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January 25, 2008 |
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MUSICLAND HOLDING: Court Confirms 2nd Amended Liquidation Plan Finding that Musicland Holding Corp. and its debtor-affiliates' Second Amended Liquidation Plan complies with the statutory requirements, the Honorable Stuart M. Bernstein of the U.S. Bankruptcy Court for the Southern District of New York confirmed the Debtors' Plan on Jan. 18, 2007. All of the objections to confirmation of the Plan that were not withdrawn, resolved or rendered moot, were overruled. Judge Bernstein held that a reserve of US$6,300,000 in the aggregate for Allowed Administrative Claims and Allowed Priority Claims is sufficient for the Debtors to be able to fulfill their obligations under the Plan. Court Resolves Wachovia Dispute To address the objection filed by Wachovia Bank, National Association, based on indemnification claims arising out of an action filed against it, the Court held that there will be no further distributions from the Debtors' estates to any members of Class 3, including without limitation, current or former members of the Informal Committee of Secured Trade Vendors, or to any members of Class 4, general unsecured creditors, absent: (a) an agreement in writing by and among Wachovia, the Responsible Person, and the Plan Committee; (b) a final non-appealable order concluding the Litigation with no finding of liability against Wachovia; or (c) further order of the Court. At the conclusion of the Litigation, but no later than 30 days from the conclusion of the Litigation pursuant to a final non- appealable order, Wachovia may apply to the Court for a determination of the amount, if any, of any additional administrative claim for the Debtors' indemnification obligations, the allowed amount of which will be paid in accordance with the terms of the Plan and prior to any distribution to any current or former members of Class 3 or Class 4. The Secured Trade Vendors, the Plan Committee and the Responsible Person reserve all rights to object to any application. This will not prohibit distributions to be made under the Plan to (a) other holders of allowed administrative or priority unsecured claims, or (b) allowed pre-confirmation professional fees, Judge Bernstein clarified. Furthermore, the Court directed the Debtors to transfer to Wachovia US$250,000, which funds (i) will be held by Wachovia in an interest-bearing special reserve account, and (ii) may be used to pay reasonable fees and expenses incurred by Wachovia's professionals in defending the Litigation. Funds from the Special Reserve may only be disbursed in accordance with specified procedures. Any unused funds from the Special Reserve will be promptly returned to the Debtors following: -- the entry of a final non-appealable order concluding the Litigation with no finding of liability against Wachovia, -- an agreement in writing by and among Wachovia, the Responsible Person and the Plan Committee; or -- further order of the Court that Wachovia is not entitled to be paid the amounts. If the disbursement of funds by Wachovia causes the balance of the Special Reserve to become US$50,000 or less, the Debtors will transfer to Wachovia sufficient funds to replenish the Special Reserve to its original balance of US$250,000. For disbursements to be made from the Special Reserve, Wachovia's professionals will serve copies of their monthly fee statements on Wachovia, the Responsible Person and the Plan Committee. These Parties will have 10 days to object, with reasonable specificity, in writing, to items which any of the Parties contend should not be paid. Until a final non-appealable order is entered against Wachovia in the Litigation, the only basis upon which the fees and expenses of Wachovia may be challenged or disputed will be the reasonableness of particular items set forth in the monthly fee statements. In the event that no objection is made, or with respect to the balance of fees and expenses for which no objection has been received, Wachovia will be authorized to pay the fees and expenses out of the Special Reserve. In the event a timely objection is received, the Parties will first endeavor to resolve consensually the objection, failing which, the objection will be submitted to and resolved by the Court. All monthly fee statements submitted by professionals retained post-confirmation by the Responsible Person or the Plan Committee will be served on the Parties, absent: a) an agreement in writing by and among Wachovia, the Responsible Person and the Plan Committee; b) a final non-appealable order concluding the Litigation with no finding of liability against Wachovia; or c) further order of the Court. The Parties have 10 days to object, with reasonable specificity, in writing, to the payment of the fees. In the event that no objection is made, or with respect to the balance of fees and disbursements for which no objection has been received, the Responsible Person will be authorized to pay the fees. If a timely objection is received, the Parties will first endeavor to resolve consensually the objection, failing which, the objection will be submitted to and resolved by the Court. The rights of each of Wachovia, the Secured Trade Vendors and the Responsible Person, which arise out of or relate to the dispute, which is the subject of the Litigation, including without limitation the rights of the parties under an Intercreditor Agreement, are expressly preserved. In the event that a final non-appealable judgment is entered against Wachovia in the Litigation, the Parties will have the right to seek disgorgement from Wachovia of any and all disbursements from the Special Reserve in payment of fees and expenses incurred by Wachovia's professionals in defending the Litigation, and Wachovia will have the right to oppose the application. ACE and ESIS Agreements Pacific Employers Insurance Company, ACE American Insurance Company, other members of the ACE group of companies, and ESIS, Inc. can continue to perform under their agreements with the Debtors, Judge Bernstein said. Pursuant to the Plan, the Responsible Person will be responsible for the Debtors' performance of non-financial obligations under the agreements with ACE and ESIS, like notice of claims and cooperating in the investigation and defense of claims. To the extent the financial obligations of the Debtors or other insureds are not performed, including the obligations to pay premiums and to pay the insureds' share of losses and expenses, nothing will alter, amend or modify the remedies available to ACE or ESIS under their agreements with the Debtors, including the rights of ACE or ESIS to satisfy those obligations from any collateral or Paid Loss Deposit Funds currently being held by ACE or ESIS. Releases and Fees Neither the Plan nor the confirmation order discharges or releases any third party from liability for claims that may exist under bankruptcy or non-bankruptcy law. All requests for payment of Fee Claims for services rendered through the Confirmation Date must be filed with the Court no later than 45 days following the Confirmation Date. The Professionals will jointly file their Fee Claims with their third interim application for compensation and reimbursement of expenses covering the time period Dec. 1, 2006, through the Confirmation Date. Any and all prior deadlines for filing Third Interim Fee Applications are vacated. According to Judge Bernstein, the deadline for the Confirmation Order to become a Final Order is extended until Jan. 31, 2008, and the deadline for the occurrence of the Effective Date is extended until Feb. 29. A full-text copy of the order confirming the Debtors' Second Amended Joint Plan of Liquidation is available for free at: http://researcharchives.com/t/s?2750 About Musicland Holding Based in New York, New York, Musicland Holding Corp., is a specialty retailer of music, movies and entertainment-related products in the United States and Puerto Rico. The Debtor and 14 of its affiliates filed for chapter 11 protection on Jan. 12, 2006 (Bankr. S.D.N.Y. Lead Case No. 06-10064). James H.M. Sprayregen, Esq., at Kirkland & Ellis, represents the Debtors in their restructuring efforts. Mark T. Power, Esq., at Hahn & Hessen LLP, represents the Official Committee of Unsecured Creditors. At March 31, 2007, the Debtors disclosed US$20,121,000 in total assets and US$321,546,000 in total liabilities. On May 12, 2006, the Debtors filed their Joint Plan of Liquidation with the Court. On Sept. 14, 2006, they filed an amended Plan and a Second Amended Plan on Oct. 13, 2006. The Court approved the adequacy of the Amended Disclosure Statement on Oct. 13, 2006. The hearing to consider confirmation of the 2nd Amended Joint Plan started on Nov. 28, 2006. (Musicland Bankruptcy News, Issue No. 45; Bankruptcy Creditors' Service, Inc., http://bankrupt.com/newsstand/ or 215/945-7000) |
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