First Post-Confirmation Status Report — Kabbage, Inc. d/b/a KServicing, et al., Case No. 22-10951 (Dkt. 922, Bankr. D. Del.)
Summary
The First Post-Confirmation Status Report filed July 24, 2023 as Doc 922 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, by the post-confirmation Debtors operating as the Wind Down Estates. It states that the Court confirmed the Plan on March 15, 2023 and that the Plan became effective on June 20, 2023, and lists wind-down actions taken since, including meetings with the Department of Justice, the SBA and CRB and the start of claims reconciliation. The report describes a dispute with Vervent Inc., which the Debtors say sent notice on June 27, 2023 purporting to terminate a Servicing Agreement for the Legacy Loan Portfolio. The Debtors state they dispute any cause for termination and reserve all rights and claims against Vervent. It is signed by Morris James LLP and Perkins Coie LLP.
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“First Post-Confirmation Status Report — Kabbage, Inc. d/b/a KServicing, et al., Case No. 22-10951 (Dkt. 922).”
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Case 22-10951-CTG Doc 922 Filed 07/24/23 Page 1 of 5
IN THE UNITED STATES BANKRUPTCY COURT
FOR THE DISTRICT OF DELAWARE
In re: Chapter 11
KABBAGE, INC. d/b/a KSERVICING, et al.,1 Case No. 22-10951 (CTG)
Debtors. (Jointly Administered)
Hearing Date: July 26, 2023 at 9:00 a.m. (ET)
FIRST POST-CONFIRMATION STATUS REPORT
The post-confirmation Debtors, operating as the Wind Down Estates as defined in, and
under terms of, the Amended Joint Chapter 11 Plan of Liquidation of Kabbage, Inc. (d/b/a
KServicing) and Its Affiliated Debtors, dated March 9, 2023 (“Plan”) [Docket No. 627], file this
first post-confirmation status report to apprise the Court and material stakeholders of key
developments and issues associated with implementation and consummation of the Plan. Unless
otherwise defined in this status report, capitalized terms retain the definition give to them in the
Plan.
POST-EFFECTIVE DATE ACTIVITY
1. On March 15, 2023, this Court entered the Confirmation Order 2 confirming the
Debtor’s Plan. The Plan became effective on June 20, 2023.3
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). The Debtors’ mailing and service address is 925B
Peachtree Street NE, Suite 383, Atlanta, GA 30309.
2
Order Confirming Amended Joint Chapter 11 Plan of Liquidation of Kabbage, Inc. (d/b/a KServicing) and
its Affiliated Debtors [Docket No. 680].
3
Notice of (I) Entry of Order Confirming Amended Joint Chapter 11 Plan of Liquidation of Kabbage, Inc.
(d/b/a KServicing) and its Affiliated Debtors and (II) Effective Date [Docket No. 870].
Case 22-10951-CTG Doc 922 Filed 07/24/23 Page 2 of 5
2. Since the Effective Date, the Debtors have undertaken actions authorized and
contemplated under the Plan, including (but not limited to):
• Preparing and implementing amendments to the Debtors’ corporate
organizational documents reflecting changes in corporate governance
contemplated under the Plan, changes to the Debtor entity names, and
termination of dormant subsidiary entities;
• Transferring and preserving documents relevant to investigation and
prosecution of Estate Causes of Action, and begun investigating and analyzing
the Estate Causes of Action (including the American Express Transaction);
• Meeting with the Department of Justice, the SBA, and CRB concerning
possible resolutions for their respective claims;
• Implementing various expense reduction measures including reducing
employee headcount, terminating certain consulting engagements, and
transitioning work to lower-cost professionals;
• Assisting with reconciliation and transfer of loan portfolios related to SBA,
Lendistry, Customer’s Bank, and CRB;
• Developing alternative collection and recovery strategies related to Legacy
Loan portfolio;
• Initiating closure of inactive bank accounts, credit card accounts, and 401(k)
accounts;
• Initiating the Claims reconciliation process;
• Negotiating possible terms for early release of Restricted Cash; and
• Conferring with the Reserve Bank concerning Post-Effective Date wind down
activities.
12. The Debtors continue to prioritize and undertake other actions necessary and
appropriate to implement the wind down contemplated under the Plan.
DISPUTE RELATED POST-EFFECTIVE DATE SERVICING OF LEGACY LOANS
13. Consistent with the Plan, and in consultation with the Reserve Bank, the Debtors
elected to continue servicing the Legacy Loan Portfolio post-Effective Date. To that end, on
May 2, 2023 the Debtors entered into a third-party Servicing Agreement (“Servicing Agreement”)
2
Case 22-10951-CTG Doc 922 Filed 07/24/23 Page 3 of 5
with Vervent Inc. (“Vervent”) under which Vervent would service the Legacy Loan Portfolio for
the benefit of the wind down estates.
14. Consistent with the Servicing Agreement, the Debtors provided Vervent with the
loan files for the Legacy Loan Portfolio, including copies of the supporting promissory notes and
other documentation more than adequate to continue servicing the portfolio. Notably, the Legacy
Loan Portfolio comprises loans that have been in active payment status for years and loans which
are not the subject of investigation by any third parties.
15. Despite having ample opportunity to conduct due diligence related to the Legacy
Loan Portfolio prior to entering into the Service Agreement, Vervent sent notice to the Debtors on
June 27, 2023—only after onboarding the Legacy Loan Portfolio and after the Plan’s Effective
Date—purporting to unilaterally terminate the Service Agreement. Vervent alleges that, despite
the active payment status of the Legacy Loan Portfolio, gaps exist in the loan documentation and
that such gaps constitute cause for termination of the Service Agreement.
16. The Debtors’ dispute there is any cause for Vervent to terminate the Service
Agreement. There were extensive disclosures (both publicly as part of the Debtors’ bankruptcy
and directly as part of negotiations with Vervent) regarding the Debtors’ prepetition underwriting
practices, lack of possession of certain historical data that was held by third parties outside of the
Debtors’ control, disputes with respect to the loan portfolios, and related matters, that suggest
Vervent knew (or should have known) the risks associated with the Legacy Loan Portfolio and
assumed such risks at the time Vervent entered into the Service Agreement.
17. Despite the Debtors’ numerous efforts to address Vervent’s concerns and issues, at
this time Vervent continues to refuse to honor its obligations under the Service Agreement. The
Debtors feel it necessary to flag this issue for the Court and other stakeholders as Vervent’s actions
3
Case 22-10951-CTG Doc 922 Filed 07/24/23 Page 4 of 5
are negatively affecting implementation of the Plan. Among other things, Verven’s actions have
caused delay in servicing the Legacy Loan Portfolio (which may result in missed borrower
payments) and have forced the Debtors to procure a replacement servicer at higher cost to the
estate. Accordingly, the Debtors wish to advise the Court and other stakeholders (as Debtors have
advised Vervent) that the Debtors reserve all rights and claims related to Vervent, including the
ability to recover all costs and expenses incurred in the expectation and preparation of Vervent’s
performance, as well as damages proximately caused by Vervent’s breach . (including costs the
estate will incur extending access to the existing American Express platform beyond the previously
expected onboarding date that was articulated to American Express).
Dated: July 24, 2023 MORRIS JAMES LLP
/s/ Eric J. Monzo
Eric J. Monzo (DE Bar No. 5214)
Brya M. Keilson (DE Bar No. 4643)
Tara C. Pakrouh (DE Bar No. 6192)
500 Delaware Avenue, Suite 1500
Wilmington, DE 19801
Telephone: (302) 888-6800
Facsimile: (302) 571-1750
E-mail: emonzo@morrisjames.com
E-mail: bkeilson@morrisjames.com
E-mail: tpakrouh@morrisjames.com
and
PERKINS COIE LLP
Bradley A. Cosman, Esq. (admitted pro hac vice)
Kathleen Allare, Esq. (admitted pro hac vice)
2901 North Central Avenue, Suite 2000
Phoenix, AZ 85012-2788
Telephone: (602) 351-8000
Facsimile: (602) 648-7000
E-mail: BCosman@perkinscoie.com
E-mail: KAllare@perkinscoie.com
and
4
Case 22-10951-CTG Doc 922 Filed 07/24/23 Page 5 of 5
John D. Penn, Esq. (admitted pro hac vice)
500 North Akard Street, Suite 3300
Dallas, TX 75201-3347
Telephone: (214) 965-7700
Facsimile: (214) 965-7799
E-mail: JPenn@perkinscoie.com
Counsel to the Post-Confirmation Debtors,
operating as the Wind Down Estates
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