In re Motors Liquidation Co. - 555 B.R. 355 (Bankr. S.D.N.Y. 2016)

Rule:

Settlements and compromises are favored in bankruptcy as they minimize costly litigation and further parties' interests in expediting the administration of the bankruptcy estate. Under Fed. R. Bankr. P. 9019, the court has the authority to approve a compromise or settlement. Fed. R. Bankr. P. 9019(a). A court must determine that a settlement under Bankruptcy Rule 9019 is fair, equitable, and in the best interests of the estate before it may approve a settlement.

Facts:

The Motors Liquidation Company and its affiliated Debtors, filed voluntary petitions for relief under chapter 11 of the Bankruptcy Code. On the Petition Date, the Debtor filed a motion seeking authority from the Court to obtain $33.3 billion in post-petition financing from the United States Department of the Treasury and Export Development Canada. The Court approved three DIP Orders. Davidson Kempner Capital Management LP (Kempner), a general unsecured claimant and a beneficiary of the Trust, filed an objection to the Motion. River Birch Capital LLC (River Birch), a private funder under the Private Litigation Funding Agreement filed a separate objection to the Motion. The United States of America (the United States), on behalf of the debtor-in-possession lender the United States Department of the Treasury (Treasury), filed a statement in response to the Kempner Objection and the River Birch Objection, Export Development Canada (EDC) joined the Treasury Response. The Trust Administrator filed a reply to the River Birch Objection and a separate reply to the Kempner Objection. The Committee filed an omnibus reply. The Court held a hearing on the Motion on August 10, 2016, after which the Court took this matter under submission. The Court granted the Motion.

Issue:

Was the grant of the motion proper?

Answer:

Yes.

Conclusion:

Settlements and compromises are favored in bankruptcy as they minimize costly litigation and further parties' interests in expediting the administration of the bankruptcy estate. Under Fed. R. Bankr. P. 9019, the court has the authority to approve a compromise or settlement. Fed. R. Bankr. P. 9019(a). A court must determine that a settlement under Bankruptcy Rule 9019 is fair, equitable, and in the best interests of the estate before it may approve a settlement. The Settlement which allocated 30% of the net proceeds from the Term Loan Avoidance Action to the DIP Lenders and 70% to the unsecured creditors was within the range of reasonableness. The Iridium factors guided the Court’s analysis. Not all factors must point in the same direction, and not all factors must be given the same weight. The role of the Court wa not to second-guess the business decision of the Committee; rather, the Court was only to see whether the settlement falls below the lowest point in the range of reasonableness." The Settlement was negotiated by very experienced counsel, at arm's length, and approved by the Committee's members after due deliberations. The Settlement offers the concrete benefit that it would resolve a long-standing dispute between the DIP Lenders and the Committee. Additionally, as a result of the Settlement, the Trust would obtain a costless litigation advance, which was clearly better than the funding under the Private Litigation Funding Agreement that it would otherwise have had to rely upon. The Movants established that the Settlement was within the range of reasonableness and should be approved by the Court.