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Category: Professional Fees

USTP Opposes Chapter 11 Fees for MTE Service Providers

August 20, 2021

A recent Law 360 story by Jeff Montgomery, “US Trustee Opposes Ch. 11 Fees For MTE Service Providers”, reports that the Office of the U.S. Trustee opposed a $2 million fee award for the ad hoc committee of service providers in MTE Holdings LLC's contentious Chapter 11 in Delaware, arguing that the committee failed to show how it benefited the estate.  Several other participants in MTE's case, including MTE itself, had also opposed the request, asserting that the committee failed to show that its efforts were for the benefit of any constituency "other than its own members."

No official committee of unsecured creditors was formed in the case, with the ad hoc group asserting rights under liens.  An insufficient number of creditors agreed to serve in a traditional unsecured creditor capacity, the trustee observed.  The debtors waded through complex disputes, the trustee wrote, including a push for the appointments of a Chapter 11 trustee and a new board, chief restructuring officer and other key figures, as well as the appointment of a mediator.

"There is nothing in the mediator motion, or in the ad hoc committee's motion for substantial contribution, that indicates that the ad hoc committee played a role in negotiating the appointment of a mediator," the trustee objection said, adding separately that "Creditors are presumed to act in their own interest until they satisfy the court that their efforts have transcended self-protection."  Committee members failed to show they acted beyond self-interest, the trustee wrote, or filed motions that duplicated those of the other groups in the case.

"Importantly, the motion fails to present any evidence that the ad hoc committee's actions permitted the reorganization to proceed with a minimum of litigation, keeping costs low and hastening the reorganization by, for example, ensuring that key parties were satisfied with the direction of the case," the trustee wrote.  MTE's own objection went further, arguing that "voicing support for work already done by other creditors or constituencies hardly rises to the lofty level of 'substantial contribution.'"

The committee presented a different picture in its motion, which included a request for more than $1 million in fees for its counsel from Potter Anderson & Corroon LLP.  "With no official committee of unsecured creditors appointed in these cases, the ad hoc committee stepped in and led the charge on behalf of all statutory lienholders," the group's motion said.  Its actions were said to have "ultimately resulted in the filing of a plan of reorganization, which benefited all interested parties and the debtors' estates."  A decision on the motion is pending.

Bankruptcy Court Denies Professional Fees to Law Firm

July 30, 2021

A recent Law 360 story by Rose Krebs, “Ashby & Geddes’ Appeal in Del. Bankruptcy Fee Row Tossed,” reports that a Delaware federal judge denied Ashby & Geddes PA's bid to force a lender to fund a roughly $980,000 carve-out reserve to pay professional fees in the now-closed bankruptcy case of life sciences company NeuroproteXeon Inc.  In a memorandum opinion, U.S. District Court Judge Maryellen Noreika said that she does not have jurisdiction to decide a cross-appeal mounted by Ashby & Geddes, former counsel to NeuroproteXeon in its Delaware bankruptcy case, related to a dispute over whether the lender should have been required to fund the carve-out for professional fees.

The judge rejected Ashby & Geddes' contention that she should weigh in on an August order issued by U.S. Bankruptcy Court Judge Mary F. Walrath, which the firm contended did not direct debtor-in-possession lender JMB Capital Partners Lending LLC to fund the carve-out as it should have per a financing agreement.  "As the [August] order cannot be considered final, and interlocutory review is not warranted, the court lacks jurisdiction over the cross-appeal, and it will be dismissed," the opinion said.

The firm incurred roughly $400,000 in fees while serving as the debtors' counsel during the bankruptcy case, according to court filings.  NeuroproteXeon, a pharmaceutical company that also develops medical devices and life sciences technologies, and its affiliates filed for Chapter 11 in late 2019 amid a liquidity crisis and with plans to sell its assets.  The debtors' had little unsecured debt and owed a $250,000 bridge loan that JMB provided to help the company fund operations as it prepared for bankruptcy, according to court filings.

JMB also provided up to $5 million in post-petition financing to fund operations during the Chapter 11 case, according to court filings.  Under a final DIP order, the lender was granted first-priority liens on the debtors' assets, subject to the terms of a carve-out being set aside to pay U.S. Trustee fees and professional fees, according to the opinion.  In January 2020, JMB notified the debtors of a default on the DIP agreement because a stalking horse bidder had not been selected by a required date, the opinion said.  As of that time, "the aggregate amount set forth in the budget for allowed professional fees plus budgeted U.S. Trustee fees" and other fees was about $980,000, an amount JMB did not contest, the ruling said.