Motion Of Debt, Doc. 84-1 — In re KServicing Wind Down Corp., et al.
- Date
- 2022-10-06
Summary
Doc 84-1, filed October 6, 2022 in In re Kabbage, Inc. d/b/a KServicing, et al., Case No. 22-10951-CTG, in the U.S. Bankruptcy Court for the District of Delaware, is Exhibit A: the debtors' motion for interim and final orders authorizing them to continue using their existing cash management system, bank accounts and business forms. The motion cites sections 105(a), 345 and 363 of the Bankruptcy Code and asks for an extension of time to comply with section 345(b). It describes a cash management system of 15 Bank Accounts, 13 at Synovus, one at Primis Bank and one at Celtic Bank, handling PPP loan servicing, SBA forgiveness and guaranty payments, and remittances to the Federal Reserve Bank of San Francisco under the PPPLF. The 46-page document ends with a proposed final order, Exhibit C listing the bank accounts, and Exhibit D, a cash management system diagram.
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Case 22-10951-CTG Doc 84-1 Filed 10/06/22 Page 1 of 46
EXHIBIT A
Motion
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
------------------------------------------------------------ x
In re : Chapter 11
:
KABBAGE, INC. d/b/a KSERVICING, et al., : Case No. 22-10951 ( )
:
:
Debtors.1 : (Joint Administration Requested)
------------------------------------------------------------ x
MOTION OF DEBTORS FOR ENTRY OF INTERIM AND
FINAL ORDERS (I) AUTHORIZING DEBTORS TO (A) CONTINUE
USING EXISTING CASH MANAGEMENT SYSTEM, BANK ACCOUNTS,
AND BUSINESS FORMS, (B) IMPLEMENT CHANGES TO CASH MANAGEMENT IN
THE ORDINARY COURSE OF BUSINESS; AND (II) GRANTING RELATED RELIEF
Kabbage, Inc. d/b/a KServicing and its debtor affiliates, as debtors and debtors in
possession in the above-captioned chapter 11 cases (collectively, the “Debtors” and, together with
their non-Debtor affiliates, the “Company”), respectfully move and represent as follows in support
of this motion (this “Motion”):2
Relief Requested
1. By this Motion, the Debtors request authority pursuant to sections 105(a),
345, and 363 of title 11 of the United States Code (the “Bankruptcy Code”), Rules 6003 and 6004
of the Federal Rules of Bankruptcy Procedure (the “Bankruptcy Rules”), and Rule 2015-2 of the
Local Rules of Bankruptcy Practice and Procedure of the United States Bankruptcy Court for the
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); 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
The facts and circumstances supporting the relief requested herein are set forth in the First Day Declaration (as
defined below) filed contemporaneously herewith. Capitalized terms used but not defined herein shall have the
respective meanings ascribed to such terms in the First Day Declaration (as defined below).
Docket No. 12
Filed: 10/3/22
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District of Delaware (the “Local Rules”) but not direction, to (i) continue using their existing cash
management system (the “Cash Management System”), as described herein, including through
the continued maintenance of their bank accounts (the “Bank Accounts”) at the applicable
financial institutions (collectively, the “Banks”), consistent with the Debtors’ prepetition
practices, (ii) grant an extension of the time to comply with certain requirements of section 345(b)
of the Bankruptcy Code, and (iii) granting related relief.
2. The Debtors further request that the Court (a) authorize the Banks to
receive, process, honor, and pay all checks presented for payment and electronic payment requests
relating to the foregoing to the extent directed by the Debtors in accordance with this Motion, and
to the extent the Debtors have sufficient funds on deposit in their accounts with such Bank, whether
such checks were presented or electronic requests were submitted before or after the date hereof,
and (b) authorize all Banks to rely on the Debtors’ designation of any particular check or electronic
payment request as appropriate pursuant to this Motion without any duty of further inquiry and
without liability for following the Debtors’ instructions.
3. In addition, to the extent necessary, the Debtors request authority to
unilaterally make ordinary course changes to the Cash Management System, such as opening or
closing their accounts in accordance with the Debtors’ prepetition practices and the terms of the
Proposed Orders.
4. A proposed form of order granting the relief requested herein on an interim
basis is annexed hereto as Exhibit A (the “Proposed Interim Order”), and a proposed form of
order granting the relief requested herein on a final basis is annexed hereto as Exhibit B
(the “Proposed Final Order” and, together with the Proposed Interim Order, the “Proposed
Orders”).
2
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Jurisdiction and Venue
5. The Court has jurisdiction to consider this matter pursuant to
28 U.S.C. §§ 157 and 1334, and the Amended Standing Order of Reference from the United States
District Court for the District of Delaware, dated February 29, 2012. This is a core proceeding
pursuant to 28 U.S.C. § 157(b). Pursuant to Rule 9013-1(f) of the Local Rules, the Debtors consent
to the entry of a final order by the Court in connection with this Motion if it is later determined
that the Court, absent consent of the parties, cannot enter final orders or judgments consistent with
Article III of the United States Constitution. Venue is proper before the Court pursuant to
28 U.S.C. §§ 1408 and 1409.
Background
6. On the date hereof (the “Petition Date”), the Debtors commenced with the
Court voluntary cases under chapter 11 of the Bankruptcy Code (the “Chapter 11 Cases”). The
Debtors are authorized to continue operating their business and managing their properties as
debtors in possession pursuant to sections 1107(a) and 1108 of the Bankruptcy Code. No trustee,
examiner, or statutory committee has been appointed in these Chapter 11 Cases.
7. Contemporaneously herewith, the Debtors have filed a motion requesting
joint administration of their Chapter 11 Cases pursuant to Rule 1015(b) of the Bankruptcy Rules
and Rule 1015-1 of the Local Rules.
8. Additional information regarding the Debtors’ business, 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 Debtors’ Chapter 11 Petitions and First
Day Relief (the “First Day Declaration”), filed contemporaneously herewith.
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Cash Management System and Bank Accounts
A. Cash Management System
9. In broad terms, the Debtors’ Cash Management system is similar to cash
management systems used by other mortgage lending and servicing businesses: the Debtors’ Cash
Management System collects, concentrates, and disburses funds related to (a) servicing loans
which have been issued through the United States’ federal government Paycheck Protection
Program (“PPP”), (b) borrower payments made on account of PPP loans, (c) forgiveness of PPP
loans made by the Small Business Association (“SBA”), (d) guarantee payments of PPP loans
made by the SBA, and (e) borrower payments on account of non-PPP small business loans (the
“Legacy Loans”). In addition, the Cash Management System enables the Debtors to track the
collection and disbursement of funds, which is necessary so the Debtors can monitor and forecast
their cash needs, engage in cash reporting, and maintain control over the administration of their
Bank Accounts.
10. The Cash Management System is comprised of 15 Bank Accounts, 13 of
which are maintained at Synovus Financial Corp. (“Synovus”), one of which is maintained at
Primis Bank (“Primis Bank”), and one of which is maintained at Celtic Bank (“Celtic Bank”).
a. Primis Bank Account: The Primis Bank is a correspondent bank3 account
established on account of the Debtors’ participation in the Paycheck
Protection Program Liquidity Facility (the “PPPLF”) pursuant to which PPP
loans originated by the Debtors, are pledged as collateral under the Paycheck
Protection Program Liquidity Facility (“PPPLF Collateral”) (“PPPLF
Loans”) pursuant to (a) that certain Paycheck Protection Program Liquidity
Facility Letter of Agreement (the “PPPLF Letter of Agreement”), dated
May 12, 2020 (as amended January 14, 2021), by and among KServicing
and the Federal Reserve Bank of San Francisco (the “Reserve Bank”), and
(b) the Federal Reserve’s Operating Circular No. 10, effective July 16, 2013
3
A correspondent bank acts as an intermediary or agent by facilitating transfers, conducting business transactions,
accepting deposits, and gathering documents on behalf of another bank. Correspondent bank relationships are
common for banking and nonbanking institution to transact with the Reserve Bank and other Federal Reserve
Banks. Outside of this context, correspondent bank relationships are less common and are not publicly disclosed.
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(the “Operating Circular” and, together with the PPPLF Letter of
Agreement, the “PPPLF Program Agreements”). Prior to the Petition
Date, Primis Bank unilaterally provided the Debtors with a notice of
termination (effective as of October 20, 2022). Since that time, the Debtors
have sought to replace Primis Bank as the correspondent bank with
Synovus—the Debtors’ main banking institution. The Debtors have
contacted numerous other banks to inquire if correspondent bank
relationships were offered, but were unsuccessful. As of the Petition Date,
the Debtors are still in the process of replacing Primis Bank with another
correspondent bank, and, for the avoidance of doubt, request authority to
continue such replacement process during the post-petition period.
b. Synovus Bank Accounts: The remaining 13 Bank Accounts are comprised
of the Debtors’ various operating, servicing, and disbursement accounts (as
detailed in paragraph 15 hereof).
c. Celtic Bank Account: The Celtic Bank Escrow Account consists of funds
held in escrow for the benefit of Celtic Bank on account of any potential
indemnification obligations relating to the Legacy Loans originated – and
now subserviced – by the Debtors after purchasing those loans from Celtic
Bank.
d. A list of the Bank Accounts is annexed hereto as Exhibit C.
11. As further detailed in the Motion of Debtors for Interim and Final Orders
Authorizing Debtors to (I) Continue Servicing and Subservicing Activities and (II) Perform
Related Obligation, filed contemporaneously herewith, with regard to the PPPLF Loans pledged
to the Reserve Bank under the PPPLF Program Agreements, historically, the Debtors receive funds
from the SBA on account of guaranty purchase and loan forgiveness applications granted by the
SBA (the “SBA Funds”), which constitute proceeds of the PPPLF Collateral pledged to the
Reserve Bank. In turn, the Debtors historically have remitted a portion of the funds to the Reserve
Bank on a weekly basis, which is inclusive of principal payments and 35 basis points of interest
earned on account of the advances of credit made by the Reserve Bank to the Debtors under the
PPPLF. However, prior to the Petition Date, the Debtors and the Reserve Bank, in accordance
with the relevant loan agreements, instructed the SBA to remit SBA Funds directly to the Reserve
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Bank on a regular basis (the “Direct SBA-Reserve Bank Payments”). As of the Petition Date,
the Debtors are still in the process of instituting changes to the Direct SBA-Reserve Bank
Payments systems to address the implications of the direct payments, and, for the avoidance of
doubt, request authority to continue such process during the post-petition period. Notwithstanding
historical practices, the Debtors will segregate all proceeds of the PPPLF Collateral that the
Debtors receive in the Synovus Servicing Account for the sole benefit of the Reserve Bank.4
12. Although many aspects of the Cash Management System are automated,
personnel in the Debtors’ executive team monitor the system and manage the proper collection,
processing and disbursement of funds, check processing and issuance, wire transfers, and
automated clearing house (“ACH”) transactions. The Cash Management System is critical to the
operation of the Debtors’ business in the ordinary course as it facilitates the (i) streamlined
concentration and transfer of payments and fees generated and collected by the Debtors’ business,
and (ii) efficient collection and disbursement of funds such as payments owed to the Reserve Bank,
Partner Banks, vendors, and other general and administrative expenses. Any changes to the Cash
Management System, other than instituting the Direct SBA-Reserve Bank Payments and
segregating proceeds of the PPPLF Collateral, would significantly interfere with the Debtors’
business, and impede a successful reorganization.
B. Cash Collection, Concentration, and Disbursements
13. As set forth in the First Day Declaration, the Debtors’ primary source of
income includes interest generated from servicing PPP loans, which includes reviewing and
processing loan applications and payments as required pursuant to various servicing agreements
4
To extent that the Company receives any borrower collections on account of KS PPP Loans through the Synovus
Servicing Account such funds shall be promptly segregated from any proceeds of the PPPLF Collateral.
6
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with public and private lenders. The Debtors also previously earned income from loan origination;
however, they have since discontinued originating loans. The Debtors’ revenues and receipts
generally enter the Cash Management System via direct deposit by borrowers on account of PPP
loans and Legacy Loans, and by the SBA on account of the SBA Funds.
14. The majority of receipts relating to PPP loans and Legacy Loans are
ultimately deposited into and disbursed from the Synovus Main Operating Account (the “Main
Operating Account”) as follows:
a. Direct Deposits. The Main Operating Account directly receives the SBA
Funds which are then remitted to the Reserve Bank as described above on a
weekly basis.
b. Indirect Deposits. The Main Operating Account receives funds from various
subaccounts. Specifically, the Main Operating Account receives funds on
an as needed basis from the (i) Legacy Lending ACH Account, which
collects and centralizes borrower payments made on account of Legacy
Loans, and (ii) Synovus Servicing Account, which collects borrower
payments made on account of the KS PPP Loans and the PPPLF Loans. The
Main Operating Account also receives funds on an as needed basis from the
Synovus Customers Bank Servicing Account (the “Synovus CUBI
Servicing Account”) and Synovus Cross River Bank Servicing Account (the
“Synovus CRB Servicing Account”), which collects borrower payments
made on account of Partner Bank PPP Loans. Funds from each of the
foregoing accounts are deposited on an as needed basis into the Main
Operating Account; however, funds from the Synovus CUBI Servicing
Account and Synovus CRB Servicing Account were last deposited in April.
c. Disbursements. The Main Operating Account (i) disburses (a) the SBA
Funds owed to the Reserve Bank on a weekly basis, and (b) ordinary course
payments related to vendors, and (ii) is directly debited to satisfy payroll
obligations for each respective pay period. The Main Operating Account
also historically disbursed payments owed to Partner Banks on a monthly
basis.
15. Each Bank Account is held in the name of KServicing, Inc. A diagram
illustrating the general movement of cash through the Cash Management System is annexed hereto
as Exhibit D, and a more detailed description is set forth in the chart below.
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Accounts Description of Bank Accounts
The Main Operating Account acts as the Debtors’ centralized account,
which collects and disburses funds.
The Main Operating Account receives funds from the (i) Legacy
Lending ACH Account, which collects various payments on Legacy
Loans, and (ii) Synovus Servicing Account, which collects borrower
Main Operating payments on KS PPP Loans and the PPPLF Loans (on a limited basis,
Account as described further below). The Main Operating Account also receives
(i) the SBA Funds, some of which are remitted to the Reserve Bank on
a weekly basis (subject to limited exception described directly below),
Synovus and (ii) borrower payments on account of Partner Bank loans, which
(account ending are remitted on a monthly basis.
5201) The Main Operating Account also disburses (i) ordinary course
payments such as vendor expenses, and (ii) SBA Funds to the Reserve
Bank as described below. Further, the Main Operating Account is
directly debited to satisfy the Debtors’ payroll obligations.
As of the Petition Date, the Main Operating Account had a balance of
approximately $17,623,381.07.
The Primis Account is a correspondent bank account established in
connection with the Debtors’ participation in the PPPLF.
Amounts from the Main Operating Account on account of SBA Fees
and borrower payments that need to be sent to the Reserve Bank are
wired to the Primis Account. The Primis Account is funded on a weekly
basis with the estimated funds to be remitted to the Reserve Bank. In
Primis Account connection with the weekly wire, the Debtors simultaneously send
reduction reports to both the Reserve Bank and Primis Bank, which
report the value of payments received on the PPPLF Loans on account
Primis of the outstanding principal loan balance. Following this funding, the
(account ending Reserve Bank directly debits funds from Primis Bank’s master account
0578) at the Reserve Bank, and Primis Bank directly debits from the Primis
Account held by KServicing a corresponding amount based upon
information KServicing provides in the reduction reports.
There is no overdraft protection on the Primis Account. In the event of
an overdraft, payment will not be processed.
As of the Petition Date, the Primis Account had a balance of
approximately $12,427,329.17.
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Accounts Description of Bank Accounts
The Legacy Lending ACH Account consists of funds collected from
borrower payments made on account of certain of the Debtors’ Legacy
Loans. The Legacy Lending ACH Account (a) remits payments to
partners HCG and Stoneridge for their portion of collections on a daily
Legacy Lending basis5, and (b) issues refunds to borrowers in the event of overpayment
ACH Account on an as needed basis.
Synovus The Legacy Lending ACH Account also collects funds from the
(account ending (a) Agency Payments Account, (b) Debit Rails Account, and (c) Other
5243) Customer Payments Account. The funds from the foregoing accounts
are swept on a daily basis into the Legacy Lending ACH Account and
then remitted to the Main Operating Account on an as-needed basis.
As of the Petition Date, the Legacy Lending ACH Account had a
balance of approximately $2,942,128.81.
The Debit Rails Account consists of funds collected on account of
advances made by the Debtors to landlords that own and operate rental
properties through Airbnb. The Debtors advance rental income to
Debit Rails landlords of Airbnb properties, and upon receiving rental receipts, the
Account landlords make payments to the Debit Rails Account from such rental
Synovus income.
(account ending The Debit Rails Account is a “Zero Balance Account”, and any funds
5219) are swept into the Legacy Lending ACH Account on a daily basis.
As of the Petition Date, the Debit Rails Account had a balance of
approximately $0.
5
As a non-Federal Deposit Insurance Corporation financial institution, the Company partnered with Celtic in an
arrangement whereby: the Company processed borrower Legacy Loan applications, funded the Legacy Loans through
the purchase of participation interests in loan receivables (the “Participation Interests”)—effectively acquiring the
rights to retain borrower principal and interest payments, with Celtic as the lender of record—and subsequently
serviced the Legacy Loans. Following the purchase of Participation Interests under the Legacy Loan Agreement, the
Company’s records show that it sold some of the Participation Interests to HCG Business Credit III Trust and Stone
Ridge Trust V.
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Accounts Description of Bank Accounts
The Agency Payments Account consists of funds collected by certain
collection agencies on account of certain of the Debtors’ Legacy Loans.
Collection agencies are engaged by the Debtors to collect payments on
Agency Payments Legacy Loans where a borrower has not made a loan payment for 6
Account consecutive months
Synovus The Agency Payments Account is also a Zero Balance Account, and
(account ending any funds are swept into the Legacy Lending ACH Account on a daily
5235) basis.
As of the Petition Date, the Agency Payments Account had a balance
of approximately $0.
The Other Customer Payments Account consists of funds collected
from borrower payments in the form of checks made on account of the
Other Customer Debtors’ Legacy Loans.
Payments
The Other Customer Payments Account is also a “Zero Balance
Synovus Account”, and any funds are swept into the Legacy Lending ACH
(account ending Account on a daily basis.
5227)
As of the Petition Date, the Other Customer Payments Account had a
balance of approximately $0.
The Celtic Bank Escrow Account consists of funds held in escrow for
Celtic Bank the benefit of Celtic Bank on account of any potential indemnification
Escrow Account obligations relating to the Legacy Loans originated – and now
Synovus subserviced – by the Debtors after purchasing those loans from Celtic
Bank.
(account ending
0842) As of the Petition Date, the Celtic Bank Escrow Account had a balance
of approximately $2,088,364.
The Synovus Servicing Account collects payments made by borrowers
on KS PPP Loans and the PPPLF Loans. These funds are then
Synovus Servicing deposited into the Main Operating Account, and subsequently
Account transferred to the Primis Account on a weekly basis for remittance to
the Reserve Bank as described above.
The Synovus Servicing Account is used to (a) issue direct refunds to
Synovus borrowers in the event of borrower overpayment on a daily basis and
(account ending (b) transfer funds collected on account of borrower payments to the
5276) SBA where the SBA has granted a guaranty purchase of such loan.
As of the Petition Date, the Synovus Servicing Account had a balance
of approximately $5,969,694.41.
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Accounts Description of Bank Accounts
The Synovus CUBI Servicing Account collects payments made by
borrowers on loans (a) originated by and/or sold to Customers Bank
(“CUBI”) and (b) serviced by the Debtors on behalf of CUBI. These
collections are made on each banking day and then subsequently
transferred to the Main Operating Account on an as needed basis
Synovus CUBI
depending on the Main Operating Account balance to be remitted to
Servicing Account
CUBI on a monthly basis. However, the Debtors are not currently
remitting such funds to CUBI at this time.6
Synovus The Synovus CUBI Servicing Account is also used to (a) issue direct
(account ending refunds to borrowers in the event of borrower overpayment on a daily
5250) basis, and (b) transfer funds collected on account of borrower payments
to the SBA where the SBA has granted a guaranty purchase of such
loan.
As of the Petition Date, the Synovus CUBI Servicing Account had a
balance of approximately $4,546,982.23.
The Synovus CRB Servicing Account collects payments made by
borrowers on loans (a) originated by and/or sold to Cross River Bank
(“CRB”), and (b) serviced by the Debtors on behalf of CRB. These
collections are made on each banking day and then subsequently
Synovus CRB transferred to the Main Operating Account on an as needed basis
Servicing Account depending on the Main Operating Account balance to be remitted to
CRB on a monthly basis.
Synovus
(account ending The Synovus CRB Servicing Account is also issued to (a) issue direct
5268) refunds to borrowers in the event of borrower overpayment on a daily
basis, and (b) transfer funds collected on account of borrower payments
to the SBA where the SBA has granted guaranty purchase of such loan.
As of the Petition Date, the Synovus CRB Servicing Account had a
balance of approximately $11,038,446.44.
The Kabbage Bridge Account historically contained funds deposited by
Kabbage Bridge the Debtors to front any funds for PPP Loans originated by the Debtors.
Funding
The Debtors no longer deposit funds into this account; the account is
Synovus dormant and there is no activity.
(account ending
5987) As of the Petition Date, the Kabbage Bridge Funding account had a
balance of $0.
6
As described in the First Day Declaration, the Debtors are currently withholding borrower payments to CUBI in the
amount of approximately $34,000,000 to offset $65 million in fees that CUBI is currently withholding from the
Debtors because of the Debtors’ alleged mishandling of PPP Loans.
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Accounts Description of Bank Accounts
The CUBI Loan Disbursements Account contains funds deposited by
CUBI to issue and fund CUBI originated loans, which were to be
CUBI Loan
serviced by the Debtors.
Disbursements
Account CUBI no longer deposits funds into this account; the account is dormant
and there is no activity.
Synovus
(account ending As of the Petition Date, the CUBI Loan Disbursements Account had a
5946) balance of approximately $153,476.50.
The Kabbage Loan Disbursement Account contains funds deposited by
the Debtors to issue PPP Loans they originated in the ordinary course
Kabbage Loan of business.
Disbursement
The Debtors no longer deposit funds into this account; the account is
Synovus dormant and there is no activity.
(account ending
As of the Petition Date, the Kabbage Loan Disbursement Account had
5953)
a balance of $135,413.50 as of the Petition Date.
Historically, the SBA Fees Account was used to collect fees for
KServicing originated loans. The SBA Fees Account collected fees
upfront on account of the KServicing originated loans, and also
SBA Fees Account received funds on account of loans that were cancelled and
Synovus subsequently reissued.
(account ending Funds are no longer being deposited into this account; the account is
5458) dormant and there is no activity.
As of the Petition Date, the SBA Fees Account had a balance of
approximately $311,430.76.
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Accounts Description of Bank Accounts
The Utility Deposit Escrow Account is a spare account that is no longer
in use. The Debtors no longer deposit funds into this account; the
account is dormant and there is no activity.
The Debtors are proposing to use the Utility Deposit Escrow Account
Utility Deposit for the Adequate Assurance Deposit for their Utility Providers as set
Escrow Account forth in the Motion of the Debtors for Entry of Interim and Final Orders
Synovus (I) Approving Debtors’ Proposed Form of Adequate Assurance of
(account ending Payment to Utility Providers, (II) Establishing Procedures for
5441) Resolving Objections by Utility Providers, (III) Prohibiting Utility
Providers from Altering, refusing, or Discontinuing Service, and (IV)
Granting Related Relief filed contemporaneously herewith.
As of the Petition Date, the Utility Deposit Escrow Account had a
balance of $0.
16. The Cash Management System is an essential component of the Debtors’
business. Any interruption of the Cash Management System would severely disrupt the Debtors’
operations, and result in harm to the Debtors’ estates and their stakeholders. Accordingly, the
Debtors seek authority to continue utilizing the Cash Management System in the ordinary course
of business on a post-petition basis, in a manner substantially consistent with past practice.
C. Debtors’ Business Forms
17. In the ordinary course of business, the Debtors use various business forms,
including checks. To minimize the expense to the Debtors’ estates associated with printing or
purchasing entirely new business forms and the delay in conducting business prior to obtaining
such forms, the Debtors seek authority to continue using their business forms without reference
therein to the Debtors’ status as “Debtors-in-Possession.” The Debtors prepared communication
materials to distribute to the various parties with which they conduct business that will, among
other things, inform such parties of the commencement of these Chapter 11 Cases. The Debtors
believe that these direct communications will provide adequate notice of the Debtors’ status as
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debtors in possession. Nevertheless, if the Debtors generate new checks during the pendency of
these Chapter 11 Cases, the Debtors will update any electronically produced check to include a
legend referring to the Debtors as “Debtors-in-Possession”, and the jointly administered
bankruptcy case number within 10 business days of entry of the Proposed Interim Order. Further,
if the Debtors re-order checks during the pendency of these Chapter 11 Cases, the debtors will use
reasonable efforts to include the designation “Debtors -in -Possession”, and the jointly
administered bankruptcy case number on such checks.
D. Bank Fees
18. In the ordinary course of business, the Debtors incur and pay, honor, or
allow to be deducted from the appropriate Bank Accounts certain service charges and other related
fees, costs, and expenses charged by the Banks (collectively, the “Bank Fees”). To the extent the
balance in a Bank Account amount decreases below a threshold established by the applicable Bank,
the Debtors may incur additional fees for sending and receiving wire transfers, clearing checks,
ACH transfers, and other transactions.
19. The Debtors have historically incurred Bank Fees between approximately
$4,000 and $6,000 per month in total for all Bank Accounts, which are withdrawn from the Main
Operating Account on a monthly basis. There are no Bank Fees owed on account of the Primis
Account. As of the Petition Date, the Debtors believe that they have outstanding or unpaid Bank
Fees of approximately $4,000-$6,000. Pursuant to this Motion, the Debtors seek authority to pay
the Bank Fees, including any prepetition Bank Fees, and pay any amounts in the ordinary course
of business.
E. Corporate Credit Card Program
20. Additionally, in the ordinary course of business, the Debtors maintain a
corporate credit card program (the “Corporate Credit Card Program”), pursuant to which
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certain of the Debtors’ employees use credit cards issued by Synovus, to pay expenses related to
office supplies and services, and other work-related subscription costs in connection with the
Debtors’ business operations (collectively, the “Corporate Expenses”).7 The Debtors, and not
the employees, are liable for the Corporate Expenses incurred pursuant to the Corporate Credit
Card Program. The Debtors incur, on average, approximately $5,000 - $10,000 each month on
account of corporate expenses through the Corporate Credit Card Program. Funds are directly
debited from the Main Operating Account to satisfy the requisite payments for the Corporate
Credit Card Program on a monthly basis. As of the Petition Date, the Debtors believe that they
have an outstanding balance of approximately $10,000 on account of the Corporate Credit Card
Program. Pursuant to this Motion, the Debtors seek authority to pay this balance and continue the
Corporate Credit Card Program in the ordinary course of business, so that the Debtors’ employees
may conduct the Debtors’ business, and so that the Debtors may continue to incur vital operation
related expenses.
Relief Requested Should be Granted
A. Continuation of Cash Management System is Warranted Under Sections 363 and
105(a) of the Bankruptcy Code
21. Continuation of the Cash Management System in the ordinary course is an
appropriate exercise of the Debtors’ judgment. Section 363(c)(1) of the Bankruptcy Code
authorizes the debtor in possession to “use property of the estate in the ordinary course of business
without notice or a hearing.” 11 U.S.C. § 363(c)(1). The purpose of section 363(c)(1) is to provide
a debtor in possession with the flexibility to engage in the ordinary transactions required to operate
7
Note that the Corporate Expenses referred to here are incurred directly by the Debtors and therefore are distinct from
expenses that are incurred by the Debtors’ employees and submitted for reimbursement, as further explained in the
Motion of Debtors for Entry of Interim and Final Orders (I) Authorizing Debtors to (A) Pay Prepetition Wages,
Salaries, Employee Benefits, and Other Compensation and (B) Maintain Employee Benefit Programs and Pay Related
Obligations and (II) Granting Related Relied (the “Wages Motion”).
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its business without unneeded oversight by its creditors or the court. In re Roth Am., Inc., 975
F.2d 949, 952 (3d Cir. 1992) (“Section 363 is designed to strike [a] balance, allowing a business
to continue its daily operations without excessive court or creditor oversight and protecting secured
creditors and others from dissipation of the estate’s assets.”) (citations omitted); In re Vision
Metals, Inc., 325 B.R. 138, 145 (Bankr. D. Del. 2005) (same). Included within the purview of
section 363(c) is a debtor’s ability to continue “routine transactions” necessitated by a debtor’s
cash management system. See, e.g., In re Nellson Nutraceutical, Inc., 369 B.R. 787, 796 (Bankr.
D. Del. 2007) (noting that courts have shown a reluctance to interfere in a debtor’s making of
routine, day-to-day business decisions) (citations omitted); In re Vision Metals, 325 B.R. at 142
(“[W]hen a chapter 11 debtor in possession continues to operate its business, as permitted by
section 1108, no court authorization is necessary for the debtor to enter transactions that fall within
the ordinary course of its business.”).
22. Even if the continuation of the Cash Management System and other relief
requested herein were outside the ordinary course of business, the Court may grant such relief
pursuant to section 363(b) of the Bankruptcy Code, which provides, in relevant part, that a debtor
in possession, “after notice and a hearing, may use, sell, or lease, other than in the ordinary course
of business, property of the estate.” 11 U.S.C. § 363(b)(1). To approve the use of assets outside
the ordinary course of business pursuant to section 363(b) of the Bankruptcy Code, courts require
only that the debtor “show that a sound business purpose justifies such actions.” In re Montgomery
Ward Holding Corp., 242 B.R. 147, 153 (D. Del. 1999); see also, e.g., In re Phoenix Steel Corp.,
82 B.R. 334, 335–36 (Bankr. D. Del. 1987) (finding that a sale of equipment was permissible under
section 363(b) of the Bankruptcy Code because “there [wa]s a good business reason for completing
the sale”). Moreover, if “the debtor articulates a reasonable basis for its business decisions (as
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distinct from a decision made arbitrarily or capriciously), courts will generally not entertain
objections to the debtor’s conduct.” In re Johns-Manville Corp., 60 B.R. 612, 616 (Bankr.
S.D.N.Y. 1986); see also In re Tower Air, Inc., 416 F.3d 229, 238 (3d Cir. 2005) (“Overcoming
the presumptions of the business judgment rule on the merits is a near-Herculean task.”).
23. In addition, the Court has the authority, pursuant to its equitable powers
under section 105(a) of the Bankruptcy Code, to authorize the relief requested herein because such
relief is necessary for the Debtors to carry out their fiduciary duties under section 1107(a) of the
Bankruptcy Code. Section 105(a) of the Bankruptcy Code empowers bankruptcy courts to “issue
any order, process, or judgment that is necessary or appropriate to carry out the provisions of this
title.” 11 U.S.C. § 105(a); see also In re Ionosphere Clubs, Inc., 98 B.R. 174, 175 (Bankr.
S.D.N.Y. 1989) (applying section 105(a) to justify an order authorizing the payment of certain
prepetition wages, salaries, medical benefits, and business-expense claims to the debtor’s
employees). Section 1107(a) of the Bankruptcy Code “contains an implied duty of the debtor-in-
possession” to act as a fiduciary to “protect and preserve the estate, including an operating
business’ going-concern value,” on behalf of a debtor’s creditors and other parties in interest. In
re CEI Roofing, Inc., 315 B.R. 50, 59 (Bankr. N.D. Tex. 2004) (quoting In re CoServ, L.L.C., 273
B.R. 487, 497 (Bankr. N.D. Tex. 2002)); see also In re Cybergenics Corp., 226 F.3d 237, 243 (3d
Cir. 2000) (citing In re Marvel Ent. Group, Inc., 140 F.3d 463, 474 (3d Cir. 1998) (“A paramount
duty of a trustee or debtor in possession in a bankruptcy case is to act on behalf of the bankruptcy
estate, that is, for the benefit of the creditors.”)); Unofficial Comm. of Equity Holders v. McManigle
(In re Penick Pharm., Inc.), 227 B.R. 229, 232–33 (Bankr. S.D.N.Y. 1998) (“[U]pon filing its
petition, the Debtor became debtor in possession and, through its management . . . was burdened
with the duties and responsibilities of a bankruptcy trustee.”). Courts consistently have permitted
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payment of prepetition obligations where necessary to preserve or enhance the value of a debtor’s
estate for the benefit of all creditors. See, e.g., In re Lehigh & New Eng. Ry. Co., 657 F.2d 570,
581 (3d Cir. 1981) (holding that “if payment of a claim which arose prior to reorganization is
essential to the continued operation of the [business] during reorganization, payment may be
authorized even if it is made out of [the] corpus”).
24. Maintaining the existing Cash Management System is in the best interests
of the Debtors’ estates and all parties in interest and, therefore, should be approved. If the Debtors
are required to alter the way in which they collect and disburse cash throughout the Cash
Management System, their operations will experience severe disruptions, which ultimately would
frustrate the Debtors’ ability to effectuate their restructuring strategy and maximize the value of
their estates.
25. Further, the Cash Management System provides significant benefits to the
Debtors, including the ability to control corporate costs and administrative expenses by facilitating
the movement of funds and the development of more timely and accurate account information.
Accordingly, the Debtors request that they be permitted to maintain and continue to use their
existing Cash Management System.
B. Maintenance of Debtors’ Existing Bank Accounts and Business Forms is Warranted
26. The Operating Guidelines for Chapter 11 Cases (the “UST Operating
Guidelines”) of the Office of the United States Trustee for Region 3 (the “U.S. Trustee”)
generally require that a chapter 11 debtor, among other things, (a) establish one debtor in
possession account for all estate monies required for the payment of taxes, (b) close all existing
bank accounts and open new debtor in possession accounts, (c) maintain a separate debtor in
possession account for collateral, and (d) obtain checks that bear the designation “Debtor in
Possession.” Moreover, Local Rule 2015-2(a) generally requires that, upon exhausting its existing
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check stock, a chapter 11 debtor order new checks labeled “Debtor in Possession” with the
corresponding bankruptcy number.
27. The Debtors request, in accordance with Local Rule 2015-2, that the Court
waive the requirements of the UST Operating Guidelines with respect to the Debtors’ Bank
Accounts and business forms, including checks. Strict enforcement of the UST Operating
Guidelines with respect to the Cash Management System would severely disrupt the Debtors’
ordinary course financial operations by reducing efficiencies, increasing administrative burdens,
and creating unnecessary expenses. These Chapter 11 Cases will be more orderly and efficient if
the Debtors are permitted to maintain all Bank Accounts with the same account numbers during
these cases and to continue to use their business forms, including checks, in the ordinary course;
provided, that, with respect to checks that the debtors or their agents print themselves, the Debtors
or their agents will begin printing the “Debtor in Possession” legend and include the jointly
administered bankruptcy case number on such checks within ten (10) business days after the date
of entry of the Proposed Interim Order and, to the extent that the Debtors order check stock, the
Debtors will use reasonable efforts to include the “Debtor in Possession” legend and the jointly
administered bankruptcy case number on such checks.
28. By preserving business continuity and avoiding likely disruption and delay
to the Debtors’ disbursements, the relief requested herein will benefit all parties in interest.
C. Continuation of Corporate Credit Card Program and Payment of Prepetition
Amounts Due Thereunder Should Be Authorized
29. The Corporate Credit Card Program is essential to the Debtors’ operations.
The Corporate Credit Card Program enables the Debtors’ employees to conduct business more
efficiently by facilitating the payment of work related expenses and services incurred by the
Debtors that are essential to their ongoing operations. The Corporate Credit Card Program is
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integral to maintaining the Debtors’ ordinary course operations, and a discontinuation of the
program would disrupt the Debtors’ business. Without the program, the Debtors’ employees
would have to pay the work related expenses and services upfront and then wait for reimbursement
from the Debtors. In such case, the Debtors’ operational effectiveness would suffer.
30. Continuation of the Corporate Credit Card Program, and satisfaction of any
prepetition amounts outstanding thereunder, will help minimize any adverse effect of the
commencement of these Chapter 11 Cases on the Debtors’ business. Accordingly, the Debtors
request authority to continue the Corporate Credit Card Program in the ordinary course of business,
and to pay any outstanding prepetition obligations regarding the same.
D. Payment of Bank Fees Should Be Authorized
31. Payment of the Bank Fees, to the extent applicable, is similarly in the best
interests of the Debtors and all parties in interest in these Chapter 11 Cases, as it will prevent
unnecessary disruptions to the Cash Management System, and ensure that the Debtors’ receipt of
and access to funds are not delayed. Payment of prepetition Bank Fees will not prejudice any
parties in interest. Indeed, because the Banks likely have setoff rights for the Bank Fees, payment
of Bank Fees should not alter the rights of unsecured creditors in these Chapter 11 Cases.
Accordingly, the Debtors request authority to pay the Bank Fees and other similar service charges,
including any prepetition Bank Fees, to maintain the Cash Management System.
32. For the foregoing reasons, the relief requested herein is necessary,
appropriate, and in the best interests of the Debtors, their estates, and all other parties in interest in
these Chapter 11 Cases. Accordingly, the Court should authorize the relief requested.
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E. An Extension of Time to Comply with Requirements of Section 345(b) of the
Bankruptcy Code is Warranted
33. Section 345 of the Bankruptcy Code governs a debtor’s deposits and
investments of cash during a chapter 11 case, and authorizes such deposits as “will yield the
maximum reasonable net return on such money, taking into account the safety of such deposit or
investment.” 11 U.S.C. § 345(a). For deposits that are not “insured or guaranteed by the United
States or by a department, agency, or instrumentality of the United States or backed by the full
faith and credit of the United States,” section 345(b) of the Bankruptcy Code requires that the
debtor obtain from the “entity with which such money is deposited or invested a bond in favor of
the United States [that is] secured by the undertaking of a[n adequate] corporate surety, . . . unless
the court for cause orders otherwise.” 11 U.S.C. § 345(b). Additionally, the UST Operating
Guidelines generally require chapter 11 debtors, among other things, to deposit all estate funds
into an account with an authorized depository that agrees to comply with the requirements of the
U.S. Trustee.
34. The Debtors are aware that the Banks have not been approved by the U.S.
Trustee as authorized depositories, however, requiring the Debtors to move funds to other financial
institutions would disrupt the Cash Management System and inhibit the Debtors’ ability to operate
efficiently and economically, as the Bank Accounts are the principal operating accounts utilized
by the Debtors. Further, given the nature of the Debtors’ business, moving funds from the existing
Bank Accounts may cause confusion with collection of payments or delay in processing payments.
In addition, with respect to the Reserve Bank, the Debtors are required to maintain an account at a
depository institution which has agreed to serve as a correspondent for the Debtors. Therefore,
moving funds to a non-correspondent bank would jeopardize the Debtors’ business operations with
respect to the Reserve Bank.
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35. The Debtors propose to engage in discussions with the U.S. Trustee to
determine what modifications to the Bank Accounts, if any, are necessary under the
circumstances.8 To the enable such discussions, the Debtors request a 45-day extension from the
entry of the Proposed Interim Order (or such additional time to which the U.S. Trustee may agree
or the Court may order) of the time period in which to come into compliance with section 345(b)
of the Bankruptcy Code, to make arrangements that would be acceptable to the U.S. Trustee, or to
seek relief from this Court. The Debtors submit that such relief is warranted in these Chapter 11
Cases.
36. In chapter 11 cases such as these, strict adherence to the requirements of
section 345(b) of the Bankruptcy Code would be inconsistent with the value-maximizing purpose
of chapter 11 by creating additional administrative expense and burden, and unduly hampering a
debtor’s ability under section 345(a) to invest money such “as will yield the maximum reasonable
net return on such money.” As a result, in 1994, to avoid “needlessly handcuff[ing] larger, more
sophisticated debtors,” Congress amended section 345(b) to provide that its strict investment
requirements may be waived or modified if the court so orders “for cause.” 140 Cong. Rec. H.
10,767 (Oct. 4, 1994). The Debtors submit cause exists here to warrant such relief.
37. For the foregoing reasons, the relief requested herein is necessary,
appropriate, and in the best interests of the Debtors, their estates, and all other parties in interest in
these Chapter 11 Cases. Accordingly, the Court should authorize the relief requested.
8
The Debtors reserve all rights with respect to whether any of the Bank Accounts are non-approved authorized
depositories, and whether and to the extent to which modifications to any such Bank Accounts are appropriate or
necessary.
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F. Banks Should Be Authorized to Receive, Process, Honor, and Pay Checks Issued
and Transfers Requested to Pay Obligations Related to Cash Management System
38. The Debtors further request that the Court authorize the Banks to receive,
process, honor, and pay any and all checks issued, or to be issued, and electronic funds transfers
requested, or to be requested, by the Debtors relating to the Cash Management System, to the
extent that sufficient funds are on deposit in the applicable Bank Accounts to cover such payment.
The Debtors also seek authority to issue new post-petition checks or effect new post-petition
electronic funds transfers in replacement of any checks or fund transfer requests on account of
prepetition obligations relating to the Cash Management System that are dishonored or rejected as
a result of the commencement of the Debtors’ Chapter 11 Cases.
Reservation of Rights
39. Nothing contained herein is intended or shall be construed as (a) an
admission as to the validity of any claim against the Debtors; (b) a waiver of the Debtors’ or any
appropriate party in interest’s rights to dispute the amount of, basis for, or validity of any claim
against the Debtors; (c) a waiver of any claim or cause of action which may exist against any
creditor or interest holder; or (d) an approval, assumption, adoption, or rejection of any agreement,
contract, lease, program, or policy between the Debtors and any third party under section 365 of
the Bankruptcy Code. Likewise, if the Court grants the relief sought herein, any payment made
pursuant to the Court’s order is not intended to be and should not be construed as an admission to
the validity of any claim or a waiver of the Debtors’ rights to dispute such claim subsequently.
Debtors Have Satisfied Bankruptcy Rule 6003(b)
40. Bankruptcy Rule 6003(b) provides that, to the extent relief is necessary to
avoid immediate and irreparable harm, a Bankruptcy Court may issue an order granting “a motion
to use, sell, lease, or otherwise incur an obligation regarding property of the estate, including a
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motion to pay all or part of a claim that arose before the filing of the petition” before 21 days after
filing of the petition. Fed. R. Bankr. P. 6003(b). As described above, and in the First Day
Declaration, the Debtors request immediate relief to continue operating their Cash Management
System to ensure a seamless transition into and throughout these Chapter 11 Cases. Accordingly,
the Debtors believe that the relief requested herein is necessary to avoid immediate and irreparable
harm, and, therefore, Bankruptcy Rule 6003 is satisfied.
Bankruptcy Rules 6004(a) and (h)
41. To implement the foregoing successfully, the Debtors request that the Court
find that notice of this Motion is adequate under Bankruptcy Rule 6004(a) under the circumstances,
and waive the 14-day stay of an order authorizing the use, sale, or lease of property under
Bankruptcy Rule 6004(h). As described above, and in the First Day Declaration, the relief
requested herein is necessary to avoid immediate and irreparable harm to the Debtors.
Accordingly, ample cause exists to justify finding that the notice requirements under Bankruptcy
Rule 6004(a) have been satisfied and to grant a waiver of the 14-day stay imposed by Bankruptcy
Rule 6004(h), to the extent such notice requirements and such stay apply.
Notice
42. Notice of this Motion will be provided to (a) the Office of the United States
Trustee for the District of Delaware; (b) the holders of the 30 largest unsecured claims against the
Debtors on a consolidated basis; (c) the Federal Reserve Bank; (d) Customers Bank; (e) Cross
River Bank; (f) the United States Department of Justice; (g) the Federal Trade Commission; (h)
the Small Business Administration; (i) the Internal Revenue Service; (j) the Securities and
Exchange Commission; (k) the United States Attorney’s Office for the District of Delaware; (l)
the Banks; and (m) any party that is entitled to notice pursuant to Local Rule 9013-1(m)
(collectively, the “Notice Parties”). As this Motion is seeking “first-day” relief, the Debtors will
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serve copies of this Motion and any order entered in respect of this Motion as required by Local
Rule 9013-1(m). The Debtors believe that no further notice is required.
No Prior Request
43. No previous request for the relief sought herein has been made by the
Debtors to this or any other court.
[Remainder of page intentionally left blank]
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WHEREFORE the Debtors respectfully request entry of the Proposed Orders
granting the relief requested herein and such other and further relief as the Court may deem just
and appropriate.
Dated: October 3, 2022
Wilmington, Delaware
/s/ Zachary I. Shapiro
RICHARDS, LAYTON & FINGER, P.A.
Daniel J. DeFranceschi (No. 2732)
Amanda R. Steele (No. 5530)
Zachary I. Shapiro (No. 5103)
Matthew P. Milana (No. 6681)
One Rodney Square
920 North King Street
Wilmington, Delaware 19801
Telephone: (302) 651-7700
E-mail: defranceschi@rlf.com
steele@rlf.com
shapiro@rlf.com
milania@rlf.com
-and-
WEIL, GOTSHAL & MANGES LLP
Ray C. Schrock, P.C. (pro hac vice admission pending)
Candace M. Arthur (pro hac vice admission pending)
Natasha S. Hwangpo (pro hac vice admission pending)
Chase A. Bentley (pro hac vice admission pending)
767 Fifth Avenue
New York, New York 10153
Telephone: (212) 310-8000
E-mail: ray.schrock@weil.com
candace.arthur@weil.com
natasha.hwangpo@weil.com
chase.bentley@weil.com
Proposed Attorneys for Debtors
and Debtors in Possession
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Exhibit A
Proposed Interim Order
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
------------------------------------------------------------ x
In re : Chapter 11
:
KABBAGE, INC. d/b/a KSERVICING, et al., : Case No. 22-10951 ( )
:
:
1
Debtors. : (Joint Administration Requested)
------------------------------------------------------------ x
INTERIM ORDER (I) AUTHORIZING (A) DEBTORS TO CONTINUE
USING EXISTING CASH MANAGEMENT SYSTEM, BANK ACCOUNTS, AND
BUSINESS FORMS, (B) IMPLEMENT CHANGES TO CASH MANAGEMENT IN THE
ORDINARY COURSE OF BUSINESS; AND (II) GRANTING RELATED RELIEF
Upon the motion, dated October 3, 2022 (the “Motion”),2 of Kabbage, Inc. d/b/a/
KServicing and its debtor affiliates, as debtors and debtors in possession in the Chapter 11 Cases
(collectively, the “Debtors”), for entry of an order pursuant to sections 105, 345, and 363 of the
Bankruptcy Code, Bankruptcy Rules 6003 and 6004, and Local Rule 2015-2 (a) authorizing the
Debtors to (i) continue using their existing Cash Management System and business forms and
(ii) honor certain obligations related to the Cash Management System, (b) extending the time to
comply with certain requirements of section 345(b) of the Bankruptcy Code, and (iii) granting
related relief, all as more fully set forth in the Motion; and upon consideration of the Rieger-
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); 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 used but not otherwise defined herein shall have the respective meanings ascribed to such terms
in the Motion.
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Paganis Declaration; and this Court having jurisdiction to consider the Motion and the relief
requested therein pursuant to 28 U.S.C. §§ 157 and 1334, and the Amended Standing Order of
Reference entered by the United States District Court for the District of Delaware, dated February
29, 2012; and consideration of the Motion and the requested relief being a core proceeding
pursuant to 28 U.S.C. § 157(b); and venue being proper before this Court pursuant to 28 U.S.C.
§§ 1408 and 1409; and due and proper notice of the Motion having been provided; and such notice
having been adequate and appropriate under the circumstances, and it appearing that no other or
further notice need be provided; and this Court having reviewed the Motion; and this Court having
held a hearing to consider the relief requested in the Motion; and all objections, if any, to the
Motion having been withdrawn, resolved, or overruled; and upon the record of the hearing; and
this Court having determined that the legal and factual bases set forth in the Motion establish just
cause for the relief granted herein; and it appearing that the relief requested in the Motion is
necessary to avoid immediate and irreparable harm to the Debtors and their estates as contemplated
by Bankruptcy Rule 6003; and upon all of the proceedings had before this Court and after due
deliberation and sufficient cause appearing therefor,
IT IS HEREBY ORDERED THAT
1. The Motion is granted on an interim basis to the extent set forth herein.
2. The Debtors are authorized, but not directed, pursuant to sections 105(a)
and 363 of the Bankruptcy Code to continue to manage their cash pursuant to the Cash
Management System maintained prior to the Petition Date, to collect, concentrate, and disburse
cash in accordance with the Cash Management System, and to make ordinary course changes to
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their Cash Management System, absent further order of this Court, as consistent with this Interim
Order.3
3. The Debtors are further authorized, but not directed, to (i) designate,
maintain, and continue to use their existing Bank Accounts, in the names and with the account
numbers existing immediately before the Petition Date, (ii) deposit funds in, and withdraw funds
from, such Bank Accounts by all usual means, including checks, wire transfers, ACH transfers,
and other debits; except to the extent the Reserve Bank directs the Debtors to segregate proceeds
of the PPPLF Collateral into a custodial account, (iii) pay any Bank Fees or other charges
associated with the Bank Accounts, whether arising before or after the Petition Date, (iv) otherwise
perform their obligations under the documents governing the Bank Accounts, and (v) treat their
prepetition Bank Accounts for all purposes as debtor-in-possession accounts.
4. The Debtors are authorized to pay all service charges for the maintenance
of the Cash Management System owed to any Bank, including any Bank Fees incurred in the
ordinary course of business, whether arising before or after the Petition Date.
5. Notwithstanding any other provision in this Interim Order, should a Bank
honor a prepetition check or other item drawn on any account that is the subject of this Interim
Order (i) at the direction of the Debtors to honor such prepetition check or item or (ii) in good faith
belief that this Court has authorized such prepetition check or item to be honored, the Bank shall
not be deemed to be nor shall be liable to the Debtors or their estates or otherwise be in violation
of this Interim Order. Without limiting the foregoing, the Banks may rely on the representations
of the Debtors with respect to whether any check or other payment order drawn or issued by a
3
Notwithstanding the foregoing, no change shall be made to the management of the PPPLF Loans payments and
account without prior written consent by the Reserve Bank, absent entry of an order of the Court after notice and an
opportunity to be heard.
3
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Debtor prior to the Petition Date should be honored pursuant to this or any other order of this
Court, and shall not have any liability to any party for relying on such representations by a Debtor
as provided for herein.
6. The Banks are authorized to receive, process, honor, and pay any and all
checks issued, or to be issued, and electronic funds transfers requested, or to be requested, by the
Debtors relating to payment of the obligations described in the Motion, to the extent that sufficient
funds are on deposit and standing in the Debtors’ credit in the applicable Bank Account to cover
such payments.
7. Nothing contained herein shall prevent the Debtors from closing any of their
Bank Account(s) in the ordinary course of business and in accordance with prepetition practices
as they may deem necessary and appropriate. The Banks are authorized to honor the Debtors’
requests to close such Bank Accounts, and the Debtors shall give notice of the closure of any such
Bank Account to the U.S. Trustee and any statutory committee within 15 days of such closure.
8. The Debtors are authorized to open any new Bank Accounts as they may
deem necessary and appropriate in their sole discretion; provided, however, that the Debtors give
notice within 15 days of opening such new account to the U.S. Trustee and any statutory committee
appointed in these chapter 11 cases; provided, further, that the Debtors shall open any new Bank
Account at a bank that has executed a Uniform Depository Agreement with the U.S. Trustee or at
a bank that is willing to immediately execute such an agreement except to the extent that such new
Bank Account must be opened at a correspondent bank in order to continue to maintain a
correspondent bank account as required by the Reserve Bank.
9. For Banks at which the Debtors hold Bank Accounts that are party to a
Uniform Depository Agreement with the U.S. Trustee, within 15 days of the date of entry of this
4
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Interim Order the Debtors shall (i) contact each Bank, (ii) provide the Bank with each of the
Debtors’ employer identification numbers, and (iii) identify each of their Bank Accounts held at
such Bank as being held by a debtor in possession.
10. The Debtors are authorized to continue the Corporate Credit Card Program
in the ordinary course, to perform their obligations under the Corporate Credit Card Program, and
to pay outstanding prepetition expenses arising thereunder.
11. The Debtors shall maintain accurate records of all transfers within the Cash
Management System so that all post-petition transfers and transactions shall be adequately and
promptly documented in, and readily ascertainable from, their books and records.
12. The Debtors are authorized to use their business forms, including checks,
without alteration and without the designation “debtor in possession” imprinted upon them;
provided, that, once the Debtors’ existing check stock has been used, the Debtors shall use
reasonable efforts, when reordering checks, to include the designation “Debtor in Possession” and
the jointly administered bankruptcy case number on such checks; provided, further, that, with
respect to checks which the Debtors or their agents print themselves, the Debtors shall, when
printing checks, include the “Debtor in Possession” legend and the jointly administered bankruptcy
case number on such checks within 10 business days of the date of entry of this Interim Order.
13. The Debtors are authorized, but not directed, to issue new post-petition
checks, or effect new electronic funds transfers, and to replace any prepetition checks or electronic
fund transfer requests that may be lost or dishonored or rejected as a result of the commencement
of the Debtors’ Chapter 11 Cases with respect to any prepetition amounts that are authorized to be
paid pursuant to this Interim Order or any other order of this Court.
5
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14. For Banks at which the Debtors hold accounts that are not party to a
Uniform Depository Agreement with the U.S. Trustee, the Debtors shall use their good-faith
efforts to cause the Banks to execute a Uniform Depository Agreement in a form prescribed by the
U.S. Trustee within 30 days of entry of this Interim Order. The U.S. Trustee’s rights to seek further
relief from this Court on notice in the event that the aforementioned Banks are unwilling to execute
a Uniform Depository Agreement in a form prescribed by the U.S. Trustee are fully reserved.
15. The requirements provided in section 345(b) of the Bankruptcy Code are
hereby suspended as to the Bank Accounts for an interim period of 45 days, without prejudice to
the Debtors’ rights to seek a further suspension.
16. The Debtors are authorized to continue all efforts related to replacement of
the Primis Account in the ordinary course as they had commenced prior to the Petition Date
without need for any further order or authority from this Court.
17. The Debtors are authorized to continue all efforts related to processing of
the SBA Direct-Reserve Payments in the ordinary course as they had done prior to the Petition
Date without need for any further order or authority from this Court.
18. Notwithstanding the historical nature of the remittance of proceeds by the
Debtors, nothing herein shall limit the Debtors’ duty to remit the full amount of proceeds
constituting PPPLF Collateral to the Reserve Bank, which is governed by the PPPLF Program
Agreements; provided, that the Debtors reserve their rights with respect to whether certain
proceeds constitute PPPLF Collateral and all rights and defenses thereto are preserved.
19. Despite the use of a consolidated cash management system, the Debtors
shall calculate quarterly fees under 28 U.S.C. section 1930(a)(6) based on the disbursements of
each Debtor, regardless of who pays those disbursements.
6
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20. The requirements of Bankruptcy Rule 6003(b) have been satisfied.
21. Notice of the Motion is adequate under Bankruptcy Rule 6004(a).
22. Notwithstanding the provisions of Bankruptcy Rule 6004(h), this Interim
Order shall be immediately effective and enforceable upon its entry.
23. The Debtors are authorized to take all actions necessary or appropriate to
effectuate the relief granted in this Interim Order.
24. This Court shall retain jurisdiction to hear and determine all matters arising
from or related to the implementation, interpretation, or enforcement of this Interim Order.
25. The Final Hearing to consider the relief requested in the Motion shall be
held on , 2022, at ______ (Prevailing Eastern Time), and any objections or responses to the
Motion shall be in writing, filed with the Court, and served on or prior to ____________, 2022 at
[•] a/p.m. (Prevailing Eastern Time).
7
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Exhibit B
Proposed Final Order
RLF1 28018280V.1
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IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
------------------------------------------------------------ x
In re : Chapter 11
:
KABBAGE, INC. d/b/a KSERVICING, et al., : Case No. 22-10951 ( )
:
:
1
Debtors. : (Joint Administration Requested)
------------------------------------------------------------ x
FINAL ORDER (I) AUTHORIZING (A) DEBTORS TO CONTINUE USING EXISTING
CASH MANAGEMENT SYSTEM, BANK ACCOUNTS, AND BUSINESS FORMS,
(B) IMPLEMENT CHANGES TO CASH MANAGEMENT IN THE ORDINARY
COURSE OF BUSINESS; AND (II) GRANTING RELATED RELIEF
Upon the motion, dated October 3, 2022 (the “Motion”),2 of Kabbage, Inc. d/b/a/
KServicing and its debtor affiliates, as debtors and debtors in possession in the Chapter 11 Cases
(collectively, the “Debtors”), for entry of an order pursuant to sections 105, 345, and 363 of the
Bankruptcy Code, Bankruptcy Rules 6003 and 6004, and Local Rule 2015-2 (a) authorizing the
Debtors to (i) continue using their existing Cash Management System and business forms and
(ii) honor certain obligations related to the Cash Management System, (b) extending the time to
comply with certain requirements of section 345(b) of the Bankruptcy Code, and (iii) granting
related relief, all as more fully set forth in the Motion; and upon consideration of the Rieger-
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); 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 used but not otherwise defined herein shall have the respective meanings ascribed to such terms
in the Motion.
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Paganis Declaration; and this Court having jurisdiction to consider the Motion and the relief
requested therein pursuant to 28 U.S.C. §§ 157 and 1334, and the Amended Standing Order of
Reference entered by the United States District Court for the District of Delaware, dated February
29, 2012; and consideration of the Motion and the requested relief being a core proceeding
pursuant to 28 U.S.C. § 157(b); and venue being proper before this Court pursuant to 28 U.S.C.
§§ 1408 and 1409; and due and proper notice of the Motion having been provided; and such notice
having been adequate and appropriate under the circumstances, and it appearing that no other or
further notice need be provided; and this Court having reviewed the Motion; and this Court having
entered an order (the “Interim Order”) granting the relief requested in the Motion on an interim
basis; and upon any hearing held on the Motion; and all objections, if any, to the Motion having
been withdrawn, resolved, or overruled; and this Court having determined that the legal and factual
bases set forth in the Motion establish just cause for the relief granted herein; and upon all of the
proceedings had before this Court and after due deliberation and sufficient cause appearing
therefor,
IT IS HEREBY ORDERED THAT
1. The Motion is granted as set forth herein.
2. The Debtors are authorized, but not directed, pursuant to sections 105(a)
and 363 of the Bankruptcy Code to continue to manage their cash pursuant to the Cash
Management System maintained prior to the Petition Date, to collect, concentrate, and disburse
cash in accordance with the Cash Management System, and to make ordinary course changes to
2
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their Cash Management System without further order of this Court, as consistent with this Final
Order.3
3. The Debtors are further authorized, but not directed, to (i) designate,
maintain, and continue to use their existing Bank Accounts, in the names and with the account
numbers existing immediately before the Petition Date, (ii) deposit funds in, and withdraw funds
from, such Bank Accounts by all usual means, including checks, wire transfers, ACH transfers,
and other debits; except to the extent the Reserve Bank directs the Debtors to segregate proceeds
of the PPPLF Collateral into a custodial account, (iii) pay any Bank Fees or other charges
associated with the Bank Accounts, whether arising before or after the Petition Date, (iv) otherwise
perform their obligations under the documents governing the Bank Accounts, and (v) treat their
prepetition Bank Accounts for all purposes as debtor-in-possession accounts.
4. The Debtors are authorized to pay all service charges for the maintenance
of the Cash Management System owed to any Bank, including any Bank Fees incurred in the
ordinary course of business, whether arising before or after the Petition Date.
5. Notwithstanding any other provision in this Final Order, should a Bank
honor a prepetition check or other item drawn on any account that is the subject of this Final Order
(i) at the direction of the Debtors to honor such prepetition check or item or (ii) in good faith belief
that this Court has authorized such prepetition check or item to be honored, the Bank shall not be
deemed to be nor shall be liable to the Debtors or their estates or otherwise be in violation of this
Final Order. Without limiting the foregoing, the Banks may rely on the representations of the
Debtors with respect to whether any check or other payment order drawn or issued by a Debtor
3
Notwithstanding the foregoing, no change shall be made to the management of the PPPLF Loans payments and
account without prior written consent by the Reserve Bank, absent entry of an order of the Court after notice and an
opportunity to be heard
3
RLF1 28018280V.1
Case 22-10951-CTG Doc 84-1 Filed 10/06/22 Page 40 of 46
prior to the Petition Date should be honored pursuant to this or any other order of this Court, and
shall not have any liability to any party for relying on such representations by a Debtor as provided
for herein.
6. The Banks are authorized to receive, process, honor, and pay any and all
checks issued, or to be issued, and electronic funds transfers requested, or to be requested, by the
Debtors relating to payment of the obligations described in the Motion, to the extent that sufficient
funds are on deposit and standing in the Debtors’ credit in the applicable Bank Account to cover
such payments.
7. Nothing contained herein shall prevent the Debtors from closing any of their
Bank Account(s) in the ordinary course of business and in accordance with prepetition practices
as they may deem necessary and appropriate. The Banks are authorized to honor the Debtors’
requests to close such Bank Accounts, and the Debtors shall give notice of the closure of any such
Bank Account to the U.S. Trustee and any statutory committee within 15 days of such closure.
8. The Debtors are authorized to open any new Bank Accounts as they may
deem necessary and appropriate in their sole discretion; provided, however, that the Debtors give
notice within 15 days of opening such new account to the U.S. Trustee and any statutory committee
appointed in these Chapter 11 Cases; provided, further, that the Debtors shall open any new Bank
Account at a bank that has executed a Uniform Depository Agreement with the U.S. Trustee or at
a bank that is willing to immediately execute such an agreement except to the extent that such new
Bank Account must be opened at a correspondent bank in order to continue to maintain a
correspondent bank account as required by the Reserve Bank.
4
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9. The Debtors are authorized to continue the Corporate Credit Card Program
in the ordinary course, to perform their obligations under the Corporate Credit Card Program, and
to pay outstanding prepetition expenses arising thereunder.
10. The Debtors shall maintain accurate records of all transfers within the Cash
Management System so that all post-petition transfers and transactions shall be adequately and
promptly documented in, and readily ascertainable from, their books and records.
11. The Debtors are authorized to use their business forms, including checks,
without alteration and without the designation “debtor in possession” imprinted upon them;
provided, however, that once the Debtors’ existing check stock has been used, the Debtors shall
use reasonable efforts, when reordering checks, to include the designation “Debtor in Possession”
and the jointly administered bankruptcy case number on such checks; provided, further, that, with
respect to checks which the Debtors of their agents print themselves, the Debtors shall include the
“Debtor-in-Possession”, and the jointly administered bankruptcy case number on such checks.
12. The Debtors are authorized, but not directed, to issue new post-petition
checks, or effect new electronic funds transfers, and to replace any prepetition checks or electronic
fund transfer requests that may be lost or dishonored or rejected as a result of the commencement
of the Debtors’ Chapter 11 Cases with respect to any prepetition amounts that are authorized to be
paid pursuant to this Final Order or any other order of this Court.
13. For Banks at which the Debtors hold accounts that are not party to a
Uniform Depository Agreement with the U.S. Trustee, the Debtors shall use their good-faith
efforts to cause the Banks to execute a Uniform Depository Agreement in a form prescribed by the
U.S. Trustee within 30 days of entry of this Interim Order. The U.S. Trustee’s rights to seek further
5
RLF1 28018280V.1
Case 22-10951-CTG Doc 84-1 Filed 10/06/22 Page 42 of 46
relief from this Court on notice in the event that the aforementioned Banks are unwilling to execute
a Uniform Depository Agreement in a form prescribed by the U.S. Trustee are fully reserved.
14. The requirements provided in section 345(b) of the Bankruptcy Code are
hereby suspended as to the Bank Accounts on a final basis.
15. The Debtors are authorized to continue all efforts related to replacement of
the Primis Account in the ordinary course as they had commenced prior to the Petition Date
without need for any further order or authority from this Court.
16. The Debtors are authorized to continue all efforts related to processing of
the SBA Direct-Reserve Payments in the ordinary course as they had done prior to the Petition
Date without need for any further order or authority from this Court.
17. Notwithstanding the historical nature of the remittance of proceeds by the
Debtors, nothing herein shall limit the Debtors’ duty to remit the full amount of proceeds
constituting PPPLF Collateral to the Reserve Bank, which is governed by the PPPLF Program
Agreements; provided, that the Debtors reserve their rights with respect to whether certain
proceeds constitute PPPLF Collateral and all rights and defenses thereto are preserved.
18. Despite use of a consolidated cash management system, the Debtors shall
calculate quarterly fees under section 28 U.S.C. section 1930(a)(6) based on the disbursements of
each Debtor, regardless of who pays those disbursements.
19. Notice of the Motion is adequate under Bankruptcy Rule 6004(a).
20. Notwithstanding the provisions of Bankruptcy Rule 6004(h), this Final
Order shall be immediately effective and enforceable upon its entry.
21. The Debtors are authorized to take all actions necessary or appropriate to
effectuate the relief granted in this Final Order.
6
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22. This Court shall retain jurisdiction to hear and determine all matters arising
from or related to the implementation, interpretation, or enforcement of this Final Order.
7
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Exhibit C
Bank Accounts
Last 4 Digits of
Bank Name Account Name / Type
Account #
Synovus Main Operating Account 5201
Primis Primis Account 0578
Synovus Legacy Lending ACH Account 5243
Synovus Debit Rails Account 5219
Synovus Agency Payments Account 5235
Synovus Other Customer Payments Account 5227
Celtic Celtic Bank Escrow Account 0842
Synovus Synovus Servicing Account 5276
Synovus Synovus CUBI Servicing Account 5250
Synovus Synovus CRB Servicing Account 5268
Synovus Kabbage Bridge Funding 5987
Synovus CUBI Loan Disbursement 5946
Synovus Kabbage Loan Disbursement 5953
Synovus SBA Fees 5458
Synovus Utility Deposit Escrow Account 5441
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Case 22-10951-CTG Doc 84-1 Filed 10/06/22 Page 45 of 46
Exhibit D
Cash Management System Diagram
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Case 22-10951-CTG Doc 84-1 Filed 10/06/22 Page 46 of 46
Other PPPLF Portfolio
PPPLF and
Dormant Accounts KS PPP Portfolio
SBA
CUBI Loan PPPLF
Disbursements Vendors remittances
(5946) Borrower
Forgiveness
Primis collections
Kabbage Bridge and guaranty
(0578) on loans
Funding (5987) purchase
guaranty
payments
purchased by
Kabbage Loan SBA
Disbursements
(5953) Payments
PPPLF
Vendor Borrowers
SBA Fees (5458) Payments
Synovus Servicing
Refunds
(5276)
KS
Escrow (5441)
Borrowers
Payments
Synovus
Operating
(5201)
CUBI
Celtic Bank Escrow remittances
(0842) HCG SR CUBI
CRB
remittances
CRB
Payments
Legacy Borrower collections
Legacy Lending
Borrowers on loans guaranty
ACH (5243)
purchased by SBA
Refunds SBA
Other Customer Agency Payments Synovus CUBI Synovus CRB
Debit Rails (5219) Servicing (5250) Servicing (5268)
Payments (5227) (5235)
Legacy Loan Payments Refunds Payments
Payments Recoveries
AirBnB Collection CUBI CRB Partner Bank
Legacy Portfolio Vendors Agencies Borrowers Borrowers
Portfolio
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