In re Adelphia Business Solutions, Inc.

Citation341 B.R. 415
Decision Date12 December 2003
Docket NumberNo. 02-11389 (REG).,02-11389 (REG).
PartiesIn re ADELPHIA BUSINESS SOLUTIONS, INC., et al., Debtors.
CourtUnited States Bankruptcy Courts. Second Circuit. U.S. Bankruptcy Court — Southern District of New York

Judy G.Z. Liu, New York, NY, for Debtors.

BENCH DECISION ON ACC OBJECTION TO ABIZ PLAN FEASIBILITY1

ROBERT E. GERBER, Bankruptcy Judge.

In the jointly administered cases under chapter 11 of the code of Adelphia Business Solutions and its subsidiaries, now known as TelCove, but whom I'll refer to as ABIZ, the plan proponents — ABIZ, the Creditors' Committee and the informal committee of 12-/14 notes — move for confirmation of their joint plan. The plan, which was overwhelmingly supported by the creditors in every class — with acceptance percentages of 95% to 100% in amount, with acceptance percentages almost as high in number — is subject to only one objection of consequence, that of feasibility — or more precisely described, the requirement of Bankruptcy Code section 1129(a)(11), for a plan of this type, that confirmation "is not likely to be followed by the liquidation, or the need for further financial reorganization of the Debtor."

The Debtor's former parent, Adelphia Communications Corporation, or ACC — which, along with its subsidiaries, is also a debtor in a separate chapter 11 case before me (which was filed as a related case) — objects to confirmation of the ABIZ plan. ACC has filed a claim for payment, partly with administrative expense priority and partly with super-priority, even over administrative expenses, of at least $71 million, and asks me to find, for purposes of the feasibility analysis, that it will likely have a claim of at least $55 million. If either of those amounts were in fact due, the ABIZ plan would not be feasible. ACC asserts these claims in the context of ongoing efforts by ABIZ to collect very substantial sums from the ACC estate, but whether or not ACC is responding in kind (and there is a possibility that overreaching by both sides has caused this controversy), its feasibility objection raises issues requiring this Court's determination.

I conducted a two-day evidentiary hearing on the feasibility issue, and in this connection I should say what I am ruling on and what I am not ruling on. On November 18, initially on about 20 days notice, ABIZ filed a motion to estimate ACC's administrative expense claim, under section 502(c) of the Code, for both feasibility and allowance purposes. I concluded that determining the allowability of a claim of that magnitude in the time frame, and with the procedures, ABIZ proposed was inconsistent with the procedural due process to which ACC would be entitled. Today, I am considering feasibility by the methods ABIZ proposed, but that alone. This approach is consistent with Judge Brozman's decision in Ralph Lauren Womenswear, 197 B.R. 771 (Bankr. S.D.N.Y.1996), where she estimated a claim for voting purposes, and said "This being but an estimation hearing, my findings of fact will not have any preclusive effect upon the ultimate disposition of Kreisler's claim. This is due to the fundamental difference between the adjudication of a claim and its temporary allowance for plan purposes." Id. at 775. See also In re MacDonald, 128 B.R. 161 (Bankr. W.D.Tex.1991) (Clark, J.) (using estimation of admin claim to determine feasibility, but not ultimate allowance).

I will be holding one or very possibly two separate hearings on the matter of the amount of allowance of ACC's admin expense claim, as to which findings here will not have res judicata or collateral estoppel effect.

Today I find the plan feasible, without determining the amount due and owing to ACC. I further find that in order to go effective under the plan, ABIZ will have to put $2.74 million into a reserve; this amount does not exceed the $5 million amount that I was advised ABIZ has the wherewithal to deposit, and whose payment would not render the ABIZ plan non-feasible.

The following are the bases for my determination. Normally I like to first set forth findings of fact, and then to follow with a separate discussion of the law. Here that's not as practical. By reason of the nature of any feasibility determination, and any estimation procedure, there are limits on the ability of the Court to find facts. In large measure, the Court instead considers likely outcomes. The determination we need to make today requires a back and forth between the law and the facts, and those that I discuss hereafter should be regarded as falling within whatever category is most appropriate.

Background
Preliminary Matters

ABIZ, which now is known as TelCove, and many of its subsidiaries filed their chapter 11 cases on March 27, 2002. On June 18, 2002, more subsidiaries of ABIZ filed chapter 11 petitions, and all have remained as debtors in possession since that time.

Until January 11, 2002, ACC owned approximately 78.4% of the outstanding stock of ABIZ and held approximately 96% of the total voting power in ABIZ. On January 11, 2002, ACC distributed to the holders of its Class A and Class B common stock, in the form of a dividend, all of the shares of ABIZ common stock owned by ACC (the "Spin-Off"). As of ABIZ's petition date, members of the Rigas family, who also own substantial amounts of ACC stock, held between 15% and 20% of ABIZ's common stock.

On ABIZ's petition date, ABIZ and certain of its subsidiaries entered into a post-petition credit facility (the "DIP Credit Agreement") with ACC and an affiliate of the Rigas family. Pursuant to the DIP Credit Agreement, ACC and the Rigas family affiliate agreed to provide a total of $135 million in financing to ABIZ and the other Debtors that were signatories of the Agreement, with the first $67.5 million of that financing to be provided by ACC. On April 4, 2002, I approved interim financing under the DIP Credit Agreement of $27 million, all of which was to be funded by ACC. In the first half of May 2002, ACC provided ABIZ with $15 million of this interim financing, but later that month ACC defaulted in its obligation to provide additional financing. ACC never provided any further financing.

On June 10, 2002, a subsidiary of ACC, Century Communications Corporation, filed a voluntary petition for relief in this Court under the Bankruptcy Code. On June 25, 2002, ACC and its other subsidiaries filed voluntary petitions for relief in this Court under the Bankruptcy Code. The chapter 11 cases of ACC and its subsidiaries are also pending before me.

On August 22, 2003, ABIZ, the Creditors' Committee and the Secured Note-holder Committee filed ABIZ's joint plan of reorganization and related disclosure statement. A first amended plan and a first amended disclosure statement were filed subsequently. On October 22, 2003, ABIZ filed their second amended plan and second amended disclosure statement, and I approved the second amended disclosure statement for solicitation and scheduled the confirmation hearing on the second amended plan for December 8, 2003.

On November 18, 2003, ABIZ, the Creditors' Committee and the Secured Note-holder Committee filed their joint motion to estimate ACC's anticipated administrative claims. On November 26, 2003, ACC filed on behalf of itself and its subsidiaries and affiliates, on a consolidated basis, a proof of claim for the allowance of administrative expenses against ABIZ "in an amount not less than $71 million." ABIZ lacks the means to pay these claims if they were to be allowed, but contends that the net value of these claims to ACC is so minimal that they should be estimated at zero, or alternatively at no more than $1 million.

The Parties' Efforts to Separate ABIZ and ACC

For a number of reasons, prior to the Spin-Off ACC and ABIZ were managed very closely together, resulting in significant confusion as to the ownership of various assets, contracts and obligations of the two companies. To further complicate matters, some employees who had the authority to enter into contractual commitments for one or the other company entered into contracts for the benefit of both companies. Therefore, numerous contracts and assets were shared among various ABIZ and ACC entities. And historically, the ABIZ Debtors' receipts were deposited into a cash management system (the "CMS") that was under the exclusive control of ACC, with all disbursements being made from a linked disbursement account that also was in ACC's exclusive control. It was through the use of cost center information embedded in the purchase order, payroll and other financial data that the financial system distinguished between the various entities.

Though I do not need for the purposes of this motion to make a finding as to any reasons, it is plain that when the Spin-Off was accomplished, ACC and ABIZ failed to provide each other with the contractual arrangements necessary to facilitate the separation and untangling of the various assets, interests, liabilities and contractual rights and obligations of ACC and ABIZ. Similarly, ACC failed to provide ABIZ with clearly delineated access to many of the assets that ABIZ historically had needed to conduct its businesses. This condition is evidenced by the fact that it took 22 months from the Spin-Off for the two companies finally to agree upon the terms of their operational separation. The assets that are the subject of that agreement give rise to the majority of ACC's administrative claims.

In the twelve weeks between the Spin-Off (January 11, 2002) and ABIZ's Initial Petition Date (March 27, 2002), little was done to clarify or further effectuate the operational separation of ABIZ and ACC, or to untangle their assets and contractual rights and obligations. This situation created significant confusion for ABIZ upon its entry into bankruptcy. In the year and a half since then, ABIZ has made considerable efforts to finalize its operational separation from ACC. For many months, ABIZ and ACC have jousted with respect to claims against each...

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