In re Westpoint Stevens, Inc.
| Decision Date | 26 March 2010 |
| Docket Number | 07-5049-bk (CON).,07-5019-bk (CON),07-4865-bk (XAP),07-4964-bk (XAP),Docket No. 07-4772-bk (L),07-5018-bk (XAP),07-4872-bk (CON),07-4843-bk (CON),07-4874-bk (CON),07-5043-bk (CON),07-4845-bk (CON) |
| Parties | In re WESTPOINT STEVENS, INC., Debtor. Contrarian Funds LLC, Satellite Senior Income Fund, LLC, CP Capital Investments, LLC, Wayland Distressed Opportunities Fund I-B, LLC, Wayland Distressed Opportunities Fund I-C, LLC, Beal Bank, S.S.B., Appellees-Cross-Appellants, v. Aretex LLC, Westpoint International, Inc., Westpoint Home, Inc., Wilmington Trust Company, as Agent for the Second Lien Lenders, Appellants-Cross-Appellees, Perry Principals LLC, GSC Partners, Pequot Capital Management, Appellees. |
| Court | U.S. Court of Appeals — Second Circuit |
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
COPYRIGHT MATERIAL OMITTED
Bruce Bennett, Sidney P. Levinson, and Joshua M. Mester, Hennigan, Bennett & Dorman LLP, Los Angeles, CA, for appellees-cross-appellants Contrarian Funds LLC, Satellite Senior Income Fund LLC, CP Capital Investments, LLC, Wayland Distressed Opportunities Fund I-B, LLC, Wayland Distressed Opportunities Fund I-C, LLC.
Gregory G. Hesse, Hunton & Williams, Dallas, TX, (Richard P. Meth, Day Pitney LLP, Florham Park, NJ), for appellee-cross-appellant Beal Bank, S.S.B.
Philip A. Lacovara, Andrew H. Schapiro, Kenneth E. Noble, and Daniel B. Kirschner, Mayer Brown LLP, New York, NY, (Peter D. Wolfson, Richard M. Zuckerman, Jo Christine Reed, Sonnenschein Nath & Rosenthal LLP, New York, NY), for appellants-cross-appellees Aretex LLC, WestPoint International, Inc., WestPoint Home, Inc.
P. Bradley O'Neill and Thomas M. Mayer, Kramer Levin Naftalis & Frankel LLP, New York, NY, for appellant-cross-appellee Wilmington Trust Company, as agent to the Second Lien Lenders.
Before: MINER, HALL, and LIVINGSTON, Circuit Judges.*
In this bankruptcy proceeding, secured creditor, Aretex LLC ("Aretex"), and its affiliates, WestPoint International, Inc. ("WestPoint International") and WestPoint Home, Inc. ("WestPoint Home"), collectively, "Aretex Group," and Wilmington Trust Co. ("Wilmington Trust"), the administrative agent for the junior secured creditors, appellants-cross-appellees in this matter, appeal principally from orders entered on November 16, 2005, and October 9, 2007, in the United States District Court for the Southern District of New York (Swain, J.). The District Court reversed the orders of the Bankruptcy Court (Drain, J.) permitting (1) the distribution of unregistered securities and subscription rights to satisfy the liens held by senior secured creditors and (2) the distribution of the remaining subscription rights to junior secured creditors. Objecting senior secured creditors, Contrarian Funds, LLC ("Contrarian Funds"), Satellite Senior Income Fund, LLC ("Satellite Fund"), CP Capital Investments, LLC ("Capital Investments"), Wayland Distressed Opportunities Fund 1-B, LLC ("Distressed Funds I"), Wayland Distressed Opportunities Fund 1-C, LLC ("Distressed Funds II"), collectively, the "Contrarians," and Beal Bank, S.S.B. ("Beal Bank"), the administrative agent and collateral trustee for the senior secured creditors, appellees-cross-appellants in this matter, cross-appeal, inter alia, from the orders of the District Court to the extent that they affirm the Bankruptcy Court's order of adequate protection payments to the junior secured creditors.
WestPoint Stevens, Inc. (the "Debtor") is a domestic company engaged in the manufacture and distribution of textiles.1 Beginning in or about 2000, due to "an overleveraged debt structure and an increase in foreign competition," the Debtor faced financial difficulties that required substantial sacrifices in regard to its operations and workforce. Over the next several years, the Debtor initiated business strategies to improve its ailing financial health—but to no avail. By 2003, the Debtor concluded that it would be in the best interests of its creditors and shareholders to effectuate a consensual reorganization under the Bankruptcy Code. Accordingly, on June 1, 2003, the Debtor commenced bankruptcy proceedings by filing a petition pursuant to Chapter 11 of the Bankruptcy Code.
Shortly after the commencement of bankruptcy proceedings, the Debtor, with the approval of the Bankruptcy Court, obtained further financing from post-petition creditors to preserve its business as a going concern. As a condition for obtaining the post-petition financing, the Bankruptcy Court ordered the Debtor to make adequate protection payments to both the senior and junior secured creditors as protection from the diminishing value of their collateral. While plans for reorganization were being discussed, however, the Bankruptcy Court's adequate protection order was challenged by a majority of the senior secured creditors who sought to end the adequate protection payments to the junior secured creditors. The matter was temporarily resolved by a stipulation, requiring the placement of further distributions of adequate protection payments to the junior secured creditors into an escrow account until the occurrence of certain events relating to the reorganization or sale of the Debtor's business. Eventually, it became apparent to the Debtor that reorganization was not a realistic solution to its financial woes. According to the Debtor, the proposed plans for reorganization were rejected because the Contrarians and Aretex—creditors of the Debtor and holders of the majority of the secured liens—each "insisted on controlling the restructured Debtor and were unable to reach a compromise on such issue." The principal investor in the Contrarians was Wilbur L. Ross Jr., and the principal investor in Aretex was Carl C. Icahn. See In re WestPoint Stevens, Inc., 333 B.R. 30, 34 (S.D.N.Y.2005). After almost two years of failed attempts at reaching a consensus on a plan for reorganization, the Debtor and its advisors concluded that a sale of its assets pursuant to 11 U.S.C. § 363(b) "was the only viable option available to preserve its business operations and provide a meaningful recovery to its secured creditor constituencies." Accordingly, an auction was held on June 23, 2005, for substantially all of the Debtor's assets, and Aretex emerged as the winning bidder following a heated competition with the Contrarians. Despite their initial objections, the Contrarians stipulated to allow the sale to close. Thereafter, pursuant to the terms of the sale and the Bankruptcy Court's accompanying sale order, the Debtor's assets were transferred, free and clear of liens, to WestPoint Home and in effect to WestPoint International—Aretex's vehicle corporations for the acquisition of the Debtor's business—and WestPoint International's securities were distributed to the Debtor's secured creditors for the purpose of satisfying their liens. The terms of the sale also required other distributions and the purchase of additional stocks, permitting Aretex to become the majority shareholder of WestPoint International. Aretex used its majority ownership to elect WestPoint International's board of directors, and WestPoint International has since been operating the Debtor's business for several years. Subsequent to the closing, the Bankruptcy Court also ordered the adequate protection payments held in escrow to be released to the junior secured creditors.
Acting in its capacity as an appellate court in this bankruptcy proceeding, the District Court affirmed the Bankruptcy Court's release of adequate protection payments to the junior secured creditors; however, notwithstanding the closing of the sale, the District Court reversed the Bankruptcy Court's orders in certain respects affecting Aretex's control of the Debtor's business. This appeal presents two principal issues: (1) whether the District Court had authority to modify portions of the terms of the sale affecting Aretex's control of the Debtor's business where (a) acquisition of control was the primary purpose of the sale, (b) the sale between Aretex and the Debtor had already closed, (c) there is no order in place staying the closing of the sale, and (d) the parties do not contest that the sale was completed in good faith; and (2) whether the adequate protection payments held in escrow were properly released to the junior secured creditors. For the reasons that follow, we reverse the orders of the District Court as it relates to the first issue and affirm as it relates to the second. The following subsections, Part I(A)-(G), present in further detail the essential facts of this case.
The Debtor's creditors consist of, among others, the First Lien Lenders and the Second Lien Lenders. The First Lien Lenders are senior secured creditors who have liens on the Debtor's assets having a value of approximately $488 million. The Second Lien Lenders are junior secured creditors who have liens on the same assets having a value of approximately $165 million. The Contrarians hold a majority share of the liens held by the First Lien Lenders, approximately 54%, but hold none of the liens held by the Second Lien Lenders. Aretex holds a minority share of the liens held by the First Lien Lenders, approximately 40%, and also holds a majority of the liens held by the Second Lien Lenders, approximately 51%. Beal Bank is the administrative agent and collateral trustee of the First Lien Lenders, and Wilmington Trust is the administrative agent for the Second Lien Lenders.
Before the commencement of bankruptcy proceedings, on June 29, 2001, the First and Second Lien Lenders entered into an Intercreditor and Lien Subordination Agreement (the "Intercreditor Agreement"), which provided, inter alia, that "until all First Lien Indebtedness has been paid in full in cash ... the Second Lien Lenders shall not be entitled to ... exercise any...
To continue reading
Request your trial
- Brown Media Corp. v. K & L Gates, LLP
- In re Corbett
- Edmonson v. Lincoln Nat'l Life Ins. Co.
- United Mine Workers of Am. Combined Benefit Fund v. Walter Energy, Inc.
-
So You Want To Sell (Or Buy) A Company Under Section 363? Here's How
...Healthcare Corp., No 03-10254 (Bankr. D. Del. 2003). 35 See., e.g., Contrarian Funds, LLC v. Aretex, LLC (In re WestPoint Stevens, Inc.), 600 F.3d 231, 242 (2d Cir. 2010) (noting that bankruptcy court entered order confirming that 'the winning bid presented 'the highest and best bid at the ......
-
United States Supreme Court Holds That Bankruptcy Code Section 363(m) Does Not Preclude Appellate Jurisdiction On Asset Sale Orders
...up to judicial estoppel or mootness arguments. Footnotes 1. 11 U. S. C. '363(m). 2. Compare, e.g., In re WestPoint Stevens, Inc., 600 F.3d 231, 247 (2d Cir. 2010), and In re Walker Cnty. Hosp. Corp., 3 F.4th 229, 234 (5th Cir. 2021) (holding that failure to obtain a stay of an order approvi......
-
Alla Raykin, section 363 Sales: Mooting Due Process?
...363(m) does not apply to assets not in the bankruptcy estate).E.g., Contrarian Funds LLC v. Aretex LLC (In re Westpoint Stevens, Inc.), 600 F.3d 231, 249 (2d Cir. 2010) (noting there may be a narrow exception when the challenge is divorced from the overall transaction andwould not affect an......
-
Mixed Questions of Fact and Law: Deferential or Plenary Review?. Don't be put off by the formulaic presentation of the clearly erroneous standard of review of factual findings in the context of mixed questions of law and fact
...in the face of Anderson , some federal courts also engage in this type of independent review. See, e.g. , In re WestPoint Stevens, Inc. , 600 F.3d 231, 260 (2d Cir. 2010) (do novo review of documents in appeal of bankruptcy proceedings); Spirko v. U.S. Postal Serv. , 147 F.3d 992, 999 (D.C.......
-
Chapter 4 Adequate Protection
...558, 564-67 (B.A.P. 6th Cir. 2010); In re Hari Ram Inc., 507 B.R. 114, 125 (Bankr. M.D. Pa. 2014).[386] See In re WestPoint Stevens Inc., 600 F.3d 231, 257 (2d Cir. 2010).[387] In re O'Connor, 808 F.2d 1393, 1398 (10th Cir. 1987).[388] See, e.g., In re Swedeland Dev. Group, 16 F.3d 552, 564......