownership interest that held funds belonging to clients of the Citadel Beneficiary Customers.
18
According to the Plan Objectors, the Plan Proponents have not satisfied
The Plan Objectors postulate that the $320.5 million was not received by the Citadel Beneficiary Customers. Specifically, Penson, Farr, and IPGL state in their pre-Confirmation Hearing objection that the August 2007 distributions were wired to “segregated accounts that the FCMs maintained for their clients, and in which the FCMs had no ownership interest. That is, the FCMs’ segregated client accounts received the money.... The FCMs did not.” (Objection of Penson, Farr, & IPGL p. 6.) They argue that the Plan Proponents did not present any evidence at the Confirmation Hearing regarding the identity of recipients of the August 2007 Transfers.
The Court finds that the Plan Objectors’ reliance on
C. Analysis of Undisputed Portions of
The Court addressed the objections lodged by the Plan Objectors under
1.
BNY lodged an objection to the Third Amended Plan under this subsection. However, in light of the BNY Settlement, BNY has withdrawn its objections. The Court has reviewed the Third Amended Plan and finds that it complies with
2.
3.
4.
5.
6.
When a plan impairs a class of claims, another requirement for confirmation is that “at least one class of claims that is impaired under the plan has accepted the plan....”
Class 3 and Class 4 are impaired under the Third Amended Plan. Both Class 3 and Class 4 voted to accept the Plan. Accordingly, the Court finds that the Third Amended Plan complies with
7.
The next requirement for confirmation is
No party in interest has filed an objection to the Third Amended Plan under this subsection. The Court has reviewed the Third Amended Plan and the current Summary of Cash Receipts and Cash Disbursements report and finds that the Plan satisfies the mandate of
8.
9.
10.
Next,
11.
12.
The final requirement under
D. Analysis of
The Plan Proponents were not able to satisfy
(b) (1) Notwithstanding section 510(a) of this title, if all of the applicable requirements of subsection (a) of this section other than paragraph (8) are met with respect to a plan, the court, on request of the proponent of the plan, shall confirm the plan notwithstanding the requirements of such paragraph if the plan does not discriminate unfairly, and is fair and equitable, with respect to each class of claims or interests that is impaired under, and has not accepted, the plan.
(2) For the purpose of this subsection, the condition that a plan be fair and equitable with respect to a class includes the following requirements:
(A) With respect to a class of secured claims, the plan provides—
(i)(I) that the holders of such claims retain the liens securing such claims, whether the property subject to such liens is retained by the debtor or transferred to another entity, to the extent of the allowed amount of such claims; and
(II) that each holder of a claim of such class receive on account of such claim deferred cash payments totaling at least the allowed amount of such claim, of a value, as of the effective date of the plan, of at least the value of such holder’s interest in the estate’s interest in such property;
(ii) for the sale, subject to section 363(k) of this title, of any property that is subject to the liens securing such claims, free and clear of such liens, with such liens to attach to the proceeds of such sale, and the treatment of such liens on proceeds under clause (i) or (iii) of this subparagraph; or
(iii) for the realization by such holders of the indubitable equivalent of such claims.
(B) With respect to a class of unsecured claims—
(i) the plan provides that each holder of a claim of such class receive or retain on account of such claim property of a value, as of the effective date of the plan, equal to the allowed amount of such claim; or
(ii) the holder of any claim or interest that is junior to the claims of such class will not receive or retain under the plan on account of such junior claim or interest any property, except that in a case in which the debtor is an individual, the debtor may retain property included in the estate under section 1115, subject to the requirements of subsection (a)(14) of this section.
Thus, in order to proceed under this provision, at least one impaired class of
There are two conditions that must be met in order for a plan to be crammed down.
203 N. LaSalle St. P’ship,
A plan satisfies the “fair and equitable” requirement with respect to a secured claim if it fulfills clauses (i), (ii), or (iii) of
A plan meets the “fair and equitable” requirement with respect to an unsecured claim if it fulfills clauses (i) and (ii) of
The absolute priority rule is one of the conditions of the “fair and equitable” standard necessary for cram down and has been explained by the United States Supreme Court as follows:
a dissenting class of unsecured creditors must be provided for in full before any junior classes can receive or retain any property under a reorganization plan. The rule had its genesis in judicial construction of the undefined requirement of the early bankruptcy statute that reorganization plans be fair and equitable. The rule has since gained express statutory force, and was incorporated into Chapter 11 of the Bankruptcy Code adopted in 1978. See11 U.S.C. § 1129(b)(2)(B)(ii) .
Norwest Bank Worthington v. Ahlers,
The Court finds that the Third Amended Plan does not discriminate unfairly and is fair and equitable with respect to the classes of claims that are impaired and have not accepted the Plan. The Court notes that the Plan Objectors have raised a tangential objection under
In this regard, the Plan Objectors failed to provide any analysis as to whether the objecting SEG 1 Customers have been properly crammed down in the event that the Plan Proponents’ classification of SEG 1 and SEG 3 claims in the same class is improper. The Court notes that Penson Financial, Farr Financial, and IPGL mention
In any event, the Court finds that the absolute priority rule has been satisfied. While the Court believes that the singular classification of the SEG 1 and SEG 3 Customer claims is appropriate under
V. CONCLUSION
For the foregoing reasons, the Court confirms the Third Amended Plan with an additional amendment and overrules the objections. Namely, the Court directs the Plan Proponents to amend the interest component of the “catch-up” provision in the Plan as previously discussed in this Opinion. The Plan Proponents are directed to file a Fourth Amended Plan within seven days from the date of this Opinion, and shall file a proposed order of confirmation that conforms with the appropriate Official Form pursuant to
This Opinion constitutes the Court’s findings of fact and conclusions of law in accordance with
Notes
. The Ad Hoc Committee holds in excess of $202 million in SEG 1 claims against Sentinel's estate. (Confirmation Hearing Trans. Aug. 13, 2008 at 144:14-18.) The members of the Ad Hoc Committee are FC Stone, LLC, Frontier Futures, Inc., Fortis Clearing Americas, LLC, Country Hedging, Inc., Alaron Trading Corporation, Cadent Financial Services, LLC, Rand Financial Services, Inc., Velocity Futures LP, Crossland Customer Segregated, and Peregrine Financial Group, Inc.
. Initially, this creditor was The Bank of New York. On July 1, 2008, The Bank of New York merged with Mellon Bank, N.A. to become The Bank of New York Mellon.
. The Plan Objectors' arguments are directed to the Second Amended Plan. However, because the most recent filed plan incorporates the Second Amended Plan, their objections have not changed and are deemed directed equally to the Third Amended Plan. For the sake of organization, the Court will refer to the Third Amended Plan despite the fact that the Plan Objectors submitted their Post-Confirmation Hearing Submission prior to the filing of the Third Amended Plan.
. Generally, a FCM is a broker that trades futures contracts for customers who open an account with the FCM and deposit cash or securities to serve as margin for the customers’ trades.
See
7 U.S.C. § la(20). FCMs are required by the CFTC to keep their customers’ money segregated from funds they invest on their own behalf.
See
. The Plan Objectors cite
. Instructive to understanding § 4.5 of the Plan, the Court notes that the Plan Proponents’ definition of "Percentage Recovery" is:
shall mean the recovery on account of a Claim expressed as a percentage calculated by dividing (x)(i) distributions received under the Plan not including any distributions received on account of Tranche-P interests plus (ii) any other amounts distributed by the Debtor on account of a Class 3 Customer Claim including the Citadel Sale Distributions plus Interest commencing on the date of such distributions, by (y) the Claim amount as calculated pursuant to Section 4.4 of the Plan.
(Id. § 1.1.)
. The Bankruptcy Code does not specifically allow, nor does it specifically prohibit, prejudgment interest on an award in an action to avoid a post-petition transfer under § 549. However, it has been recognized that it is within the equitable discretion of the court to allow pre-judgment interest at the rate set forth in
. Adversary Proceeding No. 08-00743 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. Fortis Clearing Americas, LLC; Adversary Proceeding No. 08-00744 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. American National Trading Corp.; Adversary Proceeding No. 08-00745 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. Country Hedging, Inc.; Adversary Proceeding No. 08-00747 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. Crossland LLC; Adversary Proceeding No. 08-00749 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. Farr Financial Inc.; Adversary Proceeding No. 08-00750 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. Frontier Futures, Inc.; Adversary Proceeding No. 08-00751 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. IFX Markets, Inc., IPGL, Ltd. and Hain Capital Holdings, Ltd.; Adversary Proceeding No. 08-00752 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. Peregrine Financial Group, Inc.; Adversary Proceeding No. 08-00753 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. Velocity Futures, LP; Adversary Proceeding No. 08-00754 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. FC Stone, LLC; Adversary Proceeding No. 08-00755 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. Penson Financial Futures, Inc. and Penson GHCO; Adversary Proceeding No. 08-00879 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. Cadent Financial Services; Adversary Proceeding No. 08-00880 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. Rand Financial Services; and Adversary Proceeding No. 08-00965 Frederick J. Grede, as Chapter 11 Trustee for Sentinel Management Group, Inc. v. TradeMaven Clearing LLC.
. The Third Amended Plan defines Customer Property to mean:
from and after the Petition Date, Cash, security, or other property, and proceeds of such Cash, security, or property, received, acquired, or held by or for, or which should have been held by or for, a Customer, including any such property even if distributed to a Customer outside of the Plan and subsequently recovered by the Estate, including all funds and securities on deposit at the Bank of New York and in segregated accounts at JPMorgan Chase & Co. in the name of Sentinel or the Chapter 11 Trustee.
(Third Amended Plan § 1.1.)
.
(a) Notwithstanding any otherwise applicable nonbankruptcy law, a plan shall—
(1) designate, subject tosection 1122 of this title, classes of claims, other than claims of a kind specified in section 507(a)(2), 507(a)(3), 507(a)(8) of this title, and classes of interests;
(2) specify any class of claims or interests that is not impaired under the plan;
(3) specify the treatment of any class of claims or interests that is impaired under the plan;
(4) provide the same treatment for each claim or interest of a particular class, unless the holder of a particular claim or interest agrees to a less favorable treatment of such particular claim or interest[.]
. This amount does not include the August 2007 Transfers to the extent received by any Class 3 claimant.
. Prior to the amendment, SEG 3 claimants were projected to receive approximately a thirty-five cent distribution ($257.5 million $739 million = $0,348). By allowing the Class 4 general unsecured claims (absent the Class 3 deficiency claims) to share in the distribution of cash and cash proceeds of Sentinel's property, the amount of the claims increases by $10 million to $749 million. Therefore, the approximate amount available to distribute pro rata to the Class 3 claimants and Class 4 general unsecured claimants is roughly 34.3 cents ($257.5 million -¡- $749 million = $0,343).
The Court notes that the Class 3 deficiency claims are included in Class 4 and share in this distribution. However, the Class 3 claimants own these deficiency claims. Their interests will not be negatively impacted by allowing their deficiency claims to share equally with their other Class 3 claims. Thus, the Court has excluded the deficiency claims in its analysis of the material impact of allowing Class 4 general unsecured claimants to share equally in the distributions under § 4.5(a.) of the Plan.
. The crux of this argument concerns whether the Citadel Beneficiary Customers received the Citadel Sale distribution. The Court addresses this contention in section IV.B.l of the Opinion infra.
.
(a) The court shall confirm a plan only if all of the following requirements are met: (5)(A)(i) The proponent of the plan has disclosed the identity and affiliations of any individual proposed to serve, after confirmation of the plan, as a director, officer, or voting trustee of the debtor, an affiliate of the debtor participating in a joint plan with the debtor, or a successor to the debtor under the plan and
(ii) the appointment to, or continuance in, such office of such individual, is consistent with the interests of creditors and equity security holders and with comprise policy....
. The Court places this argument under the
. The Court notes that whether the Customer Property can be traced is not before the Court, and the Court will not address this matter as it is not central to the requirements of confirmation. Rather, the issues related to tracing are reserved for adjudication in the pending Adversary Proceedings. See supra n. 8.
. Chapter 11_Chapter 7_
Cash on Hand_$597,018,251_$597,018,251_
Estimated Proceeds from Liquidation of Remaining Portfolio Securities_$78,463,521-$114,620,143_$78,463,521-$114,620,143
BNY Secured Claim/BNY Reserve_($325,000,000)_($325,000,000)_
Chapter 11 Admin Claims (unpaid)_(7,000,000)_(7,000,000)_
Chapter 7 Admin Claims (including Trustee Fees)_$0_(32,400,000)_
Liquidation Trustee Fees (including professionals)_($21,600,000)_$0_
Fees for Chapter 11 Final Report upon conversion_($0)_($20,000)_
$321,881,772-$358,038,394$311,061,722-$347,218,394
. The Court notes that counsel for Farr Financial and IPGL focused his cross-examination of the Trustee during the Confirmation Hearing on this argument. In doing so, counsel introduced documents, including the Court’s order of August 20, 2007 and Sentinel's Schedule F. The Court can take judicial notice of these documents. However, any additional documents discussed at the hearing were conditionally admitted upon the Court receiving marked and legible copies. Counsel failed to provide such documents to the Court. Therefore, these documents were not admitted into evidence and are not a part of the record.
.
Any payment made or to be made by the proponent, by the debtor ... for services or for costs and expenses in or in connection with the case, or in connection with the plan and incident to the case, has been approved by, or is subject to the approval of, the court as reasonable.
. Section 1124 provides as follows:
Except as provided insection 1123(a)(4) of this title, a class of claims or interests is impaired under a plan unless, with respect to each claim or interest of such class, the plan—
(1) leaves unaltered the legal, equitable, and contractual rights to which such claim or interest entitles the holder of such claim or interest; or
(2) notwithstanding any contractual provision or applicable law that entitles the holder of such claim or interest to demand or receive accelerated payment of such claim or interest after the occurrence of a default—
(A)cures any such default that occurred before or after the commencement of the case under this title, other than a default of a kind specified in section 365(b)(2) of this title or of a kind that section 365(b)(2) expressly does not require to be cured;
(B) reinstates the maturity of such claim or interest as such maturity existed before such default;
(C) compensates the holder of such claim or interest for any damages incurred as a result of any reasonable reliance by such holder on such contractual provision or such applicable law;
(D) if such claim or such interest arises from any failure to perform a nonmone-tary obligation, other than a default arising from failure to operate a nonresidential real property lease subject to section 365(b)(1)(A), compensates the holder of such claim or such interest (other than the debtor or an insider) for any actual pecuniary loss incurred by such holder as a result of such failure; and
(E) does not otherwise alter the legal, equitable, or contractual rights to which such claim or interest entitles the holder of such claim or interest.