In Re Propex Inc.
| Decision Date | 28 April 2010 |
| Docket Number | 08-10250,Bankruptcy No. 08-10249,08-10253,1:09-cv-147.,No. 1:09-cv-145,08-10254.,08-10252,1:09-cv-145 |
| Citation | 432 B.R. 725 |
| Parties | In re PROPEX, INC.; Propex Holdings, Inc.; Propex Concrete Systems Corporation; Propex Fabrics International Holdings I, Inc.; and Propex Fabrics International Holdings II, Inc., Debtors.BNP Paribas, Appellant,v.Propex, Inc., et al., Appellees.Black Diamond Capital Management, LLC, Appellant,v.Propex, Inc., et al., Appellees. |
| Court | U.S. District Court — Eastern District of Tennessee |
COPYRIGHT MATERIAL OMITTED
Gene L. Humphreys, Bass, Berry & Sims, PLC, Nashville, TN, for Appellant.
Edward L. Ripley, Henry J. Kaim, Mark W. Wege, King & Spalding, Houston, TX, John F. Isbell, Sarah R. Borders, King & Spalding, LLP, Atlanta, GA, Nicholas W. Whittenburg, Shelley D. Rucker, Miller & Martin, PLLC, Jeffrey S. Norwood, Husch, Blackwell, Sanders LLPC, Laura F. Ketcham, Husch & Eppenberger, LLC, Chattanooga, TN, for Appellees.
These consolidated bankruptcy appeals brought pursuant to 28 U.S.C. § 158(a) involve common questions of law and fact. Appellants BNP Paribas (“BNP”) and Black Diamond Capital Management (“Black Diamond”) raise the same issues and arguments.
Appellees/Debtors Propex, Inc., Propex Holdings, Inc., Propex Concrete Systems Corporation, Propex Fabrics International Holdings I, Inc., and Propex Fabrics International Holdings II, Inc., each a bankruptcy debtor-in-possession (collectively “Debtors”), made a motion in the Bankruptcy Court pursuant to 11 U.S.C. §§ 105, 363, and 364 seeking authorization to pay their 2009 debtor-in-possession loan (“2009 DIP Loan”) from the net proceeds derived from the court-approved sale of substantially all of the Debtors' business assets to Purchaser Xerxes. BNP and Black Diamond raised objections.
Xerxes Operating Company, LLC and Xerxes Foreign Holdings Corporation (collectively “Xerxes”) purchased the Debtors' assets through the auction and sale approved by the Bankruptcy Court. Xerxes Operating Company, LLC and Xerxes Foreign Holding Corporation are majority owned by Wayzata Opportunities Fund II, L.P., an affiliate of Wayzata Investment Partners, LLC. Wayzata Investment Partners, LLC (“Wayzata DIP Lender”) provided the post-petition financing to the Debtors through the 2009 DIP Loan. Appellants BNP and Black Diamond refer to Xerxes as the “Wayzata Purchaser.” To avoid confusion and provide clarity, this Court will refer to the Purchaser of the Debtors' assets as Xerxes and not as the Wayzata Purchaser.
On April 15, 2009, the Bankruptcy Court held an evidentiary hearing and heard oral argument on the Debtors' motion. The Bankruptcy Court denied the objections of BNP and Black Diamond. The Bankruptcy Court granted the Debtors' motion and ordered that from the net proceeds received at the closing of the sale of the Debtors' assets, following delivery of the assets to Xerxes, the Debtors shall pay all obligations under the 2009 DIP Loan.
Black Diamond, a pre-petition lender and secured creditor, brings this appeal on behalf of itself and other funds it represents. BNP is acting as the administrative agent for the lender group under the Debtors' pre-petition senior credit facility. These consolidated appeals seek review of and relief from the DIP Payment Order entered by the Bankruptcy Court on April 15, 2009, approving the Debtors repayment of the 2009 DIP Loan from the proceeds of the sale of the Debtors' assets to Xerxes including the Debtors' cash on hand, i.e. Acquired Cash.
Appellees/Debtors (Propex) move to dismiss the appeals. First, the Debtors argue that they (not Xerxes) should be dismissed as parties to these appeals for two reasons: (1) BNP and Black Diamond previously stipulated that they waive all claims against the Debtors; and (2) by these appeals BNP and Black Diamond cannot obtain any relief from the Debtors because the asset in dispute, the Debtors' Acquired Cash-cash on hand at the closing of the sale-has already been transferred to Xerxes and is no longer in the Debtors' possession.
In the alternative, the Debtors argue that these appeals should be dismissed in their entirety on four other grounds: (1) statutory mootness under 11 U.S.C. § 363(m); (2) equitable mootness; (3) the appeals are an impermissible collateral attack on the Bankruptcy Court's Sale Order approving the sale of the Debtors' assets to Xerxes; and (4) the Appellants failed to include and join a necessary party to these appeals, the Wayzata DIP Lender that was repaid on the 2009 DIP Loan. Appellee Xerxes joins in the motion to dismiss and adopts these four alternative arguments made by the Appellees/Debtors (Propex) to dismiss the appeals in their entirety.
Appellants BNP and Black Diamond oppose the motion to dismiss their appeals. After reviewing the record, the Court concludes that the motion by Appellees/Debtors (Propex) and Appellee Xerxes to dismiss the consolidated appeals will be granted. Furthermore, the Court concludes that the decision rendered by the Bankruptcy Court on April 15, 2009, and the DIP Payment Order are correct and must be affirmed. The Bankruptcy Court has not committed an error of fact or law. These consolidated appeals will be dismissed.
Appellant BNP moves for oral argument on the Appellees' motion to dismiss the appeals. Bankruptcy Rule 8012 provides that oral argument shall be allowed in all cases unless the District Judge determines after examination of the briefs and record that oral argument is not needed. Oral argument will not be allowed if the facts and legal arguments are adequately presented in the briefs and the record, and the decisional process would not be significantly aided by oral argument.
The motion for oral argument is DENIED under Bankruptcy Rule 8012. The facts and legal arguments are adequately presented in the briefs and the record. Oral argument is unnecessary and would not significantly aid this Court in deciding the motion to dismiss the appeals.
On January 18, 2008, the Debtors filed voluntary petitions for bankruptcy under Chapter 11 of the Bankruptcy Code. The Debtors owed a syndicate of lenders approximately $230,000,000 based on pre-petition extensions of credit. BNP is the agent for the lending syndicate and Black Diamond is one of the pre-petition secured lenders.
The Debtors continued to operate their businesses as debtors-in-possession pursuant to 11 U.S.C. §§ 1107 and 1108. On January 16, 2009, the Debtors made a motion seeking authorization from the Bankruptcy Court to obtain debtor-in-possession financing (2009 DIP Loan) from the Wayzata DIP Lender to replace a previous 2008 DIP Loan that was maturing. The Bankruptcy Court granted the motion and ordered that the 2009 DIP Loan would mature and become due and payable no later than April 23, 2009, or earlier upon the closing of the sale of the Debtors' assets which secured the 2009 DIP Loan.
On February 17, 2009, the Debtors filed motions in the Bankruptcy Court seeking authorization to sell substantially all of their assets at auction pursuant to 11 U.S.C. § 363(b), and also seeking approval of bid procedures to be used in conjunction with the sale. As part of the bid procedures the Debtors submitted to the Bankruptcy Court a proposed Asset Purchase Agreement (“APA”) and “stalking horse” bid by Xerxes. The bid by Xerxes included the purchase of the Debtors' existing cash on hand. The Bankruptcy Court approved the auction bid procedures with Xerxes as the “stalking horse” bidder.
On March 23-24, 2009, the Debtors conducted the auction. Black Diamond was an active bidder along with Xerxes and a third bidder. At the conclusion of the auction, the Debtors determined that Xerxes had submitted the highest and best bid to purchase the Debtors' assets. Xerxes submitted a revised APA in connection with their final bid. The revised APA identified the assets that Xerxes would acquire and one of the assets was the Debtor's Acquired Cash. The APA defines the term “Acquired Cash” as meaning all of the Debtors' cash on hand in excess of certain “carve out” cash, but excluding certain restricted cash. In short, Xerxes made it clear in its revised APA that its final bid to purchase of the assets includes the Debtors' Acquired Cash.
Section 7.3(ii), (vii), (viii), and (xii) of the APA requires that the Debtors operate their businesses in the “ordinary course of business” and prohibits the Debtors from prematurely paying down their debt. The Debtors and Xerxes had good reasons for including the Acquired Cash provisions, and the “ordinary course of business” and “no prepayment of debts” covenants in the APA. Xerxes negotiated to purchase a going-concern business, not a hollow shell business stripped of its working capital. Without Xerxes receiving the Debtors' Acquired Cash, the businesses purchased by Xerxes would have lacked sufficient working capital and cash on hand to continue business operations after the sale closing.
There is no minimum or maximum amount of Acquired Cash specified in the Xerxes revised APA. Xerxes agreed to purchase whatever amount of Acquired Cash that was present in the Debtors' bankruptcy estates on the date of the sale closing. The Debtors agreed to sell Xerxes all accounts receivable and all inventory, whatever amount existed at the time of the closing. The Debtors agreed to operate in the ordinary course of business so that the levels of Acquired Cash (cash on hand) would not be artificially increased or decreased. Xerxes did not agree in the APA that the Debtors could pay off the 2009 DIP Loan with cash on hand prior to closing of the sale to Xerxes.
On March 24, 2009, the Bankruptcy Court held a hearing and approved the sale of the Debtors' assets to Xerxes in accordance with the APA. On March 27, 2009, the Bankruptcy Court entered the Sale Order granting the Debtors' motion and approving the sale to Xerxes pursuant to 11 U.S.C. §§ 105,...
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...the court need not address this issue because the appeals will be dismissed on the basis of statutory mootness. In re Propex, Inc., 432 B.R. 725, 741 (E.D. Tenn. 2010) ("Because this Court has determined that these bankruptcy appeals will be dismissed on the ground of statutory mootness pur......
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Operating Engineers' Local 324 Pension Fund v. K & D Indus. Servs. Holding Co. (In re K & D Indus. Servs. Holding Co.)
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