Objection to Plan Confirmation by PPP Borrower Plaintiffs — In re KServicing (Bankr. D. Del., 2023-02-21)

Record facts

U.S. Bankruptcy Court for the District of Delaware · No. 22-10951 · Doc. 548 · 2023-02-21 · Docket on CourtListener

Full text

30305312v.5
UNITED STATES BANKRUPTCY COURT 
DISTRICT OF DELAWARE 
In re: 
KABBAGE, INC. d/b/a KSERVICING, et al., 
Debtors.1
) 
) 
) 
) 
) 
) 
) 
)
Chapter 11 
Case No. 22-10951 (CTG) 
(Jointly Administered) 
OBJECTION OF LEAD PLAINTIFFS AND PUTATIVE CLASS MEMBERS 
TO CONFIRMATION OF AMENDED JOINT CHAPTER 11 PLAN OF  
KABBAGE, INC. d/b/a KSERVICING AND ITS DEBTOR AFFILIATES 
The lead plaintiffs and putative class members (collectively, the “Plaintiffs”) in the 
currently stayed action filed as Carr et al., v. Kabbage, Inc., Case No. 22-cv-02149 (N.D. Ga. Mar. 
30, 2022) (the “Putative Class Litigation”), by and through their undersigned counsel, file this 
objection and reservation of rights (the “Objection”) to confirmation of the Amended Joint 
Chapter 11 Plan of Liquidation of Kabbage, Inc. (d/b/a KServicing) and its Affiliated Debtors (as 
the same may be amended from time to time, the “Plan”)2 filed by the above-captioned debtors 
and debtors-in-possession (the “Debtors”), as follows:  
1 The Debtors in these chapter 11 cases, along with the last four digits of each Debtor’s federal tax 
identification number, as applicable are: Kabbage, Inc. d/b/a KServicing (3937) (the “Company”); Kabbage 
Canada Holdings, LLC (N/A); Kabbage Asset Securitization LLC (N/A); Kabbage Asset Funding 2017-A 
LLC (4803); Kabbage Asset Funding 2019-A LLC (8973); and Kabbage Diameter, LLC (N/A). Kabbage 
is a trademark of American Express used under license; Kabbage, Inc. d/b/a KServicing is not affiliated 
with American Express. The Debtors’ mailing and service address is 925B Peachtree Street NE, Suite 383, 
Atlanta, GA 30309. 
2 Capitalized terms not otherwise defined herein shall have the meanings ascribed in the Plan. 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 1 of 15

-2- 
30305312v.5
JURISDICTION 
1.
This Court has jurisdiction over the Plan and this Objection pursuant to 28 U.S.C. 
§§ 157 and 1334.  Venue of the Debtors’ Chapter 11 case, the Plan and this Objection in this 
district is proper pursuant to 28 U.S.C. §§ 1408 and 1409. 
2.
This is a core proceeding pursuant to 28 U.S.C. §§ 157(b)(2)(A)-(B) and (O). 
3.
The statutory predicates for the relief requested herein include Sections 105, 365 
and 1129 of title 11 of the United States Code (the “Bankruptcy Code”). 
BACKGROUND 
A.
The Class Action  
4.
On March 30, 2022, the Plaintiffs, individually and on behalf of all others similarly 
situated, filed a class action complaint (the “Class Action Complaint”) against Debtor Kabbage, 
Inc. d/b/a KServicing in the Georgia District Court, alleging that the Company, a servicer of 
thousands of Small Business Association (“SBA”) Paycheck Protection Program (“PPP”) 
emergency loans, failed to timely and competently process loan forgiveness applications on behalf 
of borrowers. The Class Action Complaint sought injunctive relief directing the Company to 
review and process loan forgiveness in accordance with SBA regulations, disgorgement of PPP 
loan origination fees on theories of unjust enrichment, and damages in accordance with state 
consumer protection statutes.  
5.
On May 31, 2022, Debtor Kabbage, Inc. d/b/a KServicing moved to dismiss the 
Class Action Complaint. 
6.
Immediately prior to Debtor Kabbage, Inc. d/b/a KServicing filing its chapter 11 
case, the Motion to Dismiss was fully briefed and the parties were awaiting a decision from the 
Georgia District Court. 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 2 of 15

-3- 
30305312v.5
B.
Bankruptcy Proceedings 
7.
On October 3, 2022 (the “Petition Date”), the Debtors each commenced with this 
Court a voluntary case under chapter 11 of the Bankruptcy Code (the “Chapter 11 Cases”). The 
Debtors are authorized to continue to operate their business as debtors and debtors-in-possession 
pursuant to Sections 1107(a) and 1108 of the Bankruptcy Code. No trustee, examiner, or 
statutory committee of creditors has been appointed in these Chapter 11 Cases. 
8.
Pursuant to Bankruptcy Rule 1015(b), the Chapter 11 Cases are being jointly 
administered under the above captioned case. 
9.
Additional information regarding the Debtors’ businesses, capital structure, and the 
circumstances leading to the commencement of these Chapter 11 Cases is set forth in the 
Declaration of Deborah Rieger-Paganis in Support of the Chapter 11 Petitions and First-Day 
Pleadings [Doc. No. 13] (the “First Day Declaration”). 
10.
On or about November 7, 2022, this Court entered the Order Under 11 U.S.C. §§ 
105, 361, 362, and 363, and Bankruptcy Rule 2002, 4001, 6004, and 9014 (I) Authorizing Debtors 
to Use Cash Collateral and (II) Granting Adequate Protection to Secured Lender [Doc. No. 225] 
(the “Cash Collateral Order”), which, among other things, reflected certain acknowledgments 
by the Debtors and provided certain Adequate Protections to the Federal Reserve Bank of San 
Francisco (the “Reserve Bank”).   
11.
On January 19, 2023, the Debtors filed their Amended Joint Chapter 11 Plan of 
Liquidation of Kabbage, Inc. (d/b/a KServicing) and its Affiliated Debtors [Docket No. 466] (the 
“Plan”) and Amended Disclosure Statement for the Amended Joint Chapter 11 Plan of Liquidation 
of Kabbage, Inc. (d/b/a KServicing) and its Affiliated Debtors [Docket No. 467] (the “Disclosure 
Statement”). 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 3 of 15

-4- 
30305312v.5
12.
On January 19, 2023, the Court entered the Order (I) Approving the Disclosure 
Statement of the Debtors, (II) Establishing Solicitation, Voting, and Related Procedures, (III) 
Scheduling Confirmation Hearing, (IV) Establishing Notice and Objection Procedures for 
Confirmation of Plan, (V) Approving Special Electronic Noticing Procedures, (VI)  Approving 
Debtors’ Proposed Cure Procedures for Unexpired Leases and Executory Contracts, and (VII) 
Granting Related Relief [Docket No. 470] (the “Disclosure Statement Order”) that, among other 
things, approved the Disclosure Statement, authorized the Debtors to commence solicitation on 
the Plan, and scheduled a confirmation hearing for the Plan on March 13, 2023 (the “Confirmation 
Hearing”). 
13.
On January 27, 2023, the Debtors filed the Debtors’ First Omnibus Objection 
(Substantive) to Certain Misclassified Claims [Doc. No. 491] (the “Omnibus Claims 
Objection”), which, among other things, sought to re-classify claims filed by certain of the 
Plaintiffs as General Unsecured Claims (the “Proposed Reclassified Claims”).  No objections or 
responses to the Omnibus Claims Objection were filed and it is anticipated the Proposed 
Reclassified Claims will be classified as General Unsecured Claims. 
14.
Upon information and belief, all claims filed by Plaintiffs, other than the Proposed 
Reclassified Claims, were filed as General Unsecured Claims. 
C.
Plan Treatment of Claims 
15.
Section 4 of the Plan addresses the treatment of Claims and Interests, including the 
treatment of General Unsecured Claims. 
16.
Pursuant to Section 4.3 of the Plan, the Debtors propose that Reserve Bank be 
allowed a claim for $536,450,940 plus significant additional unknown amounts (the “Unknown 
Reserve Bank Claims”) for, among other things, interest, costs, and attorney fees, which would 
consist of: (i) a Secured Claim to the extent of the proceeds from the PPPLF Collateral and 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 4 of 15

-5- 
30305312v.5
Adequate Protection, and (ii) a priority claim, under Section 507(a)(2) of the Bankruptcy Code, to 
the extent the PPPLF Collateral and Adequate Protection are insufficient to pay in full the Reserve 
Bank Claims.  No basis is provided for the allowance of the Reserve Bank Priority Claim.  
Moreover, there is no process to challenge the Reserve Bank Claim and the Plan specifically 
provides that there will be “no estimation of the Reserve Bank Claim.”  See Plan, § 7.5.  
Effectively, the Debtors are seeking approval to provide a blank check to the Reserve Bank.    
17.
Pursuant to Section 4.3(c)(ii), Reserve Bank Priority Claims will receive the GUC 
Pool Class A Interest.   
18.
Section 4.4 provides for the treatment of General Unsecured Claims and, in relevant 
part, states that each holder of an Allowed General Unsecured Claim will receive its pro rata share 
of the GUC Pool Class B Interests.  
19.
Pursuant to Section 1.57 of the Plan, the “GUC Pool” is:  
the Cash pool established pursuant to this Plan, containing (a) on the 
Effective Date, the amount of the GUC Pool Amount, (b) after the 
Effective Date but prior to the conclusion of the Wind Down, all 
Cash in the Wind Down Estate minus a reasonable amount of Cash 
determined by the Wind Down Officer and subject to the Wind 
Down Budget needed to fund the administration of the Wind Down 
Estate, and (c) at the conclusion of the Wind Down, any residual 
amounts remaining in the Wind Down Estate (other than amounts 
on account of Post-Effective Date Servicing Costs, if applicable), 
which Cash shall be held in the Wind Down Estate’s general 
accounts and not segregated. 
20.
The Plan provides for two classes of interests in the GUC Pool: (a) GUC Pool Class 
A Interests, which entitles the Reserve Bank to the proceeds of the GUC Pool until such time that 
the Reserve Bank Claims are paid in full (see Plan, § 1.59), and (b) GUC POOL Class B Interests, 
which provides the means for Distributions to General Unsecured Creditors after the GUC Pool 
Class A Interests are satisfied, in full, (see Plan, § 1.60). 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 5 of 15

-6- 
30305312v.5
21.
Effectively, only after Reserve Bank’s claims, known and unknown, are paid in full
will General Unsecured Creditors, including the Plaintiffs, receive any Distributions from the GUC 
Pool, which is the only means for Distributions to General Unsecured Creditors.   
22.
Pursuant to section 5.2 of the Plan, the Debtors propose to fund Distributions, in 
part, from proceeds of Estate Causes of Action.  Assuming “Estate Causes of Action” are the 
“Causes of Action” defined in section 1.13 of the Plan, they include, among other things, actions, 
claims, causes of action under chapter 5 of the Bankruptcy Code, including the Avoidance Actions. 
23.
Finally, whether to pursue the Avoidance Actions, which appear to be the primary 
means for funding the GUC Pool, is a decision made by the Wind Down Officer subject to the 
“consent and consultation” of the Reserve Bank, the U.S. Department of Justice, the Small 
Business Administration, and CRB.  See Plan, § 5.8.     
OBJECTIONS TO PLAN CONFIRMATION 
24.
To confirm a plan of reorganization, a debtor must prove by a preponderance of the 
evidence that all elements of § 1129 of the Code are satisfied.  In re BSA, 642 B.R. 504, 553 
(Bankr. D. Del. 2022).  Courts universally agree that the burden of proof lies with the proponent 
of the plan, which, here, are the Debtors. See, e.g., In re Washington Mut., Inc., 442 B.R. 314, 328 
(Bankr. D. Del. 2011) (“[T]he Plan Supporters bear the burden of proving that the Plan complies 
with all of the requirements of the Bankruptcy Code for confirmation.”) 
25.
“To satisfy the requirements of § 1129(a), all impaired classes must accept the 
Plan.” In re Armstrong World Indus., 348 B.R. 111, 120 (D. Del. 2006).  “Section 1129(b) allows 
the confirmation of a plan over the objection of an impaired class 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.”  Id. (quoting 11 U.S.C. § 1129(b)(1)). When a plan is 
confirmed pursuant to Section 1129(b) it is referred to as a “cramdown.”  “A cramdown may be 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 6 of 15

-7- 
30305312v.5
necessary under certain circumstances to foreclose the possibility that a small minority would 
prevent confirmation of the plan.” Id. “In the context of a cramdown, the debtor’s standard of proof 
that the requirements of § 1129 are satisfied is a preponderance of the evidence.” Id.  The Court 
may confirm non-consensual plans only if it determines that there has been compliance with the 
applicable requirements of both Section 1129 (a) and (b). 
I.
The Plan Cannot be Confirmed Because the Debtors Have Not Shown That It 
Complies with the Best Interests of Creditors Test Under 11 U.S.C. § 1129(a)(7) 
26.
The Plan must satisfy all the requirements of section 1129(a) of the Bankruptcy 
Code to be confirmable, including section 1129(a)(7).  Section 1129(a)(7), known as the “best 
interest of creditors” test, requires that each holder of a claim in an impaired class has either 
accepted the plan or will receive at least as much as it would receive in a chapter 7 liquidation. 11 
U.S.C. § 1129(a)(7).  For the reasons set forth below, the Debtors have failed to demonstrate the 
Plan is in the best interest of the Plaintiffs and is thus not confirmable in its current form. 
27.
In relevant part, section 1129(a)(7) provides: 
(7) With respect to each impaired class of claims or interests –  
(A) each holder of a claim or interest of such class – 
(i) has accepted the plan; or 
(ii) will receive or retain under the plan on account of such 
claim or interest property of a value, as of the effective date 
of the plan, that is not less than the amount that such holder 
would so receive or retain if the debtor were liquidated under 
chapter 7 of this title on such date;  
28.
The Plan does not satisfy the requirements set forth in section 1129(a)(7)(A)(i) 
because the Plaintiffs are holders of claims in an impaired class (i.e., Class 4 under the Plan) and 
have not accepted Plan.  
29.
The Plan also fails to satisfy the requirements set forth in section 1129(a)(7)(A)(ii) 
because the Debtors have not met their burden of proving that that the Plaintiffs will receive as 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 7 of 15

-8- 
30305312v.5
much value under the Plan as they would receive under a Chapter 7 liquidation. See In re Lason, 
Inc., 300 B.R. 227, 232 (Bankr. D. Del. 2003) (“The proponent of the plan bears the burden of 
showing that the best interest of creditors has been satisfied.”)   
30.
Notably here, the requirements of section 1129(a)(7) apply to individual dissenters 
rather than classes of creditors.  Bank of America Nat’l Trust & Sav. Ass’n v. 203 N. LaSalle II, 
526 U.S. 434, 441 n.13, 119 S. Ct. 1411, 143 L. Ed. 2d 607 (1999) (“The ‘best interests’ test 
applies to individual creditors holding impaired claims, even if the class as a whole votes to accept 
the plan.”).  As such, the Debtors must demonstrate that the Plan passes the “best interest test” for 
the Plaintiffs, specifically—not just for unsecured creditors as a class.  
31.
“In determining whether the best interests standard is met, the court must measure 
what is to be received by rejecting creditors in the impaired classes under the plan against what 
would be received by them in the event of liquidation under chapter 7.” In re Mallinckrodt PLC, 
639 B.R. 837, 888 (quoting In re Adelphia Communs. Corp., 368 B.R. 140, 252 (Bankr. S.D.N.Y. 
2007). “In doing so, the court must take into consideration the applicable rules of distribution of 
the estate under chapter 7, as well as the probable costs incident to such liquidation.” Id. In that 
way, “[i]t is an individual guaranty to each creditor or interest holder that it will receive as much 
in reorganization as it would in liquidation.” 7 COLLIER ON BANKRUPTCY ¶ 1129.02[7]; see 
also In re Ditech Holding Corp., 606 B.R. 544, 607 (Bankr. S.D.N.Y. 2019) ((quoting In re McCall 
Pattern, Inc., 120 B.R. 279, 297 (Bankr. S.D.N.Y. 1990) (“To be sure, the command of section 
1129(a)(7)(A)(ii) is perhaps the strongest protection creditors have in chapter 11.”)). 
Debtors Failed to Provide Adequate Liquidation Analysis 
32.
First, as an initial matter, the Debtors are required to include a liquidation analysis 
in the Plan.  See 11 U.S.C. 1190(1)(B) (“A plan filed under this subchapter [11 USCS §§ 1181 et 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 8 of 15

-9- 
30305312v.5
seq.]—(1) shall include—(B) a liquidation analysis;…”).  As of the date hereof, the Debtors have 
not filed a liquidation analysis that sufficiently addresses whether the Plan, rather than liquidation 
under chapter 7, is in the Plaintiffs’ best interests.  Instead, the Disclosure Statement contains a 
generalized, conclusory statement about a hypothetical, future liquidation analysis: “[T]he Debtors 
believe that under the Plan all holders of impaired Claims and Interests will receive property with 
a value not less than the value such holder would receive in a liquidation under chapter 7 of the 
Bankruptcy Code” based on “(i) consideration of the effects that a chapter 7 liquidation would 
have on the ultimate proceeds available for distribution to holders of impaired Claims and Interests, 
and (ii) the Liquidation Analysis (which will be filed no later than the date the Plan Supplement is 
filed and served on holders of Claims in the Voting Classes as promptly practicable upon filing).” 
Disclosure Statement, § VIII(C)(1)(B). This general statement is further qualified by the disclaimer 
that “any liquidation analysis is speculative, as it is necessarily premised on assumptions and 
estimates which are inherently subject to significant uncertainties and contingencies, many of 
which would be beyond the control of the Debtors.” Disclosure Statement, § VIII(C)(1)(B) 
(emphasis added). 
33.
The Debtors’ failure to file a liquidation analysis in a timely manner prior to the 
Plan’s objection deadline and confirmation hearing renders the Plan unconfirmable on its face. 
The Debtors Have Not Shown Sufficient Value of Third-Party Releases 
34.
Second, the Plan also provides for certain broad third-party releases (the “Third-
Party Releases”) that would not occur under chapter 7.          
35.
The relevant Third-Party Releases are set forth in Section 10.6 of the Plan: 
10.6. Releases By Holders of Claims and Interests. As of the Effective 
Date, except (a) for the right to enforce the Plan or (b) as otherwise 
expressly provided in the Plan or in the Confirmation Order, to the fullest 
extent permissible under applicable law, as such law may be extended or 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 9 of 15

-10- 
30305312v.5
integrated after the date upon which the Bankruptcy Court enters the 
Confirmation Order, on or after the Effective Date, each Released Party 
shall be deemed expressly, conclusively, absolutely, unconditionally, 
irrevocably and forever, released, and waived by each of the Releasing 
Parties from any and all claims, interests, obligations, rights, suits, damages, 
Causes of Action, remedies, and liabilities whatsoever (including any 
derivative claims asserted or that may be asserted on behalf of any of the 
Debtors or their Estates), whether known or unknown, foreseen or 
unforeseen, existing or hereinafter arising, in law, equity, or otherwise, 
based on or relating to, or in any manner arising from, in whole or in part, 
the Debtors, the Chapter 11 Cases, the Plan (including the Plan 
Supplement), the Disclosure Statement, the restructuring of Claims or 
Interests in the Chapter 11 Cases, the formulation, preparation, 
dissemination, negotiation of any of the foregoing or any contract, 
instrument, release, or other agreement or document created or entered into 
in connection with any of the foregoing, … [.] 
36.
These Third-Party Releases are not accounted for in any liquidation analysis as a 
part of the Plan, which it is a required part of a liquidation analysis.  See In re Washington Mutual, 
Inc., 442 B.R. 314, 359-60 (Bankr. D. Del. 2011) (“In a case where claims are being released 
under the chapter 11 plan but would be available for recovery in a chapter 7 case, the released 
claims must be considered as part of the analysis in deciding whether creditors fare at least as well 
under the chapter 11 plan as they would in a chapter 7 liquidation.”). 
37.
Five factors are often cited by the Third Circuit to guide the Court in determining 
whether proposed third-party releases are appropriate under a plan: 
(1) an identity of interest between the debtor and released party such that a 
suit against the released party will deplete the estate’s resources; 
(2) a substantial contribution to the plan by the released party; 
(3) the necessity of the release to the reorganization, to the extent that, 
without the release, there is little likelihood of success; 
(4) the overwhelming acceptance of the plan and release by creditors and 
interest holders; and 
(5) the payment of all or substantially all of the claims of the creditors and 
interest holders under the plan.   
In re Washington Mutual, Inc., 442 B.R. 314, 346 (Bankr. D. Del. 2011) (citing In re Zenith Elec. 
Corp., 241 B.R. 92, 110 (Bankr. D. Del. 1999); In re Master Mortgage Inv. Fund, Inc., 168 B.R. 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 10 of 15

-11- 
30305312v.5
930, 937 (Bankr. W.D. Mo. 1994)). These five factors “are neither exclusive nor conjunctive 
requirements, but simply provide guidance in the Court's determination of fairness.” In re 
Washington Mutual, Inc., 442 B.R. at 346 (citing Master Mortgage, 168 B.R. at 935). 
38.
Here, the Plan includes the proposed releases of third-party claims without 
accounting for whether, and/or to what extent, the benefit derived from providing such releases 
and to what extent the claims being released would be available for recovery in a chapter 7 
liquidation.   
The Plan Fails to Address the Putative Class Claims 
39.
Third, the Plan fails to account for the fact that Debtors failed to timely and 
competently process loan forgiveness applications on behalf of borrowers, such as the Plaintiffs.  
The Plan simply ignores this glaring issue.  Instead of correcting the Debtors continued failure to 
implement forgiveness of the PPP loans to the Plaintiffs (the “Plaintiffs’ PPP Loans”), the Plan 
proposes to use these loans as collateral for Reserve Bank Claims.   
40.
The Plaintiffs’ PPP Loans should be forgiven.  To the extent that the Plaintiffs’ 
PPP Loans are transferred to Reserve Bank, they should be done without any release or waiver of 
claims by Plaintiffs – specifically that the Plaintiffs’ PPP loans are forgiven and Plaintiffs are no 
longer obligated to pay such loans.  However, the Plan not only proposes to transfer the Plaintiffs’ 
PPP Loans to Reserve Bank, but also proposes to release claims against Reserve Bank (see Plan, 
§§ 1.102, 10.5, and 10.6).  There is no basis for providing this release and no showing that it is in 
the best interests of creditors.  In fact, as regards the Plaintiffs, the release is likely to increase the 
burden associated with correcting the Debtors’ failure to have the Plaintiffs’ PPP Loans forgiven. 
41.
To the extent that the Plaintiffs’ PPP Loans are not transferred to Reserve Bank, 
but are transferred to the Wind Down Estates, the transfer should occur without any release or 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 11 of 15

-12- 
30305312v.5
waiver of claims by Plaintiffs.  Similar to the release of claims involving Reserve Bank, the Plan 
proposes to release claims against property transferred to the Wind Down Estates (see Plan § 
10.1(a)).  There is no basis for providing this release as it relates to Plaintiffs’ PPP Loans and no 
showing that it is in the best interests of creditors.  As with the release of claims against Reserve 
Bank, the release of claims related to the forgiveness of the Plaintiffs’ PPP Loans is likely to 
increase the burden associated with correcting the Debtors’ failure to have the Plaintiffs’ PPP 
Loans forgiven and is not in the best interest of the Plaintiffs. 
42.
Significantly, the Debtors have failed to show how creditors are better under the 
Plan with the transfer of the Plaintiffs’ PPP Loans and corresponding waivers to Reserve Bank 
and the Wind Down Estate; rather, than a liquidation under chapter 7.  Accordingly, for this reason 
as well as Debtor’s failure to provide a liquidation analysis and the Plan’s unjustified third-party 
releases, the Plan fails under section 1129(a)(7)(A)(ii).   
43.
As the Debtors have not shown the Plan complied with either requirement under 
section 1129(a)(7), confirmation of the Plan should be denied.  
II.
The Plan Cannot be Confirmed Because the Debtors Have Not Shown That it is 
Fair and Equitable in Compliance with 11 U.S.C. § 1129(b) 
44.
As stated above, the Court may confirm non-consensual plans only if it determines 
that there has been compliance with the applicable requirements of section 1129(b) of the 
Bankruptcy Code.  See 11 U.S.C. § 1129. With respect to unsecured creditors, § 1129(b)(2)(B) 
provides that a plan is fair and equitable with respect to a class if “(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 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 12 of 15

-13- 
30305312v.5
debtor is an individual, the debtor may retain property included in the estate under section 1115 . 
. . .”  Id.  This provision is often referred to as the “absolute priority rule.”  
45.
A plan unfairly discriminates in violation of Bankruptcy Code section 1129(b) if it 
provides materially different treatment for creditors and interest holders with similar legal rights 
without compelling justifications for doing so.  In re Hercules Offshore, Inc., 565 B.R. 732, 766 
(Bankr. D. Del. 2016). 
46.
The reasons for denying confirmation under section 1129(a)(7) of the Bankruptcy 
Code are similarly applicable to consideration of confirmation under section 1129(b) of the 
Bankruptcy Code.  Simply stated, the Plan cannot be considered equitable without a sufficient 
liquidation analysis and with unjustified releases that burden General Unsecured Creditors, such 
as the Plaintiffs.   
47.
In addition, the Plan provides for two classes of interests in the GUC Pool and 
prioritizes Reserve Bank’s GUC Pool Class A Interests over General Unsecured Creditor’s GUC 
POOL Class B Interests.  As it’s currently structured, the Plaintiffs and the other General 
Unsecured Creditors will only receive distributions from the GUC Pool after Reserve Bank’s 
claims, known and unknown, are paid in full.  While the Debtors are clearly eager to have Reserve 
Bank’s support for the Plan, there is no basis to allow Reserve Bank Claims in unknown amounts 
and presume that such claims have secured and/or priority status.  Creditors are left unable to verify 
whether the arrangements reached between the Debtors and Reserve Bank are fair and equitable 
or unjustly prejudice General Unsecured Creditors. 
48.
Specifically, to the extent that any portion of Reserve Bank Claims, including the 
Unknown Reserve Bank Claims, are not entitled to priority status and are simply General 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 13 of 15

-14- 
30305312v.5
Unsecured Claims, Reserve Bank should not receive Distributions for such claims in advance of 
other holders of General Unsecured Claims.   
49.
Similarly, there is no basis for Reserve Bank to receive Distributions from 
recoveries related to Avoidance Actions.  Reserve Bank’s pre-petition liens would not have 
attached to these Causes of Action.  It would be inequitable to allow Reserve Bank to recover from 
Avoidance Actions based on a secured claim prior to General Unsecured Creditors.     
50.
Moreover, the Plaintiffs and other General Unsecured Creditors have no voice in 
the decisions regarding pursuit of Avoidance Actions, which appear to be the primary means for 
funding the GUC Pool.  Instead, the Plan dictates that decision will be made by the Wind Down 
Officer subject to the “consent and consultation” of the Reserve Bank, the U.S. Department of 
Justice, the Small Business Administration, and CRB.  See Plan, § 5.8.  The rights of General 
Unsecured Creditors are not represented at all on this matter despite the consequential effect it will 
have on the funding of any Distributions to General Unsecured Creditors under the Plan.  
51.
Fairness and equity require that unknown and potentially unsecured claims of 
Reserve Bank not receive priority, in the form of a “GUC Pool Class A Interest” or recoveries 
from Avoidance Actions over the claims of other General Unsecured Creditors, such as the 
Plaintiffs.  Moreover, the Plan should provide for the representation of the General Unsecured 
Creditors in a manner that represents their interests in funding and distributions of the GUC Pool. 
52.
For the reasons set forth below, the Plan fails to satisfy the absolute priority rule 
and general requirements of section 1129(b) and, accordingly, should not be confirmed. 
RESERVATION OF RIGHTS 
53.
The Plaintiffs do not waive any, and expressly reserve all, rights and defenses under 
applicable law or otherwise.  The Plaintiffs further reserve all rights to assert any and all such 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 14 of 15

-15- 
30305312v.5
rights and defenses in any appropriate manner or forum whatsoever, including the right to raise 
and respond to the issues relating to the Plan in the Putative Class Litigation and any procedurally 
appropriate contested matter and/or adversary proceeding. 
54.
The Plaintiffs reserve their right to right to amend, modify, supplement, amend, 
and/or withdraw this Objection and to introduce evidence at any hearing related to the Plan.  The 
Plaintiffs also expressly reserve the right to adopt any other confirmation objections filed by any 
other party.   
CONCLUSION 
For the reasons set forth above, the Plan does not satisfy the requirements of 11 U.S.C. § 
1129 and should not be confirmed. 
WHITE AND WILLIAMS LLP 
ROCHELLE L. GUMAPAC (#4866) 
600 N. King Street, Suite 800 
Wilmington, DE  19801 
Telephone: (302) 467-4531 
Facsimile: (302)467-4559 
gumapacr@whiteandwilliams.com
Attorney for Lead Plaintiffs and Putative Class 
Members  
Dated February, 21, 2023 
Case 22-10951-CTG    Doc 548    Filed 02/21/23    Page 15 of 15

File and source

File

gov.uscourts.deb.188293.548.0.pdf

Size

266,869 bytes

SHA-256

ec30b20dfcb8fca37e6fc6ef28aa302aa973ea0efda53d6d648862be85756270

Our copy

gov.uscourts.deb.188293.548.0.pdf

Original

archive.org