Court Appoints Chapter 11 Trustee; Denies Debtor's Plan Confirmation

Following up on the previous post, the Debtor and RBS had reportedly contacted the Court on the eve of the November 13 continued hearing to relay that they had come to an agreement. The agreement was initially presented to the Court at the continued hearing on the morning of Thursday, November 13. However, before the conclusion of that hearing, the agreement fell through apparently as a result of certain default provisions not acceptable to the Debtor and/or its principals.

As a result, on Friday, November 14, the United States Trustee’s Office appointed Guy C. Fustine, Esq., as Chapter 11 Trustee in all three (3) related Bankruptcy Cases, which the Court later approved. Attorney Fustine has since accepted that appointment. Additionally, confirmation of the Debtor's prior plan of reorganization was denied. It is reported that Mr. Fustine has been meeting with the Debtor and its representatives, among other parties, to determine the next course of action.

Court Grants Debtor’s Expedited Fourth Motion to Extend Time for RBS Settlement; Conditionally Appoints Chapter 11 Trustee

On or about October 27, 2014, the Debtor filed an Expedited Fourth Motion to Extend Time in connection with its prior settlement with RBS, which was approved by Court Order following an expedited hearing on October 31, 2014.  The Order directs the United States Trustee (“UST”) to appoint a Chapter 11 Trustee (the “Trustee”) effective as of 8:30a.m. on November 13 (the “Deadline”), the same day on which the Court scheduled the Debtor’s continued Plan Confirmation Hearing.  If the Debtor reports unequivocally to the Court prior to the Deadline that settlement payments satisfactory to RBS have been made, then the Trustee’s appointment shall not go into effect and the Plan Confirmation Hearing may proceed as scheduled.  If not, the Trustee presumably displaces the Debtor from control of the Bankruptcy Estate.

The UST is excused from filing a motion seeking approval of its selection for Trustee until the Deadline has passed.

Court Grants Debtor’s Third Motion to Extend Time for RBS Settlement; 1st Source Bank Files Motions for Contempt and Sanctions

On or about September 29, 2014, the Debtor filed a Third Motion to Extend Time in connection with its prior settlement with RBS, which was approved by Court Order following the Plan Confirmation Hearing on October 2, 2014.  The Order dated October 3, 2014, stated that payment of the RBS settlement amount per the Settlement Agreement and Settlement Orders shall be timely if paid by October 30, 2014, and the creation of the escrow deposits required in the GPE and JDOG cases for unsecured creditors shall be timely if made by November 15, 2014.  As a result, the Court entered an Order continuing the Plan Confirmation Hearing to November 13, 2014, at 9:30a.m. in the Erie Courtroom.

In the meantime, the Debtor participated in mediation in an effort to resolve its ongoing dispute with 1^st Source Bank surrounding their Motion for Relief from the Automatic Stay (“Motion for Relief”), which was unsuccessful. 1^st Source Bank has since filed a Motion for Contempt and Motion for Sanctions against Richard M. Osborne (“Osborne”), GPE, and the Debtor, upon which the Court entered an Order scheduling a hearing on the same for October 28, 2014, at 10:00a.m. in the Erie Courtroom, and directing Osborne to personally appear.  The Court also entered an Order scheduling Trial on 1^st Source Bank’s Motion for Relief for the same day and time.

Debtor Files Fifth Amended Plan and Disclosure Statement

On or about August 12, 2014, the Debtor filed its Fifth Amended Plan and Disclosure Statement in connection with its prior settlement with RBS.  These filings were made following the hearings held on July 21, at which further amendments were directed by the Court to address any remaining objections.  As a result, the Court entered an Order on August 13, 2014 approving the Disclosure Statement and scheduling a Plan Confirmation Hearing for October 2, 2014 at 10am in the Erie Courtroom, with objections due by September 19, 2014.

The Debtor continues to propose to pay unsecured creditors in full after Plan confirmation or in the months thereafter by depositing monthly payments into escrow for the payment of administrative expense claims and unsecured claims sequentially.  The Debtor also moved for extensions of time to meet its previously filed Amended Statement of Settlement Milestones with RBS, to which RBS consented.  Based upon the information available to the Committee, the Debtor has been able and will continue to meet those milestones as extended.  The Committee will continue to monitor these milestones to ensure that the unsecured creditor escrow is being funded for future distributions.

Debtor Files Fourth Amended Plan and Disclosure Statement

On or about June 8, 2014, the Debtor filed its Fourth Amended Plan and Disclosure Statement in connection with its prior settlement with RBS.  A hearing has been scheduled on the Disclosure Statement for Thursday, July 24 at 9:30am in the Erie Bankruptcy Courtroom, with objections due by July 17. 

Essentially the Debtor proposes to pay unsecured creditors in full after Plan confirmation or in the months thereafter by depositing monthly payments into escrow for the payment of administrative expense claims and unsecured claim sequentially.  The Debtor also previously filed an Amended Statement of Settlement Milestones setting forth the various obligations that the Debtor has under the settlement with RBS.  Based upon the information available to the Committee, the Debtor has been able to meet those milestones thus far.  The Committee will continue to monitor these milestones to ensure that the unsecured creditor escrow is being funded for future distributions. 

Court Enters Order Granting Settlement Motion, Staying Appointment of Trustee, and Dismissing Fraudulent Conveyance Action

Following an Evidentiary Hearing on April 23, 2014, the Court on or about April 25, 2014 entered an Order approving the Debtor’s Expedited Motion to Approve Settlement Agreement, which was previously filed on March 19, 2014.  The Court is satisfied based on the representations of all parties in interest that approval of the Settlement Agreement is in the best interests of the Bankruptcy Estate.  The Order also directed the Debtor to file a Statement of Settlement Milestones by May 1, 2014, which shall set forth chronologically the deadlines that the Debtor must meet to remain in compliance with the terms of the Settlement Agreement.   In the event of a default, a Chapter 11 Trustee may still be appointed without any limitation as to its normal power, authority, and duties under the Bankruptcy Code.

The Order also sets a deadline of October 30, 2014, for the Debtor to file a statement representing that an escrow has been established to fund payments to unsecured creditors.  It is expected that $100,000 will be available in each of the three (3) affiliated Bankruptcy Cases for such distributions.  

Finally, the Order directs the Debtor to file a Fourth Amended Plan, Disclosure Statement, and Plan Summary by June 8, 2014, which will generally incorporate the terms of settlement.  In addition, the Adversary Proceeding filed by the Committee against FirstMerit Bank, et al., was dismissed and authority to pursue said claim(s) vacated without prejudice, contingent on the Debtor fully performing the Settlement Agreement.

Court Holds Status Conference, Sets Evidentiary Hearing on Expedited Settlement Motions

On or about March 24, 2014, the Court held a Status Conference on the Debtor’s Expedited Motion to Approve Settlement Agreement, which was previously filed on March 19, 2014.  Also at issue was the Debtor’s Expedited Motion for Entry of First Amended Final Order Authorizing Use of Cash Collateral filed at the same time.  The Expedited Motions seek approval from the Court regarding the Debtor’s settlement with RBS, as well as the Debtor’s need to continue using RBS’s cash collateral for operations while the milestones of the settlement are reached.  The Court at the Status Conference seriously questioned whether the Debtor had made any legitimate, new efforts to resolve this Case as opposed to proposing a course of action very similar to its previous, failed plans of reorganization.  The Court also cautioned that the appointment of a Chapter 11 Trustee remains a very real possibility, particularly in the Great Plains Exploration, LLC (“GPE”) and John D. Oil & Gas, Co. (“JDO”) Cases where no Committee has been appointed. 

The settlement as presented would have RBS agree to carve-out approximately $100,000 for payment in full to the Oz Gas unsecured creditors, but with an unclear timeline as to when that payment would occur and with no similar carve-out for the GPE and JDO unsecured creditors.  The Court subsequently scheduled an Evidentiary Hearing on the Expedited Motions for April 23, 2014, at 10am in the Erie Bankruptcy Courtroom, with responses due by April 16.  The Order also specified that the Debtor will be expected to provide a detailed explanation as to how unsecured creditors will fare better in all three (3) Cases if the proposed agreement is approved versus if a Trustee is appointed.

Debtor Files Notice of Settlement with RBS and Motion to Stay Appointment of Trustee

On March 17, 2014, the Debtor filed a Notice with the Court indicating that a settlement had been reached with its primary secured lender, RBS Citizens Bank.  In conjunction therewith, the Debtor also filed a Motion to Stay Appointment of Ch. 11 Trustee stating that such an appointment is without cause or unnecessary given the settlement with RBS.  While the terms of settlement have yet to be fully disclosed, early indications are that general unsecured creditors will be paid in full.  The Debtor's agreement with RBS will be subject to a motion for approval by the Court, which will be forthcoming.

Court Enters Order Setting Deadline for Agreement with RBS

On or about February 24, 2014, following a hearing on the Court’s prior Order to Show Cause, the Court issued an Order directing the Debtor to file a Notice on or before March 17, 2014, to indicate whether or not it has reached an agreement with RBS that it in good faith believes will allow it to submit a confirmable plan of reorganization.  If an agreement is not reached by March 17, the Order directs the United States Trustee to appoint a Chapter 11 Trustee on March 18, 2014.  As a result, the Debtor has three (3) weeks from the date of the Order to reach an agreement with RBS before a Chapter 11 Trustee is appointed to assume control of the Bankruptcy Estate. 

During the hearing on the Order to Show Cause, representatives of the Debtor indicated that certain non-debtor assets may be sold and a portion of proceeds set aside for plan payments, but there was no promise that creditors will be paid 100%.  Representatives of RBS indicated that they view this as the last chance to reach an agreement with the Debtor.