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.

Committee Files Complaint to Recover Fraudulent Transfers

On or about February 11, 2014, the Official Committee of Unsecured Creditors (the “Committee”) filed a Complaint on behalf of the Bankruptcy Estate against FirstMerit Bank, NA (“FirstMerit”), Oz Gas Aviation, LLC, Richard M. Osborne, and Richard M. Osborne Trust seeking the recovery of alleged fraudulent transfers made by the Debtor on account of a loan between FirstMerit and the other parties for the purchase of an airplane.  The Committee had previously sought and received derivative standing from the Court to pursue said action in the amount of approximately $900,000.  With the Debtor currently unable to confirm a plan of reorganization, the claims set forth in the Complaint represent a potential recovery for the Bankruptcy Estate for the purposes of making distributions to creditors.  A Pre-Trial Conference is currently scheduled for March 27, 2014, at 9:30a.m. in the Erie Bankruptcy Courtroom.

Court Enters Order to Show Cause for Conversion of Case or Appointment of Trustee; Committee Granted Authority to Pursue Turnover Actions

On or about January 22, 2014, the Court entered an Order denying the approval of the Debtor’s 3rd Amended Plan and Disclosure Statement.  After an informal status conference conducted by the Court, the parties agreed that the Disclosure Statement could not be approved nor the Plan confirmed in light of the non-existence of a viable private sale of substantially all of the Debtor’s assets.  In conjunction therewith, the Court then issued an Order to Show Cause why the Chapter 11 Bankruptcy Case should not be converted to Chapter 7 or why a Chapter 11 trustee should not be appointed.  The Court cited the parties’ failure to bring the status of the case into issue as its reasoning for acting on its own under the circumstances.  A hearing is currently scheduled for February 24, 2014, at 10:00a.m. in the Erie Bankruptcy Courtroom.

Additionally, the Court entered an Order granting the Official Committee of Unsecured Creditors authority to pursue claims against Oz Gas Aviation, LLC and Richard M. Osborne based on certain insider advances that have not been repaid to the Debtor or that have otherwise been re-characterized as uncollectible.

Court Enters Order on 3rd Amended Disclosure Statement; Committee Files Motion for Authority to Pursue Turnover Actions

On or about December 13, 2013, the Court entered an Order scheduling a hearing on the Debtor’s 3^rd Amended Disclosure Statement (“Disclosure Statement”) for Monday, January 27, 2014 at 2:30pm in the Erie Bankruptcy Courtroom.  The Order also directs the Debtor to file on or before January 6, 2014, a Statement that sets forth the identity of each party that will receive a release under the Debtor’s Plan, and the consideration for the same.  Objections to the Disclosure Statement are due on or before January 21, 2014.

Meanwhile the Official Committee of Unsecured Creditors filed a Motion for Authority to Prosecute Turnover Actions (“Motion”) against Oz Gas Aviation, LLC, and Richard M. Osborne.  The Committee’s request for authority relates to the Debtor’s refusal to pursue claims against each party based on certain insider advances that have not been repaid to the Debtor or that have otherwise been re-characterized as uncollectible.  The Court also entered an Order scheduling a hearing on the Motion for January 27, with Responses to the Motion due by January 21.