Company Background and the Withdrawal

Yellow Corporation participated in numerous multiemployer pension plans while operating as one of the country's largest trucking companies. The company discontinued business operations in July 2023 and filed for Chapter 11 bankruptcy shortly thereafter. Under ERISA, that cessation of business constituted a complete withdrawal from all of its multiemployer pension plans, triggering withdrawal liability claims totaling approximately $7.4 billion across 16 plans. Central States, Southeast and Southwest Areas Pension Fund additionally asserted a claim of approximately $917 million under a 2014 contribution guaranty agreement, and the New York State Teamsters Conference Pension & Retirement Fund asserted a liquidated damages claim for $76 million.

The claims triggered years of complex litigation. The Court issued multiple partial summary judgment rulings between 2024 and 2025 on contested ERISA calculation issues, including the validity of PBGC regulations, the application of ERISA's 20-year cap, the enforceability of contractual undertakings to pay enhanced withdrawal liabilities, and the proper interest rate for calculating unfunded vested benefits. The Third Circuit affirmed the Court's November 2024 rulings in September 2025. A petition for certiorari was filed in February 2026.

The Five-Step Settlement Methodology

The settlements were structured around a five-step methodology applied uniformly across most of the pension plans. In the first step, the parties determined unfunded vested benefits using an interest rate weighted 60 percent to the minimum funding rate and 40 percent to the rate originally selected by the plan's actuary. This represented a compromise of the Court's February 2025 ruling, which had followed three circuits in holding that the rates must be similar. The second step determined annual payments conforming with the Court's rulings on the effect of 2014 ERISA amendments. The third step capped each claim at the lesser of total unfunded vested benefits or 20 years of annual payments.

The fourth step differentiated between plans that received special financial assistance under the American Rescue Plan Act and those that did not. Plans without special financial assistance had their claims discounted at five percent, a compromise figure. The fifth step reduced each claim by 25 percent to account for ERISA's insolvency cap under § 1405(b), which the Court had ruled would require a 50 percent reduction if the debtors proved insolvency.

The Standard of Review

The opinion devoted substantial analysis to the standard applicable to settlement approval when a party in interest has objected to the underlying claims. The Court adopted an intermediate standard drawn from In re DVR, affording the debtor in possession some deference while still conducting a searching inquiry into reasonableness. The Court rejected the most deferential "business judgment" approach and the strictest approach that would require full claims adjudication before settlement. The Court noted that recent decisions, including Truck Insurance Exchange v. Kaiser Gypsum Co. from the Supreme Court and the Third Circuit's In re FTX Trading Ltd., effectively eliminated the most deferential approach.

The Court emphasized that the familiar language about the "lowest point in the range of reasonable" does not support rubber-stamping settlements. A bankruptcy court must hear out objections and satisfy itself that the settlement is in fact reasonable, while still recognizing that the debtor in possession's business judgment is entitled to some measure of deference.

Settlements Approved

The Court approved settlements with 13 of the 16 pension plans, finding the five-step methodology reasonable in light of the risk that the Court's prior rulings could be reversed on appeal.

On the interest rate compromise, the Court noted that the 60/40 weighting effectively ascribed a 40 percent likelihood of reversal. The Court's own assessment placed that probability closer to 33 percent, but found 40 percent within the range of reasonable. On the five percent present value discount rate, the Court found the resolution modest given the enormous potential variation in total claims. On the 25 percent insolvency reduction (half of the 50 percent the Court had ruled applicable), the Court found the legal arguments for reversal on the ordering of caps to be weak but acknowledged factual uncertainty about the debtors' solvency as of the July 2023 withdrawal date, noting that the debtors' equity traded for positive value post-petition.

The Court also approved the settlement of Central States' guaranty claim. The $917 million claim, which the Court had found to be an unenforceable penalty clause under Illinois law, was settled for $165 million, approximately 18 percent of the asserted amount. The Court concluded there was roughly an 18 percent chance an appellate court might reverse that ruling. The Court separately approved the Local 710 settlement, finding that a hypothetical "fresh start" accounting issue did not warrant departing from the common methodology.

The Court further approved the settlement's gifting provision, under which the settling pension plans agreed to contribute approximately $7.4 million (referenced elsewhere in the opinion as $7.5 million) to compensate creditors holding non-joint-and-several claims for the dilutive effect of the settlements. Following In re Nuverra Environmental Solutions, the Court read Third Circuit precedent in In re Armstrong World Industries to permit horizontal gifting. The Court rejected the objection that this violated the Supreme Court's reasoning in Czyzewski v. Jevic Holding Corp., finding the gift would not violate existing law even if included in the plan itself.

Settlements Denied

The Court denied approval of three settlements.

New York Teamsters. The proposed settlement of $326.5 million was denied. The five-step methodology yielded a withdrawal liability claim of $250.8 million. The remaining $75.7 million was attributable to liquidated damages, but the fund's own policies capped liquidated damages at 10 percent of withdrawal liability, which would produce a maximum of $25.1 million. The Court also gave weight to the objector's argument that ERISA § 1451(a) requires an enforcement action as a predicate for liquidated damages, finding it warranted at least a 20 percent further reduction. The Court offered the parties an alternative: a revised settlement at $270.8 million ($250.8 million in withdrawal liability plus $20 million in liquidated damages). The Official Committee of Unsecured Creditors joined in the objection to this settlement.

Locals 617 and 1730. Both settlements departed from the five-step methodology with no justifying rationale. For Local 617, the methodology yielded $0.1 million but the settlement was $3.0 million. For Local 1730, the methodology yielded $2.3 million but the settlement was $7.5 million. Even accounting for Local 1730's mass withdrawal exception (which removes the 20-year cap), the maximum claim was only $5.1 million. The debtors' financial advisor acknowledged at the evidentiary hearing that these settlements were notably less favorable than others and were not rooted in the settlement methodology. The Court suggested the parties either settle at the amounts the methodology yields or pursue § 502(c) estimation for prompt resolution.

Settlement Comparison

Path Forward

The Court noted that the settlements with each pension plan are severable, independent agreements. The parties may submit a proposed order approving the settlements the Court found reasonable, allowing that order to become final and appealable while further proceedings continue on the denied settlements. For the New York Teamsters, the Court offered the alternative of a revised settlement at $270.8 million or a scheduling order to resolve remaining factual and legal issues. For Locals 617 and 1730, the Court offered the alternative of settlement at the five-step methodology amounts or prompt briefing on a § 502(c) estimation motion.

The case continues before the United States Bankruptcy Court for the District of Delaware, Case No. 23-11069 (CTG), before Judge Craig T. Goldblatt.

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Company Background and Business Operations

Bravo Brio Restaurants, LLC operates restaurants nationwide under two brand names: Brio Italian Grille and Bravo! Italian Kitchen. The company acquired its assets in 2020 through a Section 363 sale in the Chapter 11 bankruptcy of FoodFirst Global Restaurants, Inc. In that transaction, senior lender GPEE Lender, LLC prevailed at auction via credit bid and assigned the sale rights to the company, which assumed $23 million in GPEE senior secured debt.

The company is the sole owner of six subsidiary entities, each functioning as a special purpose vehicle associated with a particular restaurant location. Each subsidiary holds the lease, liquor license, and furniture, fixtures, and equipment interests for its respective restaurant. Four of the six subsidiaries are debtors in the jointly administered cases.

On the petition date of August 25, 2025, the debtors operated 48 restaurants and employed approximately 4,000 individuals. By the time of the confirmation trial in January 2026, operations had been reduced to 43 restaurants with approximately 3,000 employees.

The inKind Relationship and the Credit Purchase Agreement

The central dispute in the case involves a Credit Purchase Agreement between the company and inKind, a restaurant financing company that purchases credit from restaurant operators at a substantial discount and resells it to consumers through a smartphone application at close to face value.

In July 2023, the company and inKind entered into the Credit Purchase Agreement, under which inKind purchased $5 million in credit for $2.5 million. The agreement was later amended to add another $2 million in credit for $1 million, bringing the total to $7 million in credit acquired by inKind for $3.5 million. The company's subsidiaries were not parties to the agreement.

A critical feature of the agreement required the company to honor credit sold by three "Sister Merchants," identified as Buca, LLC, PB Restaurants, LLC, and OCS Restaurant Holdings, LLC, without receiving any additional compensation. The agreement did not specify the amount of credit purchased from the Sister Merchants and did not limit the company's responsibility to honor that credit. The agreement was governed by Delaware law.

The agreement contained several provisions that became central to the court's analysis. Upon an event of default, liquidated damages would be calculated at $0.65 times the amount of "purchased Credit" not yet sold or redeemed. A Limitation of Liability provision capped the company's aggregate liability at $5 million, an amount equal to the initial credit purchase. Notably, this cap was not modified when the agreement was amended to include additional credit.

Rejection and the Path to Confirmation

On September 5, 2025, the debtors filed a motion to reject the inKind agreement, arguing it was burdensome because the company was honoring approximately $75,000 per week in credit without receiving revenue from those sales. inKind objected, contending that the agreement was not an executory contract but a security agreement. The court granted rejection on October 30, 2025, finding the agreement executory under the Countryman definition and ruling that rejection was a proper exercise of business judgment.

Following rejection, inKind filed 15 total proofs of claim (three identical claims in each of the five bankruptcy cases), each seeking $11,932,899 and asserting a security interest in the debtors' assets.

Estimation of inKind's Claims at Zero

The court's contract interpretation analysis, applying established principles of Delaware law, proved decisive. The opinion concluded that the parties intended upon default that the company would only be responsible for damages based on unredeemed credit it sold to inKind, not credit sold by the Sister Merchants.

The court reached this conclusion by examining several provisions of the agreement as a whole. Liquidated damages were calculated on "purchased Credit" not yet sold or redeemed. Because "purchased" modifies "Credit," the court found it referred to something less than the general term "Credit" used elsewhere to describe what the company must redeem. The default provisions made no reference to credit sold by Sister Merchants, and the agreement contained no cross-default or cross-collateralization language tying the company's liability to the Sister Merchants' obligations. The limitation of liability, capped at $5 million (equal to the initial credit purchase amount), further supported this interpretation.

The unrebutted testimony at trial established that over $7 million in credit had been redeemed at the debtors' restaurants, with the company's general counsel testifying that $8 million had been redeemed, exceeding the $7 million in credits sold by the company to inKind. inKind did not dispute these calculations and introduced no evidence regarding unredeemed credit specific to the company as opposed to Sister Merchant credit.

The court estimated inKind's claims at $0 for all purposes under Section 502(c) and Bankruptcy Rule 3018, sustained the debtors' omnibus objection, disallowed all 15 proofs of claim in their entirety, and ordered the release of any liens held by inKind on the debtors' assets. The court also noted in a footnote that if it were necessary to address whether inKind held a security interest, it would conclude that inKind did not: the debtor subsidiaries did not execute the agreement, and as to the parent company, inKind's interest would be junior to GPEE with no remaining value for inKind's lien to attach.

Disclosure Statement Approval

inKind's challenge to the Disclosure Statement centered on the fact that the solicitation package it received via U.S. mail did not include the Disclosure Statement. The court found this deficiency harmless. inKind's counsel received the Disclosure Statement electronically via the court's CM/ECF system on December 9, 2025, three days before the solicitation package was mailed. The court noted that under the local rules of the Middle District of Florida, registration as an Electronic Filing User constitutes a waiver of the right to receive service by first-class mail. inKind's pleadings and arguments at trial demonstrated that it fully understood the terms of the plan, and no other creditors raised concerns about not receiving the Disclosure Statement.

The court found the Disclosure Statement contained adequate information, noting that it specified what allowed general unsecured claims would receive (a pro rata distribution of $750,000), when they would receive it (on the effective date), and all contingencies to receiving the distribution.

The Confirmed Plan of Reorganization

The confirmed Second Modified Plan of Reorganization provides for the continued operation of all debtor entities. Upon confirmation, Champion will fund an additional $4.5 million into GPEE (having already funded $3.5 million into GPEE during the case to finance a DIP loan). Post-confirmation, R&R Brands, a Champion affiliate, will oversee day-to-day operations.

The plan has ten classes: one priority claims class, seven secured claims classes, one unsecured claims class, and one equity interests class. All classes are impaired. Allowed general unsecured creditors in Class 9 will receive a pro rata distribution of $750,000 from the sale of a liquor license at the company's Freehold, New Jersey restaurant. Equity interests will vest in GPEE or its designee on the effective date.

Creditor support was overwhelming. All classes other than inKind voted to accept the plan, with claims totaling over $32 million. In Class 9, 17 creditors cast ballots in favor of the plan.

Confirmation Requirements

The court systematically addressed each of the confirmation requirements challenged by inKind.

On good faith under Section 1129(a)(3), the court found no abuse of the judicial process, characterizing the failure to mail the Disclosure Statement to inKind as harmless error.

On the best interests test under Section 1129(a)(7), the debtors' liquidation analysis demonstrated that unsecured creditors would receive nothing in a Chapter 7 liquidation, compared to a pro rata share of $750,000 under the plan. inKind failed to specify which individual debtor estates would have assets available for unsecured creditors or to identify flaws in the liquidation analysis.

On the impaired accepting class requirement of Section 1129(a)(10), the court acknowledged a split of authority on whether the requirement applies on a per-plan or per-debtor basis but found it satisfied under either approach. The court distinguished a prior Middle District of Florida decision that had applied a per-debtor analysis, noting that class gerrymandering was present in that case but not here.

On feasibility under Section 1129(a)(11), the court credited testimony regarding the $4.5 million capital infusion, 2026 projections indicating $11 million available to cover plan payments, and the expected sale of the liquor license within three to six months. inKind presented no evidence to contradict this testimony.

Because inKind's claim was estimated at $0, the court found the plan did not impair inKind, all classes accepted the plan, and Section 1129(a)(8) was satisfied without need for a cramdown analysis under Section 1129(b).

Key Dates

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 24 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background and Business Operations

Power Block Coin, L.L.C., operating under the trade name SmartFi, is a Utah limited liability company that provided crypto-based financial services including cryptocurrency exchange, savings, crypto-based lending, token creation and offering, alternative currencies, and cryptocurrency investment. The company had no employees of its own. All work was performed by employees of its parent company, Blue Castle Holdings, Inc., under a pre-petition Management Services Agreement that the Court subsequently approved. Under that agreement, Blue Castle used funds from its own bank accounts to pay the Debtor's obligations, and the Debtor either transferred cryptocurrency to Blue Castle or applied credits against a $1.4 million loan it had made to Blue Castle in August 2023.

The Debtor has ceased operations. Beginning in 2022, worldwide cryptocurrency markets experienced a rapid collapse and sustained period of instability, which contributed to the company's financial deterioration.

Path to Bankruptcy and Case History

The case has been pending for approximately 21 months since the petition date, and the Court characterized it as having been "fraught with issues" throughout. The Debtor initially elected to proceed under Subchapter V of Chapter 11 despite facing claims in excess of $192 million. Almost four months later, the Court sustained objections to that election, rendering the case a traditional Chapter 11 proceeding and leading to the appointment of the Official Committee of Unsecured Creditors.

The Committee's investigation uncovered a series of concerns about the Debtor's management of the estate. The Debtor's monthly operating reports failed to adequately account for changes in the Blue Castle loan balance and the value of its cryptocurrency holdings, and contained entries the Debtor could not adequately explain at a hearing on a motion to compel accounting. The Committee alleged that the Debtor's assets had been commingled with those of Blue Castle and its affiliates to the point of incomprehensibility, that the Debtor diverted the bulk of its assets through unsecured loans to affiliates under the principal's common control at favorable rates with no payments due for years, and that the Debtor failed to preserve its rights in a property on which a $2 million post-petition lien was placed. Monthly operating reports also revealed payments from undisclosed bank accounts, and the U.S. Trustee identified unaccounted-for checks related to a theft recovery.

Plan negotiations proved equally difficult. The Court denied the Debtor's motion to extend its exclusivity period in December 2024, noting the Debtor had not demonstrated the ability to operate with transparency and good faith. The Debtor filed its First Amended Plan of Reorganization on December 16, 2024, and the Committee filed its own plan on January 30, 2025, followed by an amended version on March 7, 2025. Negotiations with the then-largest creditor, Celsius, for a term sheet were unsuccessful, and a subsequent mediation among the Debtor, Blue Castle, the Committee, and other Debtor affiliates reached tentative agreement on some issues but ultimately ended in impasse.

Competing Motions: Trustee Appointment vs. Conversion

The Committee filed its Motion to Appoint a Chapter 11 Trustee on October 21, 2025. A creditor and the U.S. Trustee initially joined in support, though the U.S. Trustee later adopted a neutral position after the Debtor filed its own motion to convert to Chapter 7. Two additional creditors also supported the Chapter 11 Trustee appointment.

The Debtor, for its part, conceded that plan confirmation was no longer feasible due to increasing administrative fees and the inability to reach agreement with the Committee. The Debtor stated it no longer wished to remain in possession and did not challenge the Committee's allegations, recognizing that placement of an independent trustee was in the best interests of creditors. The Debtor did, however, acknowledge that Chapter 7 would produce a worse outcome than the terms previously negotiated among the Committee, Celsius, and the affiliates under the Committee's joint plan proposal.

Four creditors and investors, including one Committee member, joined the Debtor in seeking conversion to Chapter 7 after the hearing.

The Court's Analysis

The Court framed the central question as which form of trustee oversight would best serve creditors, noting that both sides agreed the Debtor should no longer control the estate. The legal standards under Sections 1104(a)(2) and 1112(a) and (f) converge on a single criterion: what is in the best interests of creditors.

On the conversion question, the Court applied the framework established by the Tenth Circuit Bankruptcy Appellate Panel in Kearney, which holds that if a court would immediately reconvert a case back to Chapter 11 under Section 706(b), it need not go through the "procedural anomaly" of converting in the first instance. The Court concluded it would do exactly that, and therefore denied conversion under Section 1112(f).

Three factors drove the Court's decision to keep the case in Chapter 11 with a trustee rather than convert to Chapter 7.

First, the Court found that conversion would cause unnecessary and potentially harmful delay. The Committee has spent significant time and energy investigating the Debtor and still needs additional information. A Chapter 7 Trustee would need to learn the case from scratch without the Committee's assistance, as the Committee would be disbanded in Chapter 7. With statutes of limitation on potential avoidance actions approaching, the estate cannot afford additional delay. The Tenth Circuit has held that the limitations clock does not reset upon appointment of a subsequent trustee, making any time lost to transition a real and permanent risk to the estate.

Second, Chapter 11 offers expanded flexibility for a trustee to exercise independent judgment and direct the affairs of the estate to optimize recovery. The Committee intends to work with the appointed trustee to confirm the Committee's pending plan, preserving the institutional knowledge the Committee and its professionals have developed over the life of the case.

Third, the Committee represented that it and its professionals would manage administrative fees to permit a Chapter 11 Trustee to recover value for the estate. The Committee has agreed to defer fees so they are not due on the effective date of the plan, and both trustee candidates the Committee interviewed have agreed to work on a contingency basis. The Committee asserts sufficient assets exist to fund the case, including cryptocurrency inventory, amounts owed under the Blue Castle loan, and potential claim settlements.

The Court also considered and rejected the Committee's argument that a Chapter 11 Trustee would be better insulated from the in pari delicto defense than a Chapter 7 Trustee. The Court found this factor not determinative, concluding that the defense's applicability depends more on the nature of the claims brought than on who brings them.

The Court described the decision as "a close one" but concluded that remaining in Chapter 11 offers material benefits to creditors compared to conversion.

Disclosure Statement and Next Steps

The Court placed the pending disclosure statement on hold pending the Chapter 11 Trustee's appointment and review, finding it would be a waste of resources to advance the disclosure statement process without the incoming trustee's approval. The Court noted concerns about whether the disclosure statement contains sufficient information regarding assets available to pay creditors relative to anticipated administrative fees.

If the appointed Trustee wishes to move the disclosure statement forward in a substantially similar form, the Court indicated it will entertain requests for expedited consideration. The Court also acknowledged that if the Debtor is correct that insufficient assets exist to pay administrative fees and confirm a plan, a trustee working on a contingency basis would be positioned to inform the Court if liquidation through Chapter 7 is ultimately the better course.

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 24 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background and Business Operations

The five Debtor entities were formed as Florida entities in 2017 by two co-founders who have exercised managerial control over each entity since inception. The Debtors were organized to acquire, manage, renovate, and operate real property, consisting primarily of single-family residential properties and vacant lots located in Florida, Pennsylvania, Texas, and New Jersey.

Each Debtor filed a voluntary Chapter 11 petition on March 1, 2026, signed by the Chief Restructuring Officer. The petitions reflect estimated assets collectively between $500,001 and $100 million, with estimated liabilities in the same range. The Debtors' consolidated list of the 30 largest unsecured creditors indicates total unsecured debt well in excess of $9 million.

The cases have carried several markers of complexity from the outset. A notice of deficient filing was issued the day after the petitions were filed, citing the Debtors' failure to file schedules of assets, financial affairs statements, and other required documents. The Debtors subsequently sought additional time to compile that information with the assistance of the Chief Restructuring Officer, counsel, and proposed professionals. According to filings in the case, the Debtors have been the subject of lawsuits by investors as well as investigations by the Securities and Exchange Commission and the Florida Attorney General. No committee of unsecured creditors and no Chapter 11 trustee had been appointed as of the date the examiner motion was filed.

The Order Appointing an Examiner

On April 1, 2026, the Court granted the United States Trustee's unopposed motion to appoint a Chapter 11 examiner (Dkt. No. 167). The Debtors had consented to the appointment, and the Court entered the order without a hearing.

The order directs the examiner to conduct the investigation specified in Bankruptcy Code sections 1106(a)(3) and (4), which encompass the Debtors' acts, conduct, assets, liabilities, financial condition, business operations, and the desirability of continuing the business. The investigation specifically includes any allegations of fraud, dishonesty, incompetence, misconduct, mismanagement, or irregularity by former management, as well as whether the estate may hold causes of action based on any such conduct.

Scope of the Investigation

Beyond the statutory mandate, the order identifies four specific areas of inquiry that define the contours of the examination.

First, the examiner is directed to trace cash inflows and outflows between investors and lenders on one hand and the Debtors on the other, including money raised by the Debtors but deposited or sent to non-Debtor entities. The examiner is also tasked with determining, to the extent ascertainable, whether those payments should be characterized as debt or equity.

Second, the order requires analysis of "rollover" investments: whether they should be valued, at what valuation, and how they should be characterized.

Third, the examiner must perform a comprehensive accounting reconciliation of the utilization and transfers of the Debtors' assets and cash for the four-year period prior to the petition date. This includes money raised by the Debtors but deposited or sent to non-Debtor entities, as well as the connections and transfers among the Debtors and non-debtor entities including directors, officers, insiders, and affiliates.

Fourth, the investigation covers the origination and receipt of investments in Inner Circle memberships, REIT interests, joint ventures, and hard money loans from investors, along with any repayment of those investments.

The breadth of these topics reflects the complexity of the Debtors' capital structure and the nature of the concerns raised by investors and government agencies. The four-year lookback period, combined with the directive to trace funds flowing to non-Debtor entities and to examine the debt-versus-equity characterization of investor payments, signals that the examination will probe the fundamental question of how investor capital was raised, deployed, and accounted for across the enterprise.

Selection of the Examiner

The Acting United States Trustee appointed Maria M. Yip as examiner on April 2, 2026, and filed an application seeking court approval of that appointment (Dkt. No. 176). Yip is affiliated with Yip Associates, a firm based at 9200 S. Dadeland Boulevard in Miami.

The United States Trustee solicited nominations for examiner candidates from three parties in interest: Debtors' bankruptcy counsel, the Securities and Exchange Commission, and the Florida Office of the Attorney General. The involvement of both the SEC and the state Attorney General in the nomination process underscores the regulatory dimension of these cases.

In a verified statement filed alongside the application (Dkt. No. 176-1), Yip certified under penalty of perjury that she has no connections with the Debtors, creditors, other parties in interest, their attorneys and accountants, the United States Trustee, or any person employed in the Office of the United States Trustee. The verified statement does disclose one matter: an employee of Yip Associates was previously employed at Kaufman Rossin, a firm that had been retained by the SEC to perform work related to the Debtors. That employee worked on the SEC engagement. To address this prior relationship, an informational barrier will be implemented to restrict the employee's access to physical and electronic documents and information that the examiner and Yip Associates will receive or create in connection with the investigation.

Cooperation Obligations and Government Coordination

The order imposes cooperation obligations on a wide range of parties. The Debtors, their affiliates, managers, employees, directors, officers, subsidiaries, the Chief Restructuring Officer, and any unsecured creditors' committee (if one is later appointed) are all directed to cooperate with the examiner and provide all documents and information within their possession that the examiner deems relevant.

One of the order's more notable provisions is the directive requiring the examiner to coordinate with multiple government agencies. The examiner must cooperate fully with any federal, state, or local government agency currently investigating, or that may in the future investigate, the Debtors, their management, or their financial condition. The order specifies that the examiner is to promptly meet and confer with representatives of the Debtors, any unsecured creditors' committee, the Florida Attorney General, the SEC, the United States Trustee, and the United States Attorney for the Middle District of Florida to develop a work plan and coordinate the investigation. The inclusion of the U.S. Attorney's office in that list, alongside the SEC and the Florida Attorney General, suggests the potential for parallel government investigations beyond the bankruptcy proceeding.

If the parties cannot reach agreement on a work plan, coordination protocol, or proposed budget, the examiner must promptly report the impasse to the Court and submit recommendations for resolution.

Reporting Requirements and Confidentiality

The examiner's initial report to the Court is due within 60 days of the order approving the appointment. Beyond that initial filing, the examiner may file public reports on completed phases or progress of the investigation at the examiner's discretion.

Public disclosure is otherwise restricted. Neither the examiner nor the examiner's representatives may make public disclosures concerning the investigation except through court filings. Cooperation with governmental agencies is expressly excluded from the definition of public disclosure, preserving the examiner's ability to share information with regulators and law enforcement under protocols to be established.

The order also includes robust privilege protections. Disclosure of documents or information to the examiner does not constitute a waiver of work-product, attorney-client, or other privilege. Disputes over privileged documents may be brought before the Court for resolution. The examiner is required to cooperate with the Debtors and any creditors' committee to ensure that publicly filed reports do not contain privileged information, including information regarding the Debtors' prospects or litigation strategies.

Reservation of Rights

The order explicitly preserves the right of any party in interest to seek an expansion of the investigation's scope, to request the appointment of a Chapter 11 trustee, or to seek any other lawful relief. Any party objecting to the examiner appointment was required to file an objection within seven days of the order's entry.

Case Information

The cases are jointly administered before the United States Bankruptcy Court for the Middle District of Florida, Tampa Division, under Lead Case No. 8:26-bk-01636-CPM. The Debtors are represented by Pack Law of Coral Gables, Florida. The examiner motion was filed by the Office of the United States Trustee for Region 21.

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of approximately 15 pages of court filings in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Background: The Company and the Receivership

Uncle Nearest, Inc. is an American whiskey company with products available in all 50 states and 12 countries, with a presence in more than 50,000 stores, bars, hotels, and restaurants, according to a press release filed as an exhibit in the case. The company's Nearest Green Distillery in Shelbyville, Tennessee welcomes approximately 200,000 visitors annually.

On July 28, 2025, Farm Credit Mid-America, PCA filed a verified complaint and request for appointment of a receiver against the Uncle Nearest entities and two individual defendants in the United States District Court for the Eastern District of Tennessee, seeking to recover more than $108 million in outstanding loans and to preserve collateral securing those loans. On August 22, 2025, District Judge Charles E. Atchley entered an Order Appointing Receiver, designating a restructuring attorney from Thompson Burton PLLC to serve as receiver over Uncle Nearest, Inc., Nearest Green Distillery, Inc., and Uncle Nearest Real Estate Holdings, LLC.

The Receivership Order granted broad authority to the receiver. Paragraph 9 provided that the receiver would be "exclusively vested" with all the powers of officers, directors, members, and managers of the entities. Paragraph 10(q) specifically authorized the receiver to commence proceedings under title 11 of the United States Code on behalf of the entities. The order also enjoined all officers, directors, employees, and agents from interfering with the receiver's actions. The only carve-out permitted the company's founders to continue marketing products and managing the brand, subject to the receiver's supervision.

In December 2025, the District Court struck filings that had been made on behalf of the entities without the receiver's authorization, ruling that only the receiver could represent the companies' interests in the pending litigation.

The Bankruptcy Filing and Response

On March 17, 2026, the company's chief executive officer signed and filed voluntary Chapter 11 petitions for all three entities in the Bankruptcy Court for the Eastern District of Tennessee. A press release issued simultaneously through the company's holding entity announced that the filing had brought the receivership to an end and that the company would pursue claims and counterclaims against its lender through the bankruptcy process. The press release stated that unsecured obligations totaled approximately $13.2 million, that the outstanding principal balance owed to Farm Credit was approximately $102.5 million, and that the company's enterprise assets were estimated at approximately $529 million.

The receiver contacted the debtors' bankruptcy counsel, forwarded the Receivership Order, and requested that the petitions be withdrawn. Counsel for the debtors responded with awareness of the receivership order but declined to withdraw the petitions, contending that the order authorized the receiver to file bankruptcy but did not make that authority exclusive or prohibit the debtors from filing.

The Receiver's Motion to Dismiss

On March 18, 2026, the receiver filed an expedited motion to dismiss the bankruptcy cases or, in the alternative, to be recognized as the exclusive authorized representative of the debtors. The motion advanced two primary arguments.

First, the receiver argued the court lacked subject matter jurisdiction because the petitions were filed by an individual without authority under applicable law to bind the entities. The receiver contended that the Receivership Order vested exclusive authority in the receiver through Paragraph 9's grant of all powers of officers, directors, members, and managers, and that Paragraph 10(q) specifically designated the receiver as the party authorized to file bankruptcy. The receiver further noted that the order's injunctive provisions explicitly prohibited officers and directors from interfering with the receiver's administration.

Second, the receiver argued dismissal was warranted for bad faith under 11 U.S.C. § 1112(b). Applying the Sixth Circuit's multi-factor totality-of-the-circumstances test, the receiver contended that the petitions were filed in violation of the District Court's injunction and represented an attempt to evade the receivership. The receiver noted that the chief executive officer had publicly announced that the filing ended the receivership. The receiver further disclosed that it was approximately four months into a marketing campaign for the sale of the entities as a going concern and that dismissal, rather than conversion to Chapter 7, would serve the best interests of creditors.

The Secured Lender's Motion to Dismiss

Farm Credit Mid-America filed its own motion to dismiss on March 19, 2026, raising similar arguments regarding lack of authority and bad faith, with additional factual assertions. The lender alleged that under the prior management of the company's founders, the entities had failed to file tax returns for at least five years, incurred excessive debt with no viable path to repayment, sold future revenues at a discount, operated at a cash flow deficit, lacked financial controls, and failed to maintain reliable financial records.

The lender's motion also alleged that the chief executive officer had diverted $20 million in proceeds from convertible promissory notes executed with an outside investor to a separate entity and had testified under oath that the transfer was made to prevent the lender from reaching those funds. The lender argued this conduct constituted fraud warranting appointment of a Chapter 11 trustee if the cases were not dismissed.

As alternative relief, the lender requested that the receiver be appointed as Chapter 11 trustee, citing the receiver's eight months of familiarity with operations and the need for continuity.

The Debtors' Opposition

The debtors filed their response in opposition to the receiver's motion on March 18, 2026, raising several counterarguments.

On the jurisdictional question, the debtors argued that the receiver conflated corporate authority with jurisdiction, contending that the filing of a bankruptcy petition invokes jurisdiction under 28 U.S.C. § 1334 and that disputes about filing authority are resolved within that jurisdiction rather than as a basis to defeat it.

On the authority question, the debtors relied on In re 530 Donelson, LLC, a 2024 decision from the Bankruptcy Court for the Middle District of Tennessee, arguing that a receivership does not divest bankruptcy authority unless the order contains clear language eliminating that right. The debtors contended that the Receivership Order only authorized the receiver to file bankruptcy but did not make that authority exclusive or expressly prohibit the debtors from filing. The debtors argued that courts distinguish between grants of authority and grants of exclusive authority, and that the absence of express prohibitory language was dispositive.

The debtors also raised federal preemption concerns, arguing that the right to seek bankruptcy relief arises under the Constitution's Bankruptcy Clause and that any attempt to restrict access to bankruptcy would conflict with federal law.

On the bad faith question, the debtors argued that they are operating businesses with ongoing operations and multiple stakeholders, not single-asset entities. They contended that the filing was made in good faith to preserve going-concern value after business performance deteriorated during the receivership period, and they submitted exhibit data showing declines in retail sales performance and distillery visitation following the receiver's appointment.

Business Performance Data

The debtors' opposition included NielsenIQ retail scan data and distillery visitor trend data as exhibits. The retail data showed that Uncle Nearest had outperformed the broader market by more than 31 percentage points in January 2025, with positive growth continuing through mid-2025. Following the receiver's appointment in late August 2025, the data showed sustained negative growth, with the brand underperforming the market by 18.3 percentage points by January 2026 and by 16 points by February 2026, a reversal of approximately 47 points from January 2025.

The distillery visitor data showed a similar pattern. During the pre-receivership period, combined merchandise and tour revenue grew at an aggregate rate of 9 percent, with tour and tasting attendance growing at 11 percent. Post-receivership, combined revenue declined 20 percent and attendance fell 22 percent. By early 2026, weekly merchandise revenue had declined as much as 90 percent and attendance had dropped as much as 89 percent compared to prior-year periods.

The Court's Ruling

The court held an expedited hearing on March 19, 2026, at which counsel for the debtors, the receiver, and Farm Credit presented oral argument. The parties agreed that there were no factual disputes and that the court needed only to interpret the Receivership Order in light of applicable law.

In its ruling, the court found that the Receivership Order left no doubt regarding who had authority to act on behalf of the debtors. The court determined that Paragraph 9's exclusive vesting of all powers of officers, directors, members, and managers in the receiver was the operative provision, and that Paragraph 10(q) — authorizing the receiver to commence bankruptcy proceedings — was simply a clarification that such exclusive authority included bankruptcy. The court found it immaterial that Paragraph 10(q) did not itself use the word "exclusive" because Paragraph 9 had already established exclusivity, with only a narrow carve-out for marketing duties under the receiver's supervision.

The court further noted that the Receivership Order expressly authorized only the receiver to take actions that must be authorized by a board of directors or members, including filing bankruptcy.

On the basis that the chief executive officer had no authority to file the petitions, the court granted both motions to dismiss in part. The order entered in the lead case, Uncle Nearest, Inc. (Case No. 3:26-bk-30470-SHB), dismissed that Chapter 11 case, and the court's reasoning applied equally to the two affiliated cases. The dismissal mooted all other matters that had been set for hearing.

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of approximately 73 pages of court filings in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background and Business Operations

BlockFills was founded in 2017 as a digital asset brokerage services company. The company focused solely on institutional, high-net-worth, and sophisticated customers and did not offer services to retail traders. Its suite of products included a proprietary trading platform, API connectivity, over-the-counter cryptocurrency trading, derivatives trading for eligible contract participants under the Commodity Exchange Act, collateralized lending, and cryptocurrency mining services.

The company utilized Fireblocks custody technology for digital asset management and maintained banking relationships with multiple domestic and international financial institutions for fiat settlement. BlockFills provided market access around the clock to a range of clients including hedge funds, broker-dealers, exchanges, crypto mining companies, and investment managers.

In May 2021, BlockFills raised approximately $7 million in a Pre-Series A equity round. In January 2022, the company closed a Series A round of approximately $36 million, proceeds from which were intended to be deployed into Bitcoin mining hardware. The Debtors' service address is 401 West Ontario St., Suite 400, Chicago, IL 60654.

The four Debtor entities are Reliz Technology Group Holdings Inc. (Delaware), Reliz Technologies LLC (Illinois), Reliz LTD (Cayman Islands), and Reliz CI LTD (Cayman Islands). The broader corporate structure includes numerous non-debtor subsidiaries spanning Brazil, Ireland, the United Kingdom, the UAE, Lithuania, Wyoming, and the Cayman Islands.

Events Leading to Bankruptcy

Loan Counterparty Defaults

From 2022 through 2025, BlockFills sustained losses from three failed lending relationships.

BlockFills provided net loans of 123 BTC, 500 ETH, and 5,000 USDC to one borrower, valued at approximately $8.5 million. That borrower filed for bankruptcy in Singapore on March 6, 2023 following exposure to other bankrupt counterparties, and the declaration states the loan would not be repaid.

BlockFills provided a separate 50 BTC loan to a bitcoin ATM company, valued at approximately $1 million at the time of the loan. The borrower defaulted on the obligation. BlockFills obtained a judgment of approximately $1.75 million, which remained unsatisfied as of the petition date. The declaration notes the value of the 50 BTC at the petition date was approximately $3.6 million.

BlockFills also participated in an equipment loan in partnership with a financing partner and equity shareholder to a cryptocurrency mining company backed by a multi-billion-dollar private equity firm. That borrower began missing required weekly payments in 2022 and subsequently filed for bankruptcy. Prior to filing, the borrower made approximately $3 million in payments to vendors and for director compensation, which the trustee for that bankruptcy is investigating for misappropriation. BlockFills settled a resulting dispute with its financing partner in late 2024 for approximately $12 million, weakening the company's balance sheet and liquidity.

Celsius Arbitration

BlockFills entered into a borrowing and lending arrangement with Celsius Network beginning in 2019, centered on a co-investment structure involving the Grayscale Ethereum Trust. A dispute over the settlement of that transaction led to arbitration in the United Kingdom. The four-day arbitration commenced on January 9, 2023. The arbitrator awarded Celsius the full amount of the initial ETH plus proceeds from the transaction, and the award was upheld on appeal in 2024. BlockFills subsequently negotiated a payment schedule through two promissory notes. The principal outstanding on those notes as of the petition date was approximately $4.8 million. The declaration states BlockFills had not made a payment on the notes since August 2025.

Mining Hardware Losses

Following the January 2022 Series A closing, BlockFills deployed capital into Bitcoin mining hardware intended to be placed at a third-party data site. The data site was not ready to operate when placement was intended, preventing BlockFills from activating its mining capabilities as planned. The declaration states BlockFills did not recoup its investment in the mining business line.

Crypto Market Crash and Withdrawal Suspension

On February 2, 2026, Bitcoin dropped below $80,000 for the first time since April 2025. BlockFills temporarily suspended certain deposit and withdrawal activity that day in response to liquidity pressure and customer withdrawal requests. On February 6, 2026, the company publicly announced a broader suspension of deposits and withdrawals, communicating with customers through written updates and video conferences.

Pre-Petition Litigation and Restraining Orders

In the weeks preceding the filing, two customer lawsuits were filed against certain Debtor entities and current or former directors and officers, alleging misappropriation of customer funds, conversion, breach of contract, and fraud-based claims. The first lawsuit was filed February 27, 2026 in the Southern District of New York. The second was filed March 5, 2026 in the Northern District of Illinois. The courts in both matters granted temporary restraining orders that restricted the Debtors' ability to conduct operations and exercise control over certain assets. The automatic stay afforded by Chapter 11 is intended to halt further litigation and prevent individual customers from pursuing assets outside the bankruptcy process.

Prepetition Restructuring Efforts

On July 23, 2025, BlockFills hired an Interim Chief Executive Officer. In August 2025, the company engaged Berkeley Research Group (BRG) to assist with restructuring and financial reporting, while also pursuing strategic alternatives, including a potential acquisition by a publicly traded cryptocurrency company. Those discussions commenced in September 2025 and included due diligence, in-person meetings, and negotiation of a go-forward business plan. The counterparty's board of directors declined to proceed in mid-November 2025.

Thereafter, BlockFills pursued a recapitalization with an existing investor combining new equity and debt financing. The parties made progress on the equity component in early January 2026, but feedback from potential debt providers indicated the debt component would be difficult to raise. The February 2026 withdrawal suspension materially altered the dynamics of those discussions, and the recapitalization was not completed.

From the period preceding the suspension through the petition date, BlockFills continued to evaluate alternatives with shareholders, advisors, and potential investors. The declaration states the board concluded that commencing Chapter 11 was the best available path to preserve value and pursue a court-supervised restructuring or sale process. On March 12, 2026, BlockFills formed a Special Committee comprised of a disinterested director, vested with authority to manage potential conflict matters, including investigating, releasing, or settling potential claims or causes of action.

Proposed Reorganization Plan

BlockFills has negotiated a term sheet with the Ad Hoc Group, which is comprised of the company's largest customers. The term sheet provides the framework for a Chapter 11 plan or a sale under Section 363 of the Bankruptcy Code. Certain terms remain subject to ongoing negotiation.

NewCo Structure

Under the term sheet, a newly formed entity (NewCo) will acquire certain assets of BlockFills, including current operating cash and digital assets, tangible assets, customer accounts and related data, the technology platform and intellectual property, brand assets, regulatory licenses to the extent transferable, and equity in certain affiliate entities. NewCo will not assume any pre-closing liabilities of BlockFills except as provided in definitive documentation. Participating customers will waive all claims against NewCo related to the business and conduct of BlockFills and its affiliates.

Customer Recoveries

Each customer with an allowed claim will receive a pro rata share of interests in a post-confirmation liquidating trust and a pro rata share of BlockFills' liquid assets. For the liquid portion, participating customers may elect to receive payment in digital assets and/or cash, full conversion into equity of NewCo, or a combination of the two.

Convenience Class

The term sheet proposes that customers with the lowest individual exposures to BlockFills — identified as approximately 807 customers — will constitute a Convenience Class and receive payments in cash or digital assets up to a proposed aggregate amount of $1,000,000. These figures appear in brackets in the term sheet, indicating they remain subject to ongoing negotiation. The Convenience Class is intended to reduce the administrative burden on the estates.

Liquidating Trust

Assets not transferred to NewCo — including estate causes of action not otherwise settled or released — will vest in a post-confirmation trust overseen by advisors selected by the Ad Hoc Group of BlockFills clients, for the pro rata benefit of customers.

New Money Investment

Until NewCo has raised $15 million in capital, participating customers may invest additional capital on a pro rata basis in exchange for equity at a valuation of the lower of $15 million or the amount raised. After that threshold is reached, existing customers may invest up to an additional $25 million at a valuation of up to $30 million.

Governance and Compliance

NewCo's initial board will consist of five to seven members, with representatives of participating customers comprising a majority. The board must include at least one independent member with recognized expertise in restructuring, financial services, or financial regulation. The board will appoint a Chief Compliance Officer responsible for anti-money laundering and know-your-customer functions. A management incentive plan is proposed with an incentive pool representing 10% to 15% of NewCo equity. All equity in NewCo shall be owned by no more than 500 entities, and all purchasers or recipients of equity must be accredited investors.

All customer funds held by NewCo will be maintained in segregated accounts separate from corporate funds. Customer assets may not be borrowed, pledged, hypothecated, or otherwise employed without the prior express written consent of those customers. All digital assets will be maintained with a qualified institutional custodian, and NewCo will implement daily reconciliation of customer balances and trading positions.

First Day Motions

The Debtors have filed or intend to file several first day motions seeking relief to facilitate administration of the Chapter 11 cases, including joint administration of the cases; appointment of Kurtzman Carson Consultants, LLC (d/b/a Verita Global) as claims and noticing agent; authorization to file a consolidated creditor matrix and redact certain personally identifiable information; authorization to serve certain parties by electronic mail and approve certain notice procedures; authority to pay certain prepetition taxes and fees; authorization to maintain existing insurance policies and pay related obligations; authorization for postpetition use of cash collateral with adequate protection to prepetition secured parties; and authorization to pay prepetition wages and employee benefit obligations. The Chief Restructuring Officer's declaration states that the first day relief requested is limited to matters requiring urgent action to preserve value during the pendency of the cases.

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 32-page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

The company reported revenue of approximately $724 million for fiscal year 2025 and carried approximately $1,533.9 million in total prepetition debt as of the petition date, with all debt instruments maturing by March 31, 2026. The company's chief financial officer submitted the declaration in support of the first day motions, providing the court with an account of the company's history, operations, financial condition, and proposed restructuring.

Company Background and Business Operations

The LYCRA Company traces its origins to 1958, when scientists at DuPont invented LYCRA® fiber, the original spandex (elastane) yarn. The fiber, which provides stretch and recovery properties, expanded from foundation garments and swimwear into hosiery, activewear, denim, and personal care products such as diapers and adult incontinence products. The company's products are sold to yarn processors and fabric mills, which incorporate the fibers into fabrics that are in turn supplied to garment manufacturers. The company does not itself manufacture apparel.

The company's brand portfolio comprises seven principal fiber lines: LYCRA® Spandex Fibers, LYCRA HyFit® Personal Care Fibers, LYCRA® T400® Stretch Fibers, COOLMAX® Performance Fibers, THERMOLITE® Insulation Fibers, ELASPAN® Elastomeric Fibers, and SUPPLEX® and TACTEL® Nylon Fibers. The company maintains and defends over 1,000 patents and applications comprising more than 100 unique patent families, along with approximately 2,400 trademarks protecting approximately 105 unique brands, marks, and logos.

The company operates approximately 2,000 employees across eight manufacturing facilities and eleven offices in North America, Europe, Asia, and South America. Manufacturing locations include facilities in Waynesboro, Virginia (321 employees); Monterrey, Mexico (345 employees); Paulina, Brazil (362 employees); Maydown, Northern Ireland (323 employees); Tuas, Singapore (a 90%-owned joint venture with 262 employees); Kerkrade, Netherlands (107 employees); Foshan, China (471 employees); Yinchuan, China (a 75%-owned joint venture with 292 employees); and 50%-owned joint ventures in Shiga, Japan and Taipei, Taiwan. Research and development is conducted at three labs located in Waynesboro, Virginia; Casaloldo, Italy; and Foshan, China.

In fiscal year 2025, the company recorded sales to customers in more than 80 countries. Approximately 57% of global sales were concentrated in four countries: China (29%), the United States (15%), Brazil (7%), and Italy (6%).

Corporate History and Ownership Transitions

In 2004, Koch Industries acquired DuPont's textiles and interiors business — including the LYCRA® spandex business — for approximately $4.4 billion, consolidating it under an entity called INVISTA. In January 2019, The LYCRA Company was acquired by Ruyi Textile and Fashion International Group Limited from Koch. In connection with that acquisition, the company incurred, among other obligations, a $400 million mezzanine financing arrangement.

In November 2019, nine months following the closing of the acquisition, the mezzanine borrower defaulted on the mezzanine financing. Negotiations between Ruyi and the mezzanine lenders continued through 2020 and 2021. In December 2021, the mezzanine lenders learned that Ruyi had allegedly transferred, or was about to transfer, certain of the company's Chinese assets — including onshore cash, plants, equipment, raw materials, and intellectual property — beyond the reach of creditors. Litigation in China arising from those alleged transfers remains ongoing across four separate proceedings.

In June 2022, the Netherlands Commercial Court approved a share pledge enforcement through which the mezzanine lenders took ownership of the company. In May 2023, the company executed a refinancing transaction that replaced earlier notes with new instruments, including a super senior term loan (originally $109 million, later upsized to $139 million) and new Euro Notes bearing interest at 16.000% per year, payable in kind. In January 2025, the post-enforcement shareholders entered into an agreement to sell the company to a Chinese state-owned enterprise, subject to conditions including regulatory approval by China's National Development and Reform Commission and the purchaser obtaining sufficient acquisition financing. By August 2025, it became apparent that the proposed sale would not be consummated, and on September 5, 2025, a further change of control occurred whereby ownership of the company was transferred to Eagle Holding Co B.V., a newly incorporated entity. The equity interests in Eagle Holding are held in trust by GLAS Trustees Limited for the benefit of the company's creditors.

Prepetition Capital Structure

As of the petition date, the company's funded debt consisted of four instruments, all sharing a March 31, 2026 maturity date. The prepetition secured debt is secured by substantially all of the debtors' assets and governed by an intercreditor agreement under English law. The agreed enforcement waterfall provides for repayment of the super senior term loan first, followed by the Euro Notes priority tranche, and then the Euro Notes non-priority tranche and Dollar Notes on a pari passu basis.

Events Leading to Bankruptcy

The company's financial condition deteriorated due to a combination of industry and company-specific pressures. Following disruptions caused by the COVID-19 pandemic, demand for apparel weakened, and the market saw capacity expansions by competitors, altering competitive dynamics. The company's manufacturing utilization rates declined from approximately 80% in mid-2024 to approximately 60% by the end of 2025. The declaration also cites intensifying competition from low-cost manufacturers, particularly in Asia, placing downward pressure on pricing; generic spandex prices fell to near cash-cost levels. In the personal care segment, the market for baby diapers softened and fragmented, with private-label products gaining market share.

The company's EBITDA declined from approximately $132 million in 2024 to a projected $44 million for 2026. The company also incurred costs in connection with managing its capital structure, including refinancing efforts and restructuring transactions.

An additional liability arose from a take-or-pay supply agreement entered into in July 2023 with HELM US Corporation for the purchase of QIRA, a bio-derived feedstock produced by Qore, LLC — a joint venture between Cargill, Incorporated and HELM — intended for use in producing bio-derived spandex fibers. The declaration states that production of QIRA was delayed beyond the originally anticipated start-up date, reducing any potential market advantage from early production of bio-derived spandex, and that broader industry conditions rendered the volume commitments in the agreement unsustainable. The company determined the agreement was not economically viable.

Beginning in December 2025, the company initiated discussions with HELM to restructure the supply agreement. Negotiations culminated in a settlement agreement and mutual release among the company, HELM, and Qore providing for termination of the supply agreement in exchange for a settlement payment of $4.75 million — including $750,000 in respect of existing payables owed to HELM — and a license agreement under which certain of the debtors granted HELM and Qore a non-exclusive license to certain patents related to QIRA. The declaration states that HELM has alleged potential rejection damages exceeding $100 million under the supply agreement.

The Restructuring Support Agreement and Prepackaged Plan

Following the failure of the proposed third-party sale, the company and its creditor groups continued negotiations. On January 9, 2026, the Euro Notes ad hoc committee delivered an Alternative Restructuring Notice under the existing lock-up agreement. On March 12, 2026, the Euro ad hoc group issued a notice of termination of the lock-up agreement, which terminated that date. On March 13, 2026, the company and the RSA parties entered into the RSA.

The RSA parties hold or have the power to direct more than two-thirds of the claims under each class of prepetition debt: 100% of the super senior term loan claims, 100% of the Euro Notes claims, more than 83% of the Dollar Notes claims, and more than 90% of the Promissory Note claims, in each case also representing more than 50% of the holders in that class.

The company commenced solicitation of votes on the prepackaged plan on March 16, 2026. Voting is scheduled to conclude on or about April 17, 2026. A hearing to approve the adequacy of the disclosure statement and confirm the plan is targeted for on or about April 24, 2026, and no later than 60 days after the petition date. Plan effectiveness and emergence from Chapter 11 is targeted within 75 days of the petition date, extendable to 90 days.

Treatment of Claims and Interests

DIP Financing

To fund operations during the case, the company secured a $75 million debtor-in-possession notes facility bearing interest at 9.00% per annum, payable in kind, and secured by substantially all of the debtors' assets with superpriority administrative claim status. The facility is structured in two tranches: $50 million available following entry of an interim DIP order, and an additional $25 million upon entry of a final DIP order.

Prior to filing, the company and its advisors contacted eleven potential third-party DIP lenders, two of which executed confidentiality agreements. No third party offered financing on terms acceptable to the company and its key stakeholders. The declaration states that without access to the DIP facility, the company projected a liquidity shortfall within the first week of the proceedings.

First Day Relief Requested

Contemporaneously with the petition, the company filed first day motions seeking authority to: pay prepetition wages, salaries, and employee benefits for approximately 2,000 employees, totaling approximately $24 million; maintain and pay insurance, surety bonds, and letters of credit; continue existing customer programs including discounts, rebates, and refunds; pay all trade claims in the ordinary course; continue its existing cash management system and intercompany transactions; remit and pay taxes and fees; provide adequate assurance for utility services through a proposed deposit of $290,945.47, representing approximately 50% of average monthly utility payments over the preceding twelve months; enforce the worldwide automatic stay; and obtain joint administration of the 26 debtor entities.

The company's corporate structure at the time of filing includes 43 entities, 26 of which are debtors in the prepackaged cases, incorporated across Brazil, China, Germany, Hong Kong, India, Italy, Japan, Jersey, Mexico, the Netherlands, Singapore, South Korea, Spain, Switzerland, Taiwan, Turkey, the United Kingdom, and the United States.

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 189 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

The motion, filed March 18, 2026, in the United States Bankruptcy Court for the Southern District of Texas, Houston Division, under Case No. 26-90126 (ARP), follows the company's voluntary Chapter 11 filing on January 26, 2026. The financing would be provided by certain members of an ad hoc group of the company's existing prepetition noteholders, which holds approximately 78.8% of outstanding prepetition notes, after a marketing process that solicited proposals from 31 potential lenders produced no third-party term sheets.

Company Background and Business Operations

FAT Brands Inc. and its subsidiary, Twin Hospitality Group Inc., together comprise a multi-brand restaurant company that develops, markets, acquires, and manages quick-service, fast casual, casual dining, and polished casual dining restaurant concepts around the world. As of the petition date, the company had approximately 7,500 direct full-time and part-time employees, eighteen restaurant brands, and approximately 2,200 locations open or under construction, including more than 150 company-owned restaurants and more than 1,900 franchised locations. The motion states the company is one of the largest restaurant companies in the United States by number of locations.

Events Leading to the DIP Financing Motion

The debtors entered their Chapter 11 cases in what the motion describes as an extremely fragile liquidity position and with no committed debtor-in-possession financing. Since the petition date, the debtors have sustained operations through the use of cash collateral. The motion states that while the debtors continue to generate cash revenues from operations, the significant administrative costs of the Chapter 11 cases cannot be funded solely from cash on hand, and that access to incremental liquidity through DIP financing is required.

An official committee of unsecured creditors was appointed by the Office of the United States Trustee for the Southern District of Texas on February 6, 2026.

Governance Agreement

Prior to the filing of the DIP motion, the debtors participated in a mediation with the WBS Ad Hoc Group and the official committee of unsecured creditors. On March 11, 2026, the mediator—a sitting United States bankruptcy judge—delivered a final proposal to resolve disputes over the debtors' governance structure, and the mediation parties reached a settlement reflected in the Governance Agreement.

The resulting Governance Agreement, filed concurrently with the DIP motion on an emergency basis, restructured management authority at the debtor entities. Under its terms: (a) the DIP lenders will pay $5 million to the FBG Manager in installments, which amount will be paid to the chief executive officer on the terms set forth in the Governance Agreement; (b) sole and exclusive authority to manage the affairs of the debtors will vest in the Special Committee; (c) the chief executive officer will take a temporary leave of absence until the later of the closing of a sale of the debtors' assets or consummation of a confirmed chapter 11 plan; (d) the employment of the chief executive officer's family members who are employed by the debtors will be terminated; and (e) the existing members (other than the Special Committee directors) of the DIP Loan Parties' boards of directors will resign. The motion states the Governance Agreement was a precondition to the DIP Facility.

Structure of the DIP Financing Facility

The proposed DIP Facility consists of two parallel components:

FBG DIP Facility: FAT Brands Royalty I, LLC, FAT Brands Fazoli's Native I, LLC, and FAT Brands GFG Royalty I, LLC serve as borrowers, with FAT Brands Inc. and each wholly-owned domestic subsidiary acting as guarantors. The facility provides up to $46.0 million in new money term loans, structured across three draws: an initial draw of $29.0 million available upon entry of the proposed interim order; a second draw of $1.0 million available upon entry of the final order and bidding procedures order; and a third draw of up to $16.0 million available at the bid deadline if available cash falls below $5.0 million in the aggregate across all DIP Loan Parties. Each dollar of new money drawn triggers a 3:1 roll-up of existing prepetition Class A-2 note obligations held by the DIP lenders, resulting in up to $138.0 million in rolled-up prepetition debt converting to DIP loans.

Twin DIP Facility: Twin Hospitality I, LLC serves as borrower, with FAT Brands Inc., Twin Hospitality Group Inc., and all wholly-owned domestic subsidiaries providing guarantees. This facility provides up to $30.9 million in new money, structured across three draws: $19.0 million at interim order entry; $1.0 million at final order entry; and up to $10.9 million at the bid deadline subject to the same liquidity threshold. The 3:1 roll-up mechanism applies to existing Twin prepetition notes (Class A-2-I and Class A-2-II), converting up to $92.7 million of prepetition obligations into DIP loans.

In both facilities, UMB Bank, N.A. serves as administrative and collateral agent. The combined facilities provide up to $76.9 million in new money and approximately $307.6 million in total principal when rolled-up prepetition debt is included. All DIP loans bear interest at 12.00% per annum, increasing to 14.00% per annum upon an event of default. The DIP loans mature on May 8, 2026, subject to earlier maturity upon specified termination events.

Marketing Process and Lender Selection

Prior to the petition date, the debtors, with the assistance of their investment banker, GLC Advisors & Co., LLC, solicited DIP financing proposals from 31 potential lenders, including both third parties and existing stakeholders. No third party or other prepetition creditor submitted a term sheet to provide a DIP financing proposal to the DIP Loan Parties as a whole. The motion further notes that the existing prepetition noteholders were unwilling to permit a third party to prime their prepetition liens, which would have required a contested priming proceeding. The debtors concluded that the terms offered by the WBS Ad Hoc Group represent the best available financing option. The DIP Facility is fully backstopped by certain members of the WBS Ad Hoc Group.

Sale Process and Case Milestones

The DIP Facility is structured to support a sale of substantially all of the debtors' assets under Section 363 of the Bankruptcy Code, which may be consummated through a series of sales. The financing agreement contains binding case milestones. Failure to meet milestones constitutes a termination event and may trigger acceleration of all outstanding amounts. The agreed timeline is as follows:

Adequate Protection

As adequate protection for the interests of the prepetition secured parties in the prepetition collateral, including cash collateral, from and after the petition date, the prepetition secured parties are to receive: (a) replacement liens on all DIP collateral to the extent of any diminution in value of the prepetition secured parties' interests; (b) superpriority administrative expense claims under Section 507(b) of the Bankruptcy Code; (c) payment of the reasonable and documented out-of-pocket fees, costs, and expenses of counsel to the prepetition trustees and counsel and financial advisor to the WBS Ad Hoc Group; and (d) ongoing access to budget and variance reporting and other information required to be delivered under the DIP documents.

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 279-page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

The United States Bankruptcy Court for the Eastern District of Louisiana ruled on March 10, 2026, that a group of 81 abuse survivors — identified as "Certain Abuse Survivors" — lack standing under Section 1109(b) of the Bankruptcy Code to object to pending and future attorneys' fee applications filed by estate professionals. The ruling, issued in Case No. 20-10846, turns on the structure of the $230 million Settlement Trust created under the Archdiocese's confirmed joint plan of reorganization.

Case Background

The Archdiocese filed a voluntary Chapter 11 petition on May 1, 2020. At the time of filing, there were over thirty pending lawsuits filed in Louisiana state court between 2018 and 2020 by individuals alleging claims of past sexual abuse by priests employed or supervised by the Archdiocese. The case was designated as "complex" under the court's Procedures for Complex Chapter 11 Cases. An Official Committee of Unsecured Creditors was constituted on May 20, 2020, with membership consisting entirely of sexual abuse claimants.

Professional fees incurred throughout the case were subject to the court's complex case procedures, which required monthly invoicing and periodic interim fee applications subject to court review and approval.

The Fee Disputes

Beginning in April 2024, Certain Abuse Survivors filed objections to a series of interim fee applications. Hearings on these contested applications were repeatedly continued, first as the parties pursued mediation and then as the case moved toward plan confirmation. The court stayed discovery on the fee disputes and related motions to allow the parties to focus on negotiating a confirmable reorganization plan.

Separately, the court appointed an independent expert under Federal Rule of Evidence 706 to assess the status of the case and the debtor's ability to move forward in Chapter 11. The expert published his report and recommendations on October 23, 2024. Following two status conferences with parties in interest regarding the report's contents, the court entered orders setting an expedited discovery schedule and additional status conferences directed toward plan negotiation.

Plan Confirmation and the Settlement Trust

After years of negotiations and mediation, the Archdiocese, the Committee, and 157 affiliated Additional Debtors — which filed their own bankruptcy cases on or about November 12, 2025 — confirmed a joint plan of reorganization. The plan proponents had filed a Memorandum of Understanding identifying the terms of a joint reorganization on May 21, 2025. In late September 2025, the Archdiocese and Certain Abuse Survivors announced a settlement of the survivors' objections to the proposed joint plan; the survivors subsequently withdrew their motion to dismiss and stated on the record that they fully supported confirmation. On December 8, 2025, the court entered an order confirming the joint plan, which became effective December 26, 2025. The Confirmation Order is final and unappealable.

The confirmed plan established a $230 million Settlement Trust for the sole benefit of abuse claimants. That trust was funded through three components: $130 million in cash from the Archdiocese and the Additional Debtors, two promissory notes totaling $70 million guaranteed by the Debtor and Additional Debtors and to be satisfied from proceeds of pending affordable housing facility sales, and approximately $30 million in cash from settling insurers. The Settlement Trust also received all rights to insurance proceeds or causes of action against non-settling insurers. Of 491 claimants holding Known Abuse Claims who voted in Class 3, 489 — or 99.59% — accepted the plan.

The plan employs a "pot plan" structure: the Archdiocese and Additional Debtors contributed a fixed, agreed-upon sum to the Settlement Trust, to be distributed pro rata among abuse claimants in Classes 3 and 4 regardless of the total number or amount of claims filed and allowed. The plan expressly states that abuse claimants' monetary recovery is limited exclusively to the Settlement Trust, and no "waterfall" provision exists that would redirect any reduction in professional fees to the abuse claimant classes.

The Standing Ruling

At a December 18, 2025, hearing, certain professional services firms challenged Certain Abuse Survivors' standing to continue pressing their fee objections in the post-confirmation case. The court ordered briefing and heard oral arguments on January 22, 2026.

In its March 10, 2026 opinion, the court adopted the analysis from In re AIO US, Inc., 672 B.R. 261 (Bankr. D. Del. 2025), finding it unnecessary to inquire into the constitutional standing of Certain Abuse Survivors to object to fee applications, since they were not the parties invoking the court's federal jurisdiction. However, the court held that the survivors must qualify as "parties in interest" under Section 1109(b) of the Bankruptcy Code to appear and be heard, and that they no longer do.

The court found that the survivors lack a direct financial stake in the outcome of the fee disputes. Because the Settlement Trust amount is fixed at $230 million irrespective of how the court rules on professional fee applications, any reduction in attorneys' fees would not flow to abuse claimants. The Reorganized Debtor is obligated to pay each allowed professional fee claim in full, in cash, within fifteen days of allowance — independent of its obligation to pay other allowed professional fee claims.

The court distinguished two cases cited by the survivors. In In re AVC Villa Del Lago at Ocotillo Devco, L.L.C., the court had confirmed a creditor-sponsored plan in which the objecting creditor waived its own claim and injected cash to fund the plan, giving it a direct pecuniary stake in fee reductions. In In re Ridgeway, a prior Eastern District of Louisiana case, a judgment creditor's claim remained unresolved and unpaid at the time it objected to debtor's counsel's fees, and the plan would be funded primarily by the reorganized debtor's future cash flows — creating a direct financial interest tied to plan viability. Neither circumstance is present here.

The court also rejected the argument that the survivors' pending Substantial Contribution Claim under Sections 503(b)(3)(D) and (4) of the Bankruptcy Code conferred a pecuniary interest in other professionals' fees. Because the plan obligates the Reorganized Debtor to pay each allowed professional fee claim independently and in full, any reduction of the challenged fees would have no effect on the survivors' own potential substantial contribution award.

Court's Independent Review Authority

While overruling the fee objections for lack of standing, the court noted its independent duty to review all fee applications under Section 330 of the Bankruptcy Code, regardless of whether any party objects. The court stated that it has previously reduced requested fees on its own initiative during this case. An evidentiary hearing on all timely filed final fee applications — submitted on February 27, 2026 — has been scheduled for May 2026 to allow the court to review each application and evaluate the reasonableness of services rendered and expenses incurred.

The court expressly stated that nothing in its opinion rules on the merits of the survivors' pending Substantial Contribution Claim, which remains to be adjudicated.

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 26-page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background and Business Operations

Razzoo’s opened its first location in Dallas, Texas in 1991, with the goal of filling a market need for Cajun culture and cuisine. The chain grew to six locations in Texas by 1996 and fourteen total locations by 2001, including the first out-of-state location in Concord, North Carolina. The company reached a peak of 24 locations across Texas, North Carolina, and Oklahoma. As of September 2025, the company operated 23 locations, following the closure of one underperforming location in 2024.

In 2024, the company reported total sales of $76.6 million, Store-Level EBITDA of $9.6 million, and Adjusted EBITDA of approximately $3.3 million. The Debtors did not own any real estate, operating each of their restaurant locations under long-term lease agreements with total monthly obligations of approximately $650,000.

Events Leading to the Chapter 11 Filing

The disclosure statement identifies three primary factors contributing to the company’s financial difficulties: deteriorating sales, burdensome lease obligations, and an inability to service secured debt.

The company experienced a decline in sales attributed to shifts in consumer spending habits, increased competitive pressure from other casual dining chains, and broader macroeconomic conditions including inflation and elevated interest rates. Competitors engaged in aggressive marketing and value-oriented promotions, which the disclosure statement notes negatively influenced guest traffic. Additionally, as a Cajun-focused concept, the company’s sales exhibited seasonal fluctuations tied to crawfish season, with 2025 results falling below prior-year levels despite the season beginning earlier.

The company’s lease obligations grew increasingly burdensome as sales volumes declined. In response, Razzoo’s conducted a store-by-store performance review and, in September 2025, closed locations in Pasadena, TX; Corpus Christi, TX; and Oklahoma City, OK — reducing monthly rent obligations by approximately $110,000 and leaving 20 locations in operation as of the petition date.

On the secured debt side, the company had entered into a credit agreement with First Horizon Bank in May 2022. The loan was amended multiple times, with the outstanding principal balance reaching approximately $9.65 million as of October 1, 2025 (the “Petition Date”). A principal and interest payment of approximately $500,000 was due to the bank on the Petition Date, which the Debtors determined they could not make while continuing normal operations.

Chapter 11 Case and Debtor-in-Possession Financing

Both Debtors filed voluntary Chapter 11 petitions on October 1, 2025. The company initially sought debtor-in-possession (DIP) financing from a third-party lender, TJF Financial, LLC, after First Horizon Bank declined to provide post-petition financing. At an emergency hearing on October 3, 2025, the parties agreed to continue negotiations, and First Horizon Bank subsequently agreed to serve as the DIP lender. The Bankruptcy Court entered the interim DIP order on October 7, 2025.

In October 2025, First Horizon Bank sold and assigned its entire position — including both the prepetition loan debt and DIP obligations — to ThirtyThree97 LLC pursuant to a Loan Sale Agreement dated October 21, 2025. ThirtyThree97 LLC thereby became the DIP lender. The final DIP order was entered on November 7, 2025. The DIP Facility consisted of $4 million in new money financing plus a roll-up of the prepetition loan debt, resulting in total DIP Loan Claims of approximately $14.04 million.

The Official Committee of Unsecured Creditors was appointed on October 14, 2025, comprising three members: My Tech Texas, LLC; South Loop Development, LLC; and Sabine 2016-1, LLC. The Committee retained Dykema Gossett PLLC as bankruptcy counsel.

Sale of Substantially All Assets

Consistent with DIP order milestones, the Debtors conducted a marketing and sale process under Section 363 of the Bankruptcy Code. On December 2, 2025, ThirtyThree97 LLC was designated as the stalking horse purchaser. No other qualified bids were received, and no auction was held. The Bankruptcy Court entered the sale order on December 23, 2025, and the sale closed on December 29, 2025, effective as of 12:01 a.m. on December 30, 2025.

Under the Asset Purchase Agreement, 11 restaurant locations were identified as “Continuing Restaurants” to be acquired by the buyer, while 9 locations were designated as “Excluded Restaurants.” The purchase was effected via a credit bid of the full DIP Loan Claims under Section 363(k) of the Bankruptcy Code, plus assumption of certain liabilities, with total consideration to the estates of approximately $18.8 million. As a result of the closing, all outstanding DIP Loan Claims were fully satisfied.

Restaurant Locations

The Proposed Liquidation Plan

The Plan proposes the establishment of the “Cajun Café Liquidating Trust” to receive all remaining estate assets — including cash on hand, retained causes of action, and other excluded assets from the sale — and distribute available proceeds to creditors in accordance with statutory priorities under the Bankruptcy Code. The filing identifies a designated individual to serve as Liquidating Trustee.

The Liquidating Trust assets will include cash on hand as of the effective date, all avoidance actions and causes of action retained by the estate, and any other assets not transferred to the buyer. The Liquidating Trustee will have authority to prosecute avoidance actions, resolve disputed claims, and make distributions to creditors. The Trust is structured to qualify as a “liquidating trust” for federal income tax purposes under Treasury Regulation Section 301.7701-4(d).

The Plan also provides for the deemed rejection of all remaining executory contracts and unexpired leases not previously assumed or rejected, including those associated with the nine Excluded Restaurants, which were rejected as of the closing date of the sale.

Classification and Treatment of Claims and Interests

The Plan classifies claims and interests into five classes, with treatment as follows:

Liquidation Analysis and Best Interests Test

The Plan is accompanied by a Liquidation Analysis prepared by the Debtors’ financial advisor. The analysis estimates that under the Chapter 11 Plan, general unsecured creditors holding approximately $7.44 million in aggregate claims would recover between 5.5% and 6.8% of their claims, compared to a recovery of 4.9% to 6.1% under a hypothetical Chapter 7 liquidation. The analysis attributes the differential in part to additional administrative costs that would arise in a Chapter 7 case, including trustee fees estimated at approximately $50,000 to $53,000 and professional fees estimated at approximately $200,000.

Priority unsecured claims of approximately $113,428 are projected to be paid in full under both scenarios. Subordinated claims and equity interests are not expected to receive any distributions under either scenario. Total estimated net proceeds available for distribution under the Plan range from approximately $525,077 to $619,529.

Key Dates and Deadlines

Professional Representation

The Debtors are represented by Okin Adams Bartlett Curry LLP as general bankruptcy counsel. Stout Capital, LLC served as investment banker, and Stout Risius Ross, LLC served as financial advisor. The Official Committee of Unsecured Creditors is represented by Dykema Gossett PLLC.

Court and Case Information

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 76-page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Background on The Phoenix Fund LLC

The Phoenix Fund LLC is a private equity fund established under Act No. 185 of November 12, 2014, known as the Private Equity Fund Law. The fund holds a Tax Exemption Decree effective December 30, 2022, granted pursuant to Puerto Rico's Incentives Code (Act No. 60-2019), and operates under Regulation No. 9461, the Regulation for the Supervision of Private Equity Funds. The fund's business generally involves raising capital from investors to pursue investments.

As a private equity fund operating in Puerto Rico, the fund is subject to the regulatory oversight and authority of the Office of the Commissioner of Financial Institutions of Puerto Rico (OCIF). OCIF is the entity charged under Puerto Rico law to oversee, supervise, and regulate private equity funds, among other financial entities.

Events Leading to the Bankruptcy Filing

On January 27, 2025, OCIF initiated an examination of the fund's operations. OCIF was unable to complete the examination, citing the fund's alleged noncompliance with its regulatory obligations. Following several procedural events, OCIF issued a Consent Order on June 25, 2025, through which Driven, P.S.C. was appointed to conduct a special examination of the fund and all of its affiliated entities.

On February 18, 2026, OCIF issued an Amended Complaint and Order of (I) Cease and Desist, (II) Liquidation of Private Equity Fund, and (III) Interim and Permanent Appointment of Receiver to Carry Out the Liquidation (the Amended Complaint and Receivership Order). The order directed the fund to cease and desist from accepting any new investments, ordered the liquidation of the fund, directed the fund to cooperate fully with the Receiver for the taking of possession of the fund's assets, and appointed Driven, P.S.C. as interim Receiver. Through the order, OCIF conferred upon Driven all faculties and authorities previously held by the fund's members, directors, managers, and authorized persons, including the authority to file voluntary bankruptcy petitions and to act as debtor-in-possession in such a proceeding.

Five days later, on February 23, 2026, the fund's president signed a corporate resolution authorizing the filing of a Chapter 11 bankruptcy petition. The resolution stated that the receivership may not be in the best interest of all stakeholders and that continuation of the fund's affairs without bankruptcy protection may result in the fund's demise. The Chapter 11 petition was filed the same day.

OCIF's Motions Before the Bankruptcy Court

On February 25, 2026, OCIF filed two interrelated motions with the bankruptcy court. The first, a Motion to Continue Enforcement Action, sought an order permitting OCIF to continue its administrative enforcement proceeding, styled Office of the Commissioner of Financial Institutions v. The Phoenix Fund LLC, Case No. C25-V-001, arguing that the automatic stay provisions of the Bankruptcy Code did not apply to bar OCIF's regulatory and police powers. The second, an Urgent Motion Recognizing Authority, sought an emergency order recognizing Driven, P.S.C. as the entity authorized to act as debtor-in-possession on behalf of the fund.

Court's Legal Analysis

The court framed the central legal issue as the intersection of two constitutional principles: the right to file for bankruptcy under Article I, Section 8, Clause 4 of the U.S. Constitution, and the police power of the state under the Tenth Amendment.

Regarding the automatic stay, the court applied the police power exception codified in 11 U.S.C. § 362(b)(4), which exempts from the automatic stay government actions taken to enforce police and regulatory power. The court applied two tests: the "pecuniary purpose" test, which evaluates whether the government action protects the government's pecuniary interest or advances public welfare; and the "public policy" test, which distinguishes between actions that effectuate public policy and those that merely adjudicate private rights.

The court determined that OCIF's intervention was driven by the fund's failure to comply with its obligations under the Incentive Code. It found that the enforcement action was aimed at safeguarding the public welfare of Puerto Rico's financial system, that it conferred no financial benefit on OCIF or any related government agency, and that it did not constitute a collection action. Accordingly, the court held that the police power exception applied and that the automatic stay did not bar OCIF from continuing the enforcement action.

The court further noted that the corporate resolution filed with the bankruptcy petition illustrated the conduct the police power exception is intended to prevent: a debtor seeking refuge in bankruptcy court to frustrate necessary governmental functions.

Authority to Act as Debtor-in-Possession

On the question of authority, the court held that under Puerto Rico law — specifically Section 2044.03(g)(2)(iv) of the Incentive Code and Article 10(b) of the OCIF Enabling Act — OCIF had the authority to order the liquidation of the fund and to appoint a receiver with control over its direction and administration. The court further held that, under federal bankruptcy law, when a receiver is appointed with management authority over a debtor entity, that receiver's status automatically transforms into debtor-in-possession pursuant to 11 U.S.C. § 1101(1).

The court relied on the Second Circuit's decision in In re Bayou Grp., LLC, 564 F.3d 541 (2nd Cir. 2009), which addressed the status of a court-appointed receiver vested with management authority over a debtor upon the commencement of a bankruptcy case. Applying that framework, the court concluded that Driven, P.S.C. — not the fund's prior management — held the exclusive authority to seek bankruptcy protection and act as debtor-in-possession.

The court also cited the Consent Order's provision that the appointment of Driven as Receiver enjoined the fund's directors from filing the bankruptcy petition. In support, the court referenced In re Milestone Educ. Inst., 167 B.R. 716 (Bankr. D. Mass. 1994), which addressed the effect of a receivership order that bars directors from their management functions.

Court's Ruling and Next Steps

The court granted both of OCIF's motions, ruling that the automatic stay is inapplicable to the continued prosecution of the enforcement action in OCIF's administrative forum, including enforcement of the Amended Complaint and Receiver Order, the Consent Order, and the appointment of Driven, P.S.C. as Receiver with authority to act as debtor-in-possession.

The court ordered Driven, P.S.C. to inform the court within twenty-one days how it intends to proceed in the bankruptcy case. A status conference is scheduled for May 19, 2026 at 10:00 AM.

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 12 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background

Start Man Furniture, LLC (formerly Art Van Furniture, LLC) operated along with a group of affiliated entities at the time of its bankruptcy filing. The company commenced Chapter 11 cases on March 8, 2020, and the cases were converted to Chapter 7 on April 7, 2020. The Chapter 7 trustee was subsequently appointed to administer the estates of the 13 jointly administered debtor entities.

The Visa/Mastercard Interchange Fee Litigation

The asset at the center of this proposed sale is the debtor's right to recover proceeds from an antitrust class action: In re Payment Card Interchange Fee and Merchant-Discount Antitrust Litigation (Case No. 1:05-md-01720-JG-JO, E.D.N.Y.), which commenced on October 20, 2005.

The litigation was initiated by numerous merchants, retailers, and trade associations against Visa, MasterCard, and other named defendants. The plaintiffs alleged that, beginning January 1, 2004, the defendants conspired to unlawfully fix interchange fees — the fees that a merchant's bank pays a customer's bank when merchants accept cards using card networks such as Visa and MasterCard — as well as other fees charged to merchants for transactions processed over those networks.

Settlement discussions began in December 2011, and the parties executed a Settlement Agreement in October 2012. The Eastern District Court preliminarily approved that agreement in November 2012 and granted final approval in December 2013. On June 30, 2016, the United States Court of Appeals for the Second Circuit vacated both the class certification and the settlement approval.

The parties filed a Superseding and Amended Definitive Class Settlement Agreement on September 18, 2018, proposing a settlement in the range of $5.56 billion to $6.26 billion. The Eastern District Court granted final approval of this revised settlement on December 13, 2019. In March 2023, the Second Circuit affirmed the lower court's approval of the settlement for the damages class. The claims process opened for eligible merchants in December 2023, and the trustee filed a claim with the claims administrator on or about March 26, 2024.

Previous Sale Attempt

The trustee previously sought to sell this asset through a competitive auction process. On October 7, 2020, the trustee filed a motion to sell the estates' rights in the interchange litigation pursuant to bid procedures, which the court approved on October 27, 2020. The trustee solicited bids from interested purchasers; however, the interest and offers received were not high enough and, in the trustee's business judgment, the bidding process was adjourned indefinitely.

The trustee submits that a private sale is now appropriate for three reasons: the Class Action Interchange Litigation has progressed to a point of greater certainty and reduced risk; there is likely to be less interest from buyers seeking upside return; and another auction process is unlikely to yield a significant appreciable benefit through a substantially increased sale price given the costs of running a competitive bid and sale process. The sale remains subject to higher and better offers.

Terms of the Proposed Sale

The asset being sold encompasses all rights, title, and ownership interest of any kind to which the debtor's estate may be entitled from the Class Action Interchange Litigation, including the right to monetary benefits or benefits that may be monetized from settlements, judgments, or any other form of resolution. The sale covers only the rights belonging to Art Van Furniture, LLC and excludes the rights of the other affiliated debtor entities.

The purchaser, Optium Fund 6, executed the Asset Purchase Agreement on March 2, 2026. Key financial terms include:

• Purchase Price: $850,000
• Deposit: 10% of the purchase price, due within one business day of entering into the agreement, to be held in escrow and applied at closing
• Payment of Balance: Within three business days after the later of full execution of the agreement and the Approval Order becoming final and non-appealable
• Closing: Within 15 days of full execution and entry of the sale order, provided the order has not been stayed

The agreement includes no break-up fee, expense reimbursement, or similar bid protections in favor of the purchaser. The sale is governed by the laws of the State of Delaware, with the Bankruptcy Court retaining jurisdiction over any disputes arising under the agreement. The trustee is also seeking a waiver of the 14-day stay under Bankruptcy Rule 6004(h).

Bidding Procedures for Competing Offers

The trustee has reserved the right to accept higher and better offers. The motion establishes the following overbid procedures:

• Any competing bidder must submit a written overbid by email to the trustee and his counsel on or before the Response Deadline set forth in the separately filed notice
• The first overbid must be at least $100,000 above the purchase price, for a minimum total of $950,000
• Any written overbid must be accompanied by a cashier's check in the full amount of the overbid
• Subsequent overbids at any auction must be in increments of at least $100,000
• If qualified competing bids are received, the trustee will, in his sole discretion, either schedule an auction prior to the hearing date or solicit sealed best-and-final bids from all qualified bidders

Legal Basis for the Sale

The trustee seeks approval under Sections 105 and 363 of the Bankruptcy Code. Section 363(b)(1) authorizes a trustee to sell property of the estate outside the ordinary course of business after notice and a hearing. Courts in this district have held that such sales should be approved where the trustee can demonstrate a sound business justification for the proposed transaction. The trustee contends that a sale of the asset would be the most optimal manner to maximize value for the debtor's estates.

The sale is sought free and clear of all liens, claims, interests, and encumbrances pursuant to Section 363(f), with any such interests to attach to the proceeds of the sale with the same priority and validity as existed prior to the sale. The trustee further asserts that Optium Fund 6 is entitled to good faith purchaser protections under Section 363(m), as the transaction was negotiated at arm's length with the assistance of counsel and the purchaser is an independent third party.

Key Dates and Deadlines

• March 2, 2026: Asset Purchase Agreement executed
• March 10, 2026: Motion filed
• March 24, 2026 at 4:00 p.m. (ET): Objection deadline
• April 6, 2026 at 10:00 a.m. (ET): Hearing date

Professional Representation and Court Information

The motion was filed by Pachulski Stang Ziehl & Jones LLP, counsel to the Chapter 7 trustee, in the United States Bankruptcy Court for the District of Delaware, at Courtroom No. 7, 824 Market Street, Wilmington, Delaware 19801.

• Case Name: In re Start Man Furniture, LLC, et al. (f/k/a Art Van Furniture, LLC)
• Case Number: 20-10553 (CTG)
• Docket Number: 1744

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 48-page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background and Business Operations

Cumulus Media is an audio-first media company that delivers content through 394 owned-and-operated radio stations across 84 markets. The company also operates national audio platforms, including the Westwood One network and the Cumulus Podcast Network, as well as one of the largest streaming audio advertising networks in the United States and a suite of local digital marketing services. As of the petition date, the company employed approximately 3,000 people, including approximately 2,000 full-time employees, of whom approximately 100 were covered by eight collective bargaining agreements.

The company generates revenue primarily from the sale of broadcast radio advertising time to local, regional, and national clients. Digital revenue comes from podcast advertising, streaming audio, display advertising, and local digital marketing services including email marketing, geo-targeted display, video solutions, search engine marketing, website building and hosting, social media management, and search engine optimization. Additional revenue is derived from trade and barter transactions, remote and event revenues, and non-advertising sources such as licensing fees and tower rental income.

Cumulus Media Inc. is a Delaware corporation organized in 2018 as the successor to an entity of the same name that had filed for bankruptcy in November 2017 in the Southern District of New York. The predecessor company and its debtor subsidiaries emerged from those earlier Chapter 11 cases on June 4, 2018.

Events Leading to Bankruptcy

According to the declaration filed in support of the petitions, the Chapter 11 cases are the product of sustained challenges in the broadcast radio industry and broader macroeconomic pressures. Over multiple years, core revenues across the industry have been affected by competition from digital audio and streaming platforms, shifts toward programmatic and performance-based ad buying, and recurring annual declines in radio listenership that were exacerbated by pandemic-era behavioral changes. Despite some recovery in listenership driven by return-to-office trends, annual audience declines have persisted and radio listenership remains below pre-pandemic levels, particularly in large markets where the company operates.

At the same time, persistent inflation increased operating costs including wages, content and production expenses, and third-party services, while elevated benchmark interest rates increased cash interest burdens and tightened credit availability. The company also faced shifts in advertising budgets away from traditional radio and into digital platforms.

To address these challenges, the company undertook a multi-year sequence of operational and strategic initiatives. Since 2018, the company reduced gross debt by approximately $630 million — roughly 50% from 2018 levels — supported by an asset monetization program totaling approximately $510 million. That program included sales of approximately $120 million of land no longer required for operations, approximately $180 million of non-strategic stations, and approximately $210 million of tower assets. These steps were complemented by approximately $120 million of cash generated from operations and opportunistic refinancings.

The 2024 Exchange Transactions

In May 2024, the company completed a series of exchange offers pursuant to a transaction support agreement with an ad hoc group representing approximately 80% of the then-outstanding 2026 Notes and approximately 97% of the then-outstanding 2026 Term Loans. Through these transactions, approximately $328.3 million of the 2026 Term Loan was exchanged for approximately $311.8 million of new 2029 Term Loans, and approximately $323.0 million of the 2026 Notes was exchanged for approximately $306.4 million of new 2029 Notes. Overall, approximately 97% of 2026 Term Loan holders and 94% of 2026 Notes holders participated.

Concurrently, the company amended its ABL Facility to extend its maturity to March 1, 2029, and increase aggregate commitments from $100 million to $125 million. The company also obtained consents to amend the 2026 Credit Agreement and the 2026 Notes Indenture to eliminate substantially all restrictive covenants and certain events of default, release all collateral securing the 2026 Notes, and subordinate the liens securing the 2026 Term Loan. However, because certain holders elected not to participate, small stub amounts of the 2026 Term Loan (approximately $1.2 million) and 2026 Notes (approximately $22.7 million) remained outstanding.

Although the 2024 exchange transactions provided maturity extensions, persistent industry-wide revenue declines and macroeconomic pressures continued to constrain liquidity and free cash flow through 2024 and 2025.

The Nielsen Dispute

The company's financial position was also affected by a dispute with Nielsen Audio, the radio broadcast industry's principal ratings service. In late 2024, Nielsen implemented a new network tying policy that forced any customer owning both a national network and local radio stations to purchase Nielsen's local radio ratings data in all markets in order to access the complete national ratings data product. According to the declaration, this policy placed the company in an untenable position: either assume substantially higher audience measurement costs by purchasing unwanted local ratings data, or lose access to the national ratings data that is critical to selling national advertising.

After consensual negotiations failed, the company filed a complaint against Nielsen in October 2025 in federal court in the Southern District of New York. The company obtained a preliminary injunction against the tying policy on December 30, 2025. On February 2, 2026, Nielsen filed an answer and counterclaims in the underlying litigation. On February 3, 2026, the Second Circuit Court of Appeals granted Nielsen's motion for a stay pending appeal, temporarily staying the preliminary injunction. The litigation remains pending in the District Court for the Southern District of New York.

Prepetition Capital Structure

As of the petition date, the company's funded indebtedness totaled approximately $697.1 million, structured as follows:

Secured Funded Debt:

• ABL Credit Agreement: $55,000,000 (maturing March 1, 2029)
• 2029 Term Loan Credit Agreement: $311,844,954 (maturing May 2, 2029; interest at 8.901%)
• 2029 Notes Indenture: $306,375,000 at 8.00% (maturing July 1, 2029)
• 2026 Term Loan Credit Agreement: $1,202,709 (maturing March 31, 2026; interest at 7.687%)

Unsecured Funded Debt:

• 2026 Notes Indenture: $22,697,000 at 6.75% (maturing July 1, 2026)

The company's equity consisted of 17,128,043 shares of Class A common stock and 312,041 shares of Class B common stock outstanding. Trading in the Class A common stock on the Nasdaq Global Market was suspended on May 2, 2025, as part of Nasdaq's delisting procedures, after which shares began trading on the OTC Markets' OTCQB market tier.

The respective rights of lenders and noteholders are governed by three intercreditor agreements, each dated May 2, 2024, which establish the priority of liens on the company's collateral among the ABL facility, the 2029 debt, and the remaining 2026 debt.

The Restructuring Support Agreement

On March 4, 2026, the company entered into the Restructuring Support Agreement with members of an Ad Hoc Group of secured lenders holding approximately 72.05% of the 2029 Debt Claims. The agreement contemplates a prepackaged Chapter 11 plan designed to reduce the company's funded indebtedness by approximately $592 million and reduce annual cash interest expense by approximately $49 million.

The RSA was the product of arm's-length negotiations that began in the last quarter of 2025, when the company and its advisors began exploring strategic alternatives. While the company originally aimed to complete a restructuring transaction on an out-of-court basis, ongoing industry pressures led the company to begin preparing for a prepackaged filing in early 2026.

Treatment of Claims and Interests

Under the proposed plan, claims and interests would be treated as follows:

Administrative, Tax, Other Priority, and Other Secured Claims: Paid in full in cash on the effective date or in the ordinary course of business.

ABL Facility Claims: Each holder will receive its pro rata share of new loans under a Restated ABL Credit Facility in an amount equal to the allowed ABL Facility Claims. The class is impaired and entitled to vote.

2029 Secured Claims: Each holder will receive its pro rata share of (a) $50 million in Exit Convertible Notes and (b) 95% of the New Common Stock of the reorganized company (subject to dilution from a management incentive plan). The 2029 Secured Claims are deemed allowed in the aggregate amount of $168,579,947. The class is impaired and entitled to vote.

Other Funded Debt Claims (2026 Debt Claims and 2029 Deficiency Claims): Each holder will receive its pro rata share of 5% of the New Common Stock (subject to dilution from the MIP). The 2026 Debt Claims are deemed allowed at $24,192,471 in aggregate, and the 2029 Deficiency Claims at $470,321,003. Distributions owing to 2026 Term Loan Lenders are to be turned over to the 2029 holders pursuant to a junior lien intercreditor agreement. The class is impaired and entitled to vote.

General Unsecured Claims: Paid in the ordinary course of business. The class is unimpaired and conclusively deemed to accept the plan.

Existing Equity Interests: All existing equity interests will be cancelled with no recovery. The class is impaired and conclusively deemed to reject the plan.

Exit Financing

The restructuring contemplates two exit financing facilities. First, the company will enter into a Restated ABL Credit Facility providing for up to $100 million in revolving credit commitments on terms substantially similar to the existing facility. Each holder of an ABL claim has agreed to roll its claim into the restated facility.

Second, the reorganized company will issue $50 million in Exit Convertible Notes with the following material terms: interest at the company's election at either 10.00% payable in kind or 8.00% payable in cash, payable semiannually; maturity on the fifth anniversary of the effective date; mandatory conversion into New Common Stock upon any M&A transaction at an exchange price equal to the midpoint of equity value as set forth in the plan's valuation analysis; and callable at par plus accrued interest. The Exit Notes will be secured by second-priority liens on ABL Collateral and a pari passu first-priority lien on shared collateral.

Use of Cash Collateral

Lenders constituting the requisite majority of ABL Loans, 2029 Term Loans, and 2029 Notes have agreed to the company's consensual use of cash collateral in compliance with an approved budget. As of the petition date, the company held approximately $46 million of cash on hand. The company states that this arrangement will allow it to continue operating its businesses and administer the Chapter 11 cases without seeking debtor-in-possession financing.

Governance Changes

As a condition of the RSA, the company constituted a Transaction Committee of the board of directors comprising three independent directors, including one pre-existing independent director and two new independent directors chosen from nominees of the Ad Hoc Group. On January 28, 2026, the board had appointed an independent director and formed a special restructuring committee and an investigation committee to evaluate restructuring alternatives and conduct an independent review of potential claims against insiders and equity holders, respectively. The restructuring committee was subsequently disbanded upon the effectiveness of the RSA.

The board of directors of the reorganized company will be determined and selected by the Required Consenting 2029 Holders. The reorganized company will be a private company unless otherwise agreed.

Employee Matters

All officers and employees are to be retained in their existing positions following the effective date under their existing employment agreements. However, amended employment agreements will apply to the company's chief executive officer and chief financial officer.

Under the amended CEO agreement, the base salary will be reduced from $1,450,000 to $1,250,000, the annual target bonus will be reduced from $1,450,000 to $1,250,000 (capped at 200% of base salary), the non-change-in-control severance multiple will change from 1.5x to 1.75x, and the change-in-control severance multiple will change from 2.5x to 2.25x.

Under the amended CFO agreement, the base salary will be reduced from $800,000 to $700,000, the annual target bonus will be reduced from $800,000 to $700,000 (capped at 200% of base salary), the non-change-in-control severance multiple will change from 1.5x to 1.0x, and the change-in-control severance multiple will change from 2.0x to 1.5x.

Both executives will forfeit all amounts and entitlements previously awarded under the company's 2020 Equity and Incentive Compensation Plan.

A management incentive plan will reserve 10% of New Common Stock on a fully diluted basis, with terms to be fixed by the new board. If the new board does not allocate and grant MIP awards within 90 days of the effective date, each existing employee participant in the prior equity plan will have the right to resign for good reason and receive contractual cash severance entitlements.

Key Dates and Milestones

The RSA contemplates the following milestones for the restructuring:

• March 4, 2026: Solicitation of creditor acceptance launched; RSA executed
• March 5, 2026: Petition Date; Plan, Disclosure Statement, Scheduling Motion, and Cash Collateral Motion filed
• Within 3 days of petition: Scheduling Order and Interim Cash Collateral Order to be entered
• Within 30 days of petition: Final Cash Collateral Order to be entered (extendable by up to 25 days to align with the confirmation hearing)
• Within 55 days of petition: Confirmation Order to be entered
• Within 75 days of confirmation: Plan Effective Date (extendable by up to 120 additional days solely for regulatory approvals)

First Day Motions

The company filed a series of first day motions seeking, among other things, authority to continue operating its cash management system, honor employee wages and benefits, pay certain prepetition trade creditor obligations, pay taxes and fees, maintain utility services, establish procedures regarding transfers of interests for net operating loss preservation, maintain customer programs, continue insurance coverage, and use cash collateral on an interim basis. Administrative motions sought joint administration, consolidated creditor lists, FCC compliance procedures, and retention of Verita Global (Kurtzman Carson Consultants) as claims and noticing agent.

Professional Representation

The company is represented by Paul, Weiss, Rifkind, Wharton & Garrison LLP as restructuring counsel, Moelis & Company LLC as investment banker, and Alvarez & Marsal North America, LLC as financial advisor. The Ad Hoc Group of secured lenders is represented by Gibson, Dunn & Crutcher LLP as counsel and Guggenheim Securities, LLC as financial advisor. The case is pending in the United States Bankruptcy Court for the Southern District of Texas under Case No. 26-90346 (ARP).

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 126 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background and Business Operations

The three debtor entities filed voluntary Chapter 11 petitions on February 2, 2026. The debtors' service address is 13809 Research Boulevard, Suite 785, Austin, Texas 78750.

The debtors' primary assets consist of rights and arrangements to procure, control, and utilize electrical power at their operating facilities, together with related site-control interests, operational infrastructure, customer and revenue-generating relationships, and associated equipment and personal property. The motion collectively refers to these as the "Assets."

Business Justification for the Sale

The debtors have determined, in the exercise of their business judgment, that a timely sale of all or part of their assets is in the best interests of the debtors, their estates and creditors, and all parties in interest. The motion states that a protracted Chapter 11 case could permanently deplete the value of the debtors' estates.

The debtors have retained Synteq Digital Operations US, LLC as their broker, subject to court approval. The broker retention application was filed on February 10, 2026. The sale timeline was developed in consultation with the broker and the DIP lender.

The motion notes that if, during the marketing period, a party expresses interest in providing exit financing or infusing capital into the debtors, the debtors will consider such proposals.

Proposed Bidding Procedures

The amended motion provides for three possible sale approaches: a negotiated sale with a designated purchaser, a stalking horse bid followed by an auction, or an auction without a stalking horse bidder. Each approach requires the consent of the DIP lender.

Qualified Bid Requirements

To submit a qualified bid, a potential buyer must satisfy several requirements, including submitting a signed definitive purchase and sale agreement identifying the assets to be purchased and the purchase price. Bids may not contain any financing or due diligence contingencies and must be all-cash payable in full at closing. Each bid must be sufficient to pay the DIP obligations in full in cash and must be accompanied by evidence of financial capability.

Bidders must fully disclose their legal identity, include a good faith deposit equal to ten percent of the purchase price, and agree that their offer is irrevocable through the earlier of the closing of a sale transaction or May 29, 2026.

Stalking Horse Provisions

The debtors seek authority to designate a stalking horse bidder by March 4, 2026 at 5:00 p.m. If designated, the stalking horse bidder would be entitled to bid protections consisting of a break-up fee of no more than three percent of the purchase price and expense reimbursement not to exceed one and one-half percent of the purchase price. The motion cites prior court approvals of similar protections in the Western District of Texas.

As of the filing of the amended motion, the debtors had not received a stalking horse bid.

Auction Procedures

If the debtors receive one or more qualified bids, an auction may be conducted in a public outcry format on April 8, 2026 at 10:00 a.m. at the offices of the debtors' counsel. Only qualified bidders and their legal and financial advisors may attend the auction, which will be transcribed by a certified court reporter.

Bidding at the auction will commence at the initial highest bid. Subsequent bids must exceed the baseline bid plus any bid protections by at least $50,000, with incremental bid amounts to be determined at the auction.

The DIP lender is entitled to credit bid all or a portion of its outstanding obligations under Section 363(k) of the Bankruptcy Code and is deemed a qualified bidder for all purposes.

Sale Free and Clear of Liens

The debtors seek to sell the assets free and clear of all liens, claims, interests, and encumbrances under Section 363(f) of the Bankruptcy Code. All existing liens will attach to the sale proceeds with the same validity, priority, force, and effect. The motion states that a sale subject to existing encumbrances would result in a lower purchase price and be less beneficial to the estates.

Assumption and Assignment of Contracts

In connection with the sale, the debtors propose procedures for the assumption and assignment of executory contracts and unexpired leases to the successful bidder under Section 365 of the Bankruptcy Code. The debtors will serve an assumption and assignment notice identifying the contracts that may be assumed and assigned, the proposed cure amounts, and the applicable objection deadlines.

Counterparties that fail to timely object will be deemed to have consented to the proposed cure amounts and assumption and assignment. Any disputed cure claims will be presented to the court at the sale hearing or at a later date.

Key Dates and Timeline

• March 3, 2026: Amended motion filed
• March 4, 2026, 5:00 p.m. CT: Deadline to designate stalking horse bidder
• March 9, 2026, 9:30 a.m. CT: Hearing on the motion
• March 11, 2026, 5:00 p.m. CT: Objection deadline for stalking horse designation
• April 3, 2026, 5:00 p.m. CT: Bid deadline
• April 5, 2026, 5:00 p.m. CT: Notification of qualified bidders
• April 8, 2026, 10:00 a.m. CT: Auction (if qualified bids received)
• April 9, 2026: Auction results filed with court
• April 15, 2026: Requested sale hearing date; assumption and assignment objection deadline
• May 29, 2026: Qualified offers irrevocable through this date

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 56 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

The Plan was unanimously approved by all voting creditor classes, with no economic stakeholder objecting to confirmation. The case is jointly administered under Case No. 25 B 01705.

Company Background and Business Operations

The Debtors are eight not-for-profit entities that own and operate continuing care retirement communities, assisted living facilities, and a skilled nursing facility across Illinois and Indiana. As of October 2025, approximately 765 residents aged 62 and older lived in the Debtors' communities. The Debtors have operated with a faith-based mission inclusive of all backgrounds for more than 130 years.

Four of the debtor entities operate as continuing care retirement communities. Two additional entities provide assisted living services. One entity serves as the management company overseeing all communities, and another functions as a charitable foundation supporting impoverished residents and spiritual programming. The sole corporate member of each debtor entity (other than one) is a non-debtor not-for-profit corporation.

Six of the eight Debtors—referred to as the Obligated Group Debtors—are jointly obligated on approximately $182 million in bond debt for which a national bank serves as Master Trustee and Bond Trustee. The Debtors also carried secured obligations to a faith-based lender, including approximately $4 million drawn on a line of credit and approximately $7 million in additional subordinated debt.

Events Leading to Bankruptcy

The Debtors' ability to service their debt obligations was impaired by both the immediate impact of COVID-19 on occupancy rates and lasting structural changes to the senior care industry. As a result, the Obligated Group Debtors defaulted on their secured debts. In October 2024, the Master Trustee accelerated the bond obligations.

On January 30, 2025, the bond trustee filed suit in the U.S. District Court for the Northern District of Illinois and sought the emergency appointment of a receiver over the Obligated Group Debtors and their assets. A hearing on the receiver appointment was set for February 4, 2025, but the Debtors commenced their Chapter 11 cases before that hearing could take place.

The year following the bankruptcy filing involved disputes between the Debtors and their secured creditors, tort claimants, regulators, and general unsecured creditors. Disputes included the management fee paid by the Obligated Group Debtors to the management company, which was ultimately capped at 9% of revenue following two months of negotiations. Six tort claimants filed substantially similar motions for relief from the automatic stay, all of which the court denied. The Debtors also filed an adversary proceeding against the Illinois Department of Public Health after the agency issued emergency permit suspension notices to two communities—not due to care issues, but for failure to file annual audited financial statements. That dispute was resolved without a contested hearing.

On February 20, 2025, the U.S. Trustee appointed a five-member official committee of unsecured creditors, which included three residents. The Committee investigated potential claims against the management company under Sections 547 and 548 of the Bankruptcy Code related to prepetition management fees and allocations, as well as potential claims against certain members of management for prepetition incentive compensation.

The Confirmed Plan of Reorganization

The Plan implements a series of integrated settlements between the Debtors, their secured lenders, and the Committee. The Debtors filed their first Disclosure Statement and Plan in November 2025, subsequently amending the documents multiple times to address objections and incorporate settlement terms with both the faith-based secured lender and the Committee.

The court authorized solicitation on January 14, 2026, and the confirmation hearing was held on February 25, 2026. Every voting creditor unanimously voted in favor of the Plan across all seven voting classes.

Key terms of the confirmed Plan include:

• Refinancing approximately $180 million of bond debt, with a four-year moratorium on principal payments and a 29-year amortization schedule. Bondholders, though impaired, are projected to realize 100% of the value of their claims over time.
• Refinancing the approximately $4 million line of credit with the faith-based lender.
• Satisfying approximately $8.5 million of secured debt owed to the faith-based lender, after giving effect to its waiver of accrued interest and fee claims.
• Cash distributions with an estimated value of 30% to 41% on general unsecured claims at the Obligated Group Debtors, funded by proceeds from retained causes of action, any remainder in the cure cost reserve account, and a $1.4 million cash settlement payment negotiated by the Committee.
• Payment in full of general unsecured claims at the Non-Obligated Group Debtors.
• Relief from the Plan injunction so that personal injury tort claimants may pursue available insurance in sole satisfaction of their claims.
• Assumption and cure of all residency agreements and payment in full of resident refund obligations from the escrow account established at the beginning of the cases.
• Mutual releases of claims (Estate Releases and Third-Party Releases).
• Exculpation of certain parties.

Treatment of Claims and Interests

Unimpaired classes—including other priority claims, the faith-based lender's secured claims, general unsecured claims at the Non-Obligated Group Debtors, and residential claims—are deemed to accept the Plan and will be paid in full. Impaired classes that voted to accept include bondholders, the faith-based lender's line of credit claim, general unsecured claims at the Obligated Group Debtors, and insured tort claims. Intercompany claims are the sole class deemed to reject, as they receive no distribution.

The Plan provides for deemed substantive consolidation of the eight Debtors' estates into two groups—the Obligated Group and the Non-Obligated Group—solely for voting and distribution purposes. The court found this administrative consolidation appropriate to reduce costs in administering the General Unsecured Trust, noting it would be administratively burdensome to require the trustee to maintain six sub-trusts and allocate proceeds among them on an entity-by-entity basis given how the Debtors operated under unified management.

U.S. Trustee's Objections and the Court's Rulings

The U.S. Trustee raised objections to five Plan provisions: the deemed substantive consolidation, the scope of estate releases, the third-party releases as non-consensual under the Supreme Court's 2024 decision in Harrington v. Purdue Pharma L.P., the breadth of the exculpation provision, and the injunction and gatekeeper provisions. The court overruled all five objections.

On deemed substantive consolidation, the court found it was limited to voting and distributions, that no Bankruptcy Code provision prohibits it, and that it was a reasonable administrative approach given how the Debtors operated as a single managed enterprise.

On estate releases, the court found them to be in the best interests of the estates as part of the global settlement. The Debtors are releasing only claims they are not retaining and have not already settled, while preserving retained causes of action (including avoidance actions) for the benefit of the General Unsecured Trust.

The Court's Analysis of Third-Party Releases

The opinion's analysis of the third-party release provisions spans approximately 30 pages. The court held that consensual third-party releases remain permissible under Seventh Circuit law after the Supreme Court's Purdue decision, citing the Seventh Circuit's decision in Matter of Specialty Equipment Cos. (3 F.3d 1043, 7th Cir. 1993). The court noted that the Purdue majority explicitly declined to disturb the law on consensual releases and affirmatively cited Specialty Equipment in doing so.

On whether the opt-out mechanism can demonstrate consent, the court surveyed the split in authority across jurisdictions—including decisions from New York, Delaware, Texas, Georgia, and New Jersey—and concluded that, under the facts of this case, the opt-out framework validly implied consent. The court relied on Seventh Circuit precedent establishing that in bankruptcy, silence with adequate notice constitutes consent, citing FutureSource LLC v. Reuters Ltd. (312 F.3d 281, 7th Cir. 2002) and Fogel v. Zell (221 F.3d 955, 7th Cir. 2000).

The court rejected the U.S. Trustee's argument that state contract law principles require affirmative acceptance, noting that confirmed plans bind all stakeholders who receive notice regardless of whether they vote, and that the U.S. Trustee's theory, if accepted, could undermine the Chapter 11 process by exempting non-participating creditors from the terms of confirmed plans.

The court also drew an analogy to class action settlements under Federal Rule of Civil Procedure 23, where absent class members who receive notice and fail to opt out are bound by settlement terms, observing that the bankruptcy process provides at least as much notice and protection to creditors as the class action process.

The Debtors made concessions during the confirmation process, removing from the definition of Releasing Parties those holders who abstained from voting, those who voted no without checking the opt-out box, and those deemed to reject. Of 183 total creditors who voted, 21 parties (eleven voters and ten non-voters) opted out of the third-party releases. The court approved the releases as applied to creditors who voted yes and those deemed to accept (being paid in full) who did not opt out.

The third-party releases are narrowed by a provision excluding any claim to which a Debtor would not be a required party under Federal Rule of Civil Procedure 19 or its state equivalent.

The Court's Analysis of Exculpation

The court distinguished exculpation from discharge, stating that a discharge extinguishes a legal duty to pay a debt that existed, while an exculpation is a determination that a party had no obligation in the first place absent gross negligence or willful misconduct. The court rejected the U.S. Trustee's argument that the exculpation provision violates Section 524(e) of the Bankruptcy Code.

The court followed the analytical framework articulated by the Southern District of New York in In re Aegean Marine Pet. Network Inc. and In re Voyager Digital Holdings, Inc., holding that exculpation provisions serve to protect both court-supervised fiduciaries and court-supervised and court-approved transactions from challenges absent gross negligence or willful misconduct.

The exculpation applies only to postpetition acts or omissions related to the Chapter 11 filing, the administration of the cases, the Plan, and the restructuring.

The Court's Analysis of Injunction and Gatekeeper Provisions

The court found it has jurisdiction to enforce its own orders and to enter an injunction implementing the Plan's discharge, release, and exculpation provisions, citing 28 U.S.C. § 1334(b), 11 U.S.C. § 105(a), and the Supreme Court's decision in Celotex Corp. v. Edwards.

On the gatekeeper provision, the court clarified that it authorizes the bankruptcy court only to determine whether post-confirmation suits colorably circumvent the court's orders—not to rule on the underlying merits of any claim outside the bankruptcy court's jurisdiction. The court stated it will not apply Federal Rule of Civil Procedure 12(b)(6) or state-law pleading standards to post-confirmation claims, but will only assess whether a suit circumvents the Plan, the Confirmation Order, or the court's prior orders.

Key Dates

• January 30, 2025: Bond trustee filed suit and sought emergency receiver appointment
• February 4, 2025: Scheduled hearing date for receiver appointment (preempted by bankruptcy filing)
• February 20, 2025: U.S. Trustee appointed five-member creditors' committee
• November 2025: Debtors filed first Disclosure Statement and Plan
• January 7, 2026: Debtors filed Amended Disclosure Statement and Amended Plan
• January 14, 2026: Court granted conditional approval of Disclosure Statement and authorized solicitation
• February 25, 2026: Confirmation hearing held
• March 4, 2026: Opinion issued confirming Plan and approving Disclosure Statement

Case Information

• Court: United States Bankruptcy Court for the Northern District of Illinois, Eastern Division
• Case Number: 25 B 01705 (Jointly Administered)
• Judge: Hon. Michael B. Slade
• Document: Memorandum Opinion (Dkt. No. 800), 72 pages

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 72 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background and Business Operations

The debtors rented and sold furniture, electronics, appliances, and other merchandise to customers on a rent-to-own basis across 46 store locations. The initial debtors filed chapter 11 petitions on or about December 4, 2025, with additional affiliated entities — designated as the subsequent debtors — filing on January 25, 2026. The cases are jointly administered under Case No. 25-34839-mvl11. The United States Trustee appointed an Official Committee of Unsecured Creditors on December 19, 2025. The debtors continue to operate their businesses as debtors-in-possession.

The debtors' employee operations were administered through BMH-HR, LLC, a wholly-owned subsidiary of Buddy Mac Holdings, LLC, which managed all wages, compensation, and employee benefits programs through ADP.

The ERC Engagement and Refund History

The Employee Retention Credit is a refundable tax credit established under the CARES Act for eligible businesses affected by the COVID-19 pandemic. Buddy Mac Holdings, LLC entered into an engagement agreement with SRB Capital, LLC — an Ohio-based ERC consulting firm — on July 18, 2023. Under the agreement, SRB Capital was to review the debtors' eligibility and payroll qualifications, run payroll analysis using proprietary software, provide an opinion letter and allocation reports, and prepare IRS Form 941-X amended returns for submission.

The fee structure provided that SRB Capital would receive 15% of any ERC refund upon receipt, with an alternative discounted rate of 10% available if paid within 15 calendar days of invoicing.

BMH-HR, LLC submitted Forms 941-X to the IRS in October 2023 for the first three quarters of 2021. The IRS subsequently issued three refund payments: $2,582,941.10 on March 25, 2025, covering the first quarter of 2021; $2,615,317.32 on November 4, 2025, covering the second quarter of 2021; and $3,249,319.19 on January 13, 2026, covering the third quarter of 2021. All three ERC refund checks were received before the subsequent debtors' petition date of January 25, 2026. The total ERC refunds amounted to approximately $8.45 million.

The debtors have not yet paid SRB Capital its commission of $370,804.37.

ERC Qualification Basis

The debtors' ERC eligibility was supported by a professional opinion letter from SRB Capital dated September 21, 2023, which concluded that the MacDonald Aggregated Group — consisting of nine related business entities under common ownership — qualified for the ERC based on a partial suspension of operations exceeding 10% due to COVID-19 government orders from January 1, 2021, through September 30, 2021.

The aggregated group had 260 full-time employees as of 2019, making it eligible for the 2021 ERC program (which required fewer than 500 full-time employees) but not the 2020 program (which required fewer than 100). The qualification was based primarily on government restrictions in New Mexico, where the group operated one of its locations. SRB Capital's analysis documented a progression of New Mexico public health emergency orders from March 2020 through late 2021, including capacity restrictions, masking requirements, and the state's county-by-county operating framework.

The engagement also included an "Audit Armor" package with an opinion letter, allocation reports, a process control certificate, prepared 941-X returns, and IRS audit support.

Legal Basis for the Motion

The motion presents two primary legal arguments in support of authorizing the payment.

First, the debtors contend that SRB Capital holds an equitable lien on the commission under Texas law. The motion cites Texas case law establishing that a party holding payment rights under a contingency fee agreement receives a legal and equitable interest when the contingency occurs. Because the IRS refund checks were received before the subsequent debtors' petition date, the debtors argue that the contingency was fully satisfied pre-petition, vesting SRB Capital's right to the commission. The motion further invokes the common fund doctrine, under which a party that creates a fund for another's benefit is entitled to reimbursement from that fund.

Second, the debtors argue that even if the court determines the ERC refunds constitute property of the estate, payment is justified under the business judgment standard of Bankruptcy Code sections 363(b) and 105(a). The motion identifies three business justifications: the commission represents a contractual obligation for services that produced approximately $8.5 million in ERC refunds for the estate; the debtors wish to maintain their relationship with SRB Capital in the event of any future IRS inquiries or audits regarding the ERC refunds; and payment would avoid future litigation over the nature and amount of SRB Capital's claim and the associated expenditure of estate resources.

The motion also states that SRB Capital's claim to the commission is secured and excluded from the DIP lender's collateral, and that nonpayment would result in unjust enrichment of the estate and its creditors.

Key Dates and Timeline

• July 18, 2023: Engagement agreement executed between Buddy Mac Holdings, LLC and SRB Capital, LLC
• October 2023: BMH-HR, LLC submitted Forms 941-X to the IRS
• March 25, 2025: First ERC refund of $2,582,941.10 received (Q1 2021)
• November 4, 2025: Second ERC refund of $2,615,317.32 received (Q2 2021)
• December 1–4, 2025: Initial debtors filed chapter 11 petitions
• December 19, 2025: Official Committee of Unsecured Creditors appointed
• January 13, 2026: Third ERC refund of $3,249,319.19 received (Q3 2021)
• January 25, 2026: Subsequent debtors filed chapter 11 petitions
• March 4, 2026: Motion to pay SRB Capital commissions filed

Court Information and Professional Representation

The case is pending before the United States Bankruptcy Court for the Northern District of Texas, Dallas Division, under Case No. 25-34839-mvl11. The debtors are represented by Kane Russell Coleman Logan PC, with attorneys based in Dallas and Austin, Texas.

This article was prepared using Research Suite by Stretto, the gold standard for bankruptcy research. Research Suite by Stretto was able to create this summary of a 60 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Research Suite by Stretto may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background and Business Operations

The Hawthorne racetrack, located at 3501 S. Laramie Avenue in Cicero, Illinois, approximately ten miles from downtown Chicago, traces its origins to 1909, when it was purchased by a Chicago alderman and entrepreneur. The facility has remained under the same family's ownership for four generations and is described in the filings as the oldest continuously run, family-owned racetrack in North America and the oldest gaming institution in the State of Illinois.

The debtors' corporate structure consists of four entities. Carey Heirs Properties, LLC owns the underlying real estate and certain improvements at the racetrack and leases the premises to both Hawthorne Race Course, Inc. and Suburban Downs, Inc. The real estate entity is owned by 77 members, most of whom are descendants of the original purchaser, and is governed by a board of three managers. Hawthorne Race Course, Inc. serves as the parent operating company, conducting thoroughbred horse racing and operating ten off-track betting facilities throughout Illinois in cities including Joliet, Crestwood, Villa Park, Rockford, and others. Suburban Downs, Inc. conducts standardbred harness horse racing at the track when thoroughbred racing is not in session. Post Time Catering, Inc., a wholly owned subsidiary of the parent company, provides food and beverage services at the racetrack.

The racetrack's business encompasses live pari-mutuel wagering on thoroughbred racing, simulcasting of horse racing programs from other tracks, sportsbook wagering, advance deposit wagering from funded online accounts, and off-track betting. In 2016, after the closure of the Balmoral and Maywood harness facilities, Hawthorne became the country's only dual breed racetrack, converting the track surface between thoroughbred and harness meets. Following the 2022 closure of Arlington Racecourse, Hawthorne became the sole underwriter of the Illinois horseracing industry in northern Illinois.

The racetrack employs over 250 people, with its longest-tenured employee having spent 52 years at the track. Between 290 and 500 people reside on the backside of the racetrack property depending on the racing season, including horsemen, their employees, and families, who receive housing and medical and dental care funded almost entirely by the racetrack. The filings estimate that the operation supports approximately 10,000 direct and indirect jobs in the Illinois horse racing agri-business, including farming, breeding, and training.

Gaming and Sports Wagering Licenses

In October 2019, in conjunction with the development of what was intended to be Illinois' first Racino entertainment complex combining casino-style wagering and horseracing, a gaming executive was named CEO of the Hawthorne Casino and Race Course division. In July 2020, the Illinois Gaming Board unanimously found the parent company preliminarily suitable for an organizational gaming license, and in July 2021 the board voted to approve key persons associated with the company. The company's continued licensing suitability and sports wagering license renewal were approved by the Illinois Gaming Board in September 2024.

The parent company also held retail, mobile, and online sportsbook wagering licenses, which were operated by PointsBet USA under a licensing agreement. During 2023, PointsBet USA's shareholders agreed to sell its U.S. operations to Fanatics, a subsidiary of Fanatics Holding Inc. In May 2023, the parent company and Fanatics signed a letter of intent to enter into a definitive agreement based substantially on the existing PointsBet arrangement. On January 26, 2026, Fanatics terminated the mobile and internet portions of its agreement but continued to provide retail sports wagering services at the racetrack and eligible off-track betting facilities.

Capital Structure and Debt Obligations

Signature Bank, N.A. served as the debtors' senior secured lender and central source of liquidity for both racing and Racino development activities. As of December 31, 2025, the debtors had outstanding a revolving line of credit of approximately $15 million alongside a suite of term loans and a $5 million bridge loan, totaling $35.1 million in combined term debt and revolver exposure. These loans carried interest rates ranging from a fixed rate of 10% to floating structures tied to prime plus a spread, resulting in $1.0 million of accrued interest as of that date. The Signature Bank facilities also carried substantial back-end financial obligations, including $6.1 million in exit fees across certain term loans, which materially increased the effective cost of capital. When combining principal, accrued interest, and exit fees, the debtors' estimated total obligations to Signature Bank were approximately $51.6 million as of February 24, 2026.

In 2025, Latto Capital LLC provided a $5.0 million term loan secured by a second-priority lien on the debtors' real estate, subordinate to Signature Bank's liens. On or about February 20, 2026, a family trust made a $300,000 loan to the parent company, secured by a junior mortgage on one of the debtor properties, which was recorded on February 24, 2026.

The debtors also carry a layer of unsecured obligations, primarily consisting of subordinated related party notes and racing working capital borrowings that are not collateralized by the debtors' assets. These instruments feature flexible or long-dated maturities and function as subordinated support capital used to fund racing operations, facility needs, and liquidity gaps.

Churchill Downs Incorporated, a judgment creditor, holds a judgment against the debtors in the amount of $1,546,266 and had issued a citation to discover assets.

Events Leading to Bankruptcy

The debtors faced financial hardship in recent years driven by challenges affecting the horse racing industry in Illinois. These pressures initially arose from the expansion of casino gaming in the state and were later compounded by an increasingly competitive sports betting market, rising costs, and increased regulatory fees.

Several adverse events occurred in the final months before the filing. On January 26, 2026, the Illinois Racing Board suspended the organizational license of the harness racing subsidiary, and the debtors' sports wagering partner terminated the mobile and internet portions of its agreement on the same day. The debtors' 2025–2026 harness racing season, which had begun on November 11, 2025, ended prematurely when the remaining fifteen race dates were canceled on December 28, 2025, due to liquidity constraints. The primary unpaid obligation related to horsemen's purse checks that, while issued prior to the bank's account freeze, could not be honored once the accounts were frozen.

In December 2025 and January 2026, Signature Bank froze all of the debtors' bank accounts. The bank was unwilling to advance funds to pay payroll, employee benefits, horsemen's purse obligations, utilities, insurance, professional fees, taxes, and other operating expenses. Multiple disruptions in simulcast partnerships and sports wagering reduced monthly wagering deposits from approximately $5 million per month to well under $1 million.

A land-only appraisal commissioned by Signature Bank, which did not value improvements, off-track betting parlors, or other assets, reflected a value of approximately $95 million as of August 7, 2025. The debtors believe their total enterprise value significantly exceeds this figure and had received numerous expressions of interest from third parties regarding a potential recapitalization. However, these parties indicated they would only proceed within the context of a bankruptcy process. The debtors were unable to attract capital outside of bankruptcy due to economic stress created by their relationship with Signature Bank, the Churchill Downs citation to discover assets, and reduced wagering revenue.

DIP Financing

Following Signature Bank's account freeze, the debtors' management determined that an infusion of outside capital was necessary. The debtors' financial advisor led an outreach process beginning in early January 2026, contacting 35 potential lenders. Fourteen expressed interest, five executed non-disclosure agreements, and the process ultimately yielded three term sheets.

After evaluating the three proposals, the debtors selected a proposed priming debtor-in-possession financing facility from JDI Loans LLC, providing up to $16 million in financing with a 120-day term. The financial advisor determined that the selected DIP facility offered the most cost-efficient structure, with projected interest and fees approximately $865,000 and $152,000 lower, respectively, than the competing proposals. The financial advisor also negotiated the removal of a $2.25 million interest reserve, thereby reducing the overall loan size and associated fees.

The DIP budget allocates $3.91 million in the first week of the Chapter 11 cases to restore purse balances owed to horsemen, which is described as critical to the ongoing viability of the debtors' business. The budget also provides for $750,000 in critical vendor payments over a thirteen-week period. Management identified the highest-margin simulcast partners for priority reactivation, as restoring simulcast signals could increase collections by approximately $4.0 million per month.

Debtors' Objectives and Sale Process

The debtors filed for Chapter 11 protection to complete a sale of substantially all assets free and clear of liabilities under Section 363 of the Bankruptcy Code. The filings note that the debtors remain hopeful that a suitable buyer interested in acquiring the business as a going concern may emerge. A reorganization through recapitalization is described as a possible alternative if the debtors are able to reach an agreement with a party willing to invest in the business, which could be pursued as part of a plan process for resolving the debtors' other liabilities.

The debtors' financial advisor will coordinate the sale with respect to all assets, with particular focus on evaluating potential going concern sales for some or all of the assets, as well as sales of the physical assets as an alternative. A comprehensive marketing strategy will be executed with respect to all material assets.

An immediate operational priority is restoring thoroughbred racing, which is scheduled to begin on March 29, 2026. According to the Illinois Racing Board, failure to conduct the thoroughbred meet would jeopardize the debtors' racing license, and the debtors' casino license is contingent upon maintaining the racing license. Based on discussions with potential buyers and recapitalization partners, the casino license is described in the filings as essential to maximizing enterprise value and achieving reorganization.

First Day Motions

The debtors filed several first day motions seeking relief to facilitate the transition into Chapter 11, including motions for joint administration of the cases, retention of a claims and noticing agent, authority to pay prepetition employee wages, salaries, compensation, medical and other benefits, and to continue employee benefit programs, authority to pay prepetition taxes and related obligations, authorization to provide adequate assurance of payment and deposits for utility services, and authorization to obtain debtor-in-possession financing. The debtors assert that the estates would suffer immediate and irreparable harm without the ability to make essential payments and otherwise continue business operations.

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Bankruptcy Background and Sale Process

The debtors commenced voluntary Chapter 11 cases on December 22, 2025, and have continued to manage their assets as debtors in possession. The Official Committee of Unsecured Creditors was appointed on January 6, 2026. No trustee or examiner has been appointed in the cases.

On the petition date, the debtors filed a motion seeking approval of bidding procedures for the sale of substantially all of their assets. On February 12, 2026, the court entered an order approving the sale to ReadySett LLC and authorizing the debtors to consummate the transactions contemplated by an Asset Purchase Agreement dated January 2, 2026. The parties have been working toward a closing date of March 2, 2026, after which the debtors' remaining operations will cease.

The Transition Services Agreement

The emergency motion centers on a Transition Services Agreement between FlexShopper, Inc., FlexShopper, LLC, and FlexLending, LLC (referred to as the sellers) and ReadySett LLC. The agreement arose from negotiations between the purchaser and Powerscourt Investments 50, LP, which serves as the warehouse agent under the debtors' securitization program. A condition precedent in the Asset Purchase Agreement required the entry into a servicing agreement for the post-closing loan portfolio.

Under the agreement reached in principle, the purchaser will service the existing loan portfolio for up to 60 days following the closing of the sale. After that transitional period, servicing obligations will transfer to Vervent, the debtors' existing backup servicer. The debtors will have no obligation in connection with the transition to Vervent or any other party.

The purchaser requires access to certain of the debtors' contracts related to loan servicing during the contract designation period provided for in the Asset Purchase Agreement. In exchange for the debtors' continued performance under those contracts, the purchaser will make direct payments to applicable counterparties for costs incurred.

Cost Protections for the Estates

The Transition Services Agreement is structured to be cost-neutral to the debtors' estates. All expenses related to the loan servicing transition will be paid directly by the purchaser or the warehouse agent. The debtors will not bear any costs associated with the arrangement.

If the purchaser or the warehouse agent defaults on obligations under the agreement, the debtors will have the right to immediately seek to reject the relevant contracts and recover any amounts due and owing, along with related costs and expenses.

Postpetition Funding Structure

The debtors currently obtain postpetition funding from two distinct sources. The first is a DIP facility providing up to $8,000,000 for general operating expenses and professional fees. The second is a securitization program that funds the debtors' customer lease originations and related merchant payments. The motion notes that the DIP lender and the purchaser are the same entity.

Legal Basis for Relief

The debtors seek approval under Sections 105(a) and 363(b)(1) of the Bankruptcy Code on the basis that entry into the Transition Services Agreement represents a sound exercise of business judgment. The motion states that the agreement enables the closing of the court-approved sale on schedule, is cost-neutral to the estates, and is consistent with the terms of the Asset Purchase Agreement.

The motion also seeks a waiver of the 14-day stay under Bankruptcy Rule 6004(h) to allow for immediate implementation of the relief.

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Company Background and Business Operations

Paragon Industries operates steel pipe manufacturing facilities in Oklahoma. The company filed a voluntary Chapter 11 petition on May 21, 2025, and has continued to operate its business as a debtor-in-possession. No trustee or examiner has been appointed in the case.

The company entered into a Binding Plan Support Agreement in September 2025, which was approved by the Bankruptcy Court on September 10, 2025. The debtor holds various environmental permits from the Oklahoma Department of Environmental Quality, including an air quality permit, a stormwater discharge authorization, and an industrial wastewater treatment permit.

Prior to the bankruptcy filing, Paragon Industries was the subject of at least 16 lawsuits across multiple jurisdictions, including actions brought by creditors such as Amarillo National Bank, Byline Bank, and Nucor Corporation, among others.

The Marketing and Sale Process

The Bankruptcy Court approved the employment of Three Keys Capital Advisors II LLC as the debtor's investment banker on October 22, 2025. The debtor filed its bidding procedures motion the following day, and the court entered the bidding procedures order on November 25, 2025.

Three Keys conducted an extensive marketing process. The investment banker contacted 287 prospective bidders, executed confidentiality agreements with 65 of those parties, and facilitated site visits for 17 potential bidders at the debtor's facilities. The process yielded two stalking horse proposals and nine bids.

The sale process timeline was modified four times between December 2025 and February 2026, with the bid deadline ultimately set for February 10, 2026.

The Auction

The auction took place on February 19, 2026, at the Dallas offices of McDermott Will & Schulte LLP. Beginning at approximately 10:00 a.m. Central Time, the auction continued through the early morning hours of February 20, 2026, concluding at approximately 2:38 a.m. — a duration of nearly 17 hours.

Seven entities participated as bidders: Integrated Utility Services LLC; Gordon Brothers Commercial & Industrial, LLC; Maynards Industries USA, LLC; McIntosh Corporation; PI Acquisition, LLC; Byline Bank; and Hydroline Distribution, LLC.

One additional entity, Triforged Industries, LLC, had originally qualified as a bidder after submitting a $35 million all-cash bid with no contingencies. However, Triforged was excluded from the auction for failing to provide a good faith deposit prior to the start of bidding. According to the motion, Triforged is controlled by an individual described as an insider of the debtor due to a close familiar relation with the debtor's former chief executive officer. The motion notes that multiple interested parties had expressed concern about Triforged's involvement in the auction process. Apart from an objection lodged by counsel to Triforged regarding its exclusion, no other objections were raised at the auction.

Integrated Utility Services was selected as the successful bidder with a bid of $40 million. The second-highest bid came from PI Acquisition at $33.5 million. However, the debtor determined in its business judgment that the PI Acquisition bid was not of sufficient value to serve as a backup bid. In the event the successful bidder cannot close, the debtor has elected to conduct a remarketing process using funds from the $2.5 million deposit that the purchaser would forfeit.

Terms of the Asset Purchase Agreement

The debtor and Integrated Utility Services entered into an Asset Purchase Agreement dated February 23, 2026. Key terms include:

Purchase Price: $40,000,000

Deposit: $2,500,000, of which $480,000 was deposited on February 13, 2026, as an auction deposit. The remaining $2,020,000 is to be wired to complete the deposit obligation. Upon court approval of the sale, the deposit is to be released to the debtor in monthly installments of $500,000 for use toward ongoing operating expenses.

Closing Date: The later of 60 days from entry of the sale order or the second business day after all closing conditions are satisfied. The purchaser may extend the initial closing deadline by 30 days, for a total of 90 days from entry of the sale order.

Financing Contingency: The closing is contingent upon the purchaser obtaining financing on commercially reasonable terms sufficient to fund the purchase price. If the purchaser fails to close due to an inability to obtain financing, the debtor is entitled to retain the $2.5 million deposit.

Expense Reimbursement: Up to $125,000 for the purchaser's reasonable expenses, payable only if the agreement is terminated due to a competing transaction, treated as a superpriority administrative expense.

Purchased and Excluded Assets

The sale encompasses substantially all of the debtor's assets used in connection with its steel pipe manufacturing business, including equipment, machinery, real property, leasehold interests, intellectual property, assumed contracts, inventory, information technology assets, and goodwill.

The purchase price is allocated as follows: equipment accounts for approximately 90 percent ($35.9 million), buildings for approximately 6 percent ($2.5 million), and land for approximately 4 percent ($1.6 million).

Excluded from the sale are the debtor's cash and cash balances, accounts receivable, benefit plans, insurance policies, causes of action (including Chapter 5 avoidance actions), and certain other assets. The sale is structured on an "as-is, where-is" basis with extensive disclaimers regarding environmental conditions at the manufacturing facilities.

The Port of Muskogee Dispute

The transaction involves a property dispute at the Port of Muskogee. The debtor operates on approximately 2.21 acres at the port under a sublease arrangement with Johnston's Port 33, Inc., which in turn leases from the Muskogee City-County Port Authority.

The port authority has asserted ownership of assets located at the port property, and both the port authority and Johnston's Port 33 have challenged the validity of the sublease. Assets at the port property that are subject to a bona fide dispute as of the closing date are excluded from the sale. The debtor maintains that it owns the steel slitter and associated equipment located at the port and has reserved all rights to adjudicate its ownership interest.

The Asset Purchase Agreement includes a covenant requiring both parties to use commercially reasonable efforts during the interim period to renegotiate the port lease arrangements, with the purchaser's satisfaction conditioned on acquiring the coil slitting equipment located on the port property.

Legal Arguments in Support of the Sale

The debtor advances several legal arguments in support of the proposed sale. The motion argues that a sound business purpose exists for the sale because the court-approved auction process exposed the assets to the market, creating a presumption that a fair price was obtained. The debtor cites case law holding that the paramount goal in any sale of estate property is to maximize proceeds for the bankruptcy estate.

The debtor seeks approval of the sale free and clear of liens under Bankruptcy Code Section 363(f), noting that no lienholders objected to the bidding procedures or the sale. The motion also requests a finding that the purchaser acted in good faith under Section 363(m), noting that the APA was an arm's-length transaction resulting from a competitive auction process.

The debtor further requests a waiver of the 14-day stay under Bankruptcy Rule 6004(h), arguing that any delay in closing would push the case closer to administrative insolvency and substantially lessen the chances that the transaction closes.

Key Dates and Timeline

• May 21, 2025: Chapter 11 petition filed
• September 5, 2025: Binding Plan Support Agreement Term Sheet dated
• October 22, 2025: Court approved employment of investment banker
• November 25, 2025: Bidding procedures order entered
• December 22, 2025: Notice to contract parties regarding potential assumption filed
• February 10, 2026: Bid deadline
• February 19, 2026: Auction held
• February 26, 2026: Sale motion filed; hearing on sale motion
• April 20, 2026: Anticipated closing date (subject to extension)

Professional Representation

The debtor is represented by Phillips Murrah P.C. of Oklahoma City, Oklahoma. The purchaser is represented by GableGotwals of Tulsa, Oklahoma.

This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 75 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background and Business Operations

BRD Land & Investment, headquartered in Charlotte, North Carolina, operates as an entitlement and permitting company focused on selling shovel-ready land to national and regional homebuilders. The company identifies and acquires raw, undeveloped land, conducts due diligence including surveys, geotechnical reports, and environmental assessments, coordinates with municipal planning departments for rezoning and site plan approvals, and works with engineering firms to complete all required permitting. The result is land that is ready for immediate development upon purchase by the company's homebuilder clients.

Two affiliated entities filed alongside the parent company. One is a project-specific entity holding title to real property in Horry County, South Carolina, and the other is a holding company that serves as the sole member and manager of the project entity. As of the filing date, the company maintained fifteen active projects located across Georgia, South Carolina, and North Carolina, and had generated consolidated revenues exceeding $285 million since 2019.

Financing Structure

The company's operations were initially funded by its equity owners. As the business grew, additional capital was sourced from two primary channels. DLP Lending Fund, LLC provided secured loans for property purchases, with many transactions structured as interest-only monthly payments for one to two years followed by a balloon payment at maturity. As of the petition date, the Debtors estimate the total payoff amount on all DLP loans at roughly $20 million, secured by real property valued at approximately $34 million.

The second capital source consisted of various individuals and entities that provided funds through promissory notes. These notes were sourced through capital raisers with prior relationships to the company, who marketed lending opportunities to their networks. The company itself did not directly pitch or market the notes to lenders. The notes ranged from five to seven figures in size, with many maturing after twenty-four months on an interest-only basis with an automatic twenty-four-month extension option. Some notes were secured while others were entirely unsecured. As of the petition date, the total outstanding balance on these notes stood at $66.5 million.

Events Leading to Bankruptcy

Housing Market Contraction

In 2025, the residential development industry experienced what the filing describes as a drastic decline in first-time home purchases to levels not seen since the 2008 financial crisis. This market shift had direct consequences for the Debtors' business. Homebuilders began canceling or renegotiating their land sale agreements, resulting in thirteen project terminations across North Carolina, South Carolina, and Georgia. An additional seven projects in Texas became nonviable due to market contraction. These terminations collectively reduced the company's total projected pipeline gross revenue by $390 million in 2025.

Senior Lender Actions

According to the Debtors' filing, their senior secured lender, DLP Lending Fund, altered its approach beginning in 2025. Previously, the filing states, DLP had exercised restraint and flexibility when homebuilders renegotiated terms or demanded price reductions. However, starting in 2025, the Debtors assert that DLP began using extension requests and project closings as leverage to force additional fees and principal paydowns beyond what the governing loan documents required.

The filing highlights the Rolling Meadows project as an example. That project was set to close at $47,265,000, but the purchaser demanded a price concession of $11,901,000, which the Debtors accepted given their inability to find a ready purchaser at the original contract price. DLP, which held a security interest in the property, demanded a $3.5 million exit fee be paid immediately at closing in October 2025 rather than at the contractual due date of October 2026, according to the affidavit. The Debtors further assert that DLP's demand for proceeds exceeded the total amount owed under the specific Rolling Meadows loan, and that the loan agreement itself required that surplus funds go to the entity owning the property. The Debtors state they ultimately paid the accelerated exit fee, resulting in a combined hit of more than $15 million on the transaction — a roughly thirty percent reduction in gross revenue from the sale.

The affidavit states that from July 2025 through January 2026, DLP reduced its outstanding debt by $7.15 million through demands for accelerated repayments in exchange for maturity date extensions and lien releases. Approximately $750,000 of those payments were made in December 2025 and January 2026. 

Vendor Payment Issues

The Debtors state that with DLP receiving available cash, their vendor accounts payable grew to more than $9 million by the end of January 2026. Certain suppliers and vendors refused to continue work until their outstanding balances were paid, and some stopped work entirely. This created what the filing describes as a circular problem: the Debtors needed cash to pay vendors, but could not generate cash without selling projects, which in turn required vendors to complete their work. An anticipated increase in litigation beginning in January and February 2026 also contributed to the decision to seek bankruptcy protection.

First Day Relief Sought

The Debtors filed several First Day Motions seeking operational continuity, including requests for authorization to use cash collateral, pay prepetition taxes, continue payroll and employee benefits, maintain utility services, preserve existing bank accounts and business forms, jointly administer the related cases, and retain a claims and noticing agent. The Debtors' Chief Restructuring Officer stated that the company has adequate cash flow and liquidity to pay all amounts sought through the First Day Motions as well as anticipated post-petition obligations.

The filing states that without bankruptcy protection, the Debtors would face competing creditor actions, with DLP foreclosing on its collateral while noteholders, suppliers, and vendors pursued judgments against a diminishing pool of assets. The Chapter 11 process is intended to allow the Debtors to close sales of certain projects, potentially assume and assign others, and evaluate the viability of remaining projects in an orderly fashion.

This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 9 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background and Business Operations

Avenger Flight Group was founded in 2012 with the aim of providing cost-effective flight simulator training solutions to commercial airlines, particularly the growing low-cost carrier market. The company began with a single location and two simulators in Fort Lauderdale, Florida, expanding to Las Vegas by 2015. Over the following decade, it established additional domestic facilities in Fort Worth, Irving, Orlando, and Minneapolis, as well as overseas locations in Monterrey, Madrid, Cancun, Mexico City, Medellin, Rome, Warsaw, Frankfurt, and Tel Aviv.

The company occupies a strategic position in what the filing describes as the “pilot pipeline.” After pilots reach their required minimum flight hours, nearly all subsequent training is conducted in advanced simulators. Regulatory authorities such as the FAA and EASA mandate extensive training for all airline pilots, including initial, recurrent, and upgrade training programs. Simulator-based training costs approximately one-twenty-fifth the cost of training in physical aircraft, and airlines have increasingly turned to third-party providers like Avenger to avoid the capital outlay of purchasing simulators directly. Industry estimates project that over 250,000 new commercial airline pilots will be needed worldwide by 2032.

As of the petition date, the company operates 50 full-flight simulators—23 owned, 12 leased, 11 housed and maintained, and four subject to servicing agreements—along with 15 flight training devices, of which six are owned and nine are serviced. The company employs approximately 97 people across five U.S. locations, with the largest concentration of 49 employees in Dallas–Fort Worth. Customer contract structures include dedicated provider agreements, take-or-pay arrangements, minimum guarantee contracts, and power-by-the-hour arrangements, with clients including Spirit Airlines, Viva Aerobus, Aeromexico, Frontier Airlines, El Al, Iberia Express, Air Europa, and DHL Europe, among others.

Corporate and Capital Structure

Avenger Flight Group Topco, LLC is the direct or indirect parent of each of the 21 debtor entities and multiple foreign non-debtor subsidiaries. The principal operating entity is Avenger Flight Group, LLC, headquartered in Fort Lauderdale, Florida. The corporate structure includes a number of U.S. special purpose vehicles created to hold interests in specific simulators, as well as subsidiaries in Spain, Germany, Israel, Colombia, and Mexico.

The company’s secured debt is anchored by a prepetition term loan facility originated in June 2021 with an outstanding principal balance of not less than $273,051,488.11 as of the petition date. Wilmington Trust, National Association serves as administrative and collateral agent. The term loan is secured by liens on substantially all of the debtors’ assets. Additional secured obligations include equipment leases with SIM International B.V. covering 11 full-flight simulators located in the United States, Spain, and Germany, as well as financing facilities with Export Development Canada secured by specific simulators in Latin America. The company also has unsecured shareholder notes totaling approximately $5 million, subordinated to the prepetition secured lenders pursuant to a subordination agreement.

Events Leading to Bankruptcy

The filing identifies several interrelated factors that led the company to file for Chapter 11. The company’s rapid growth was accompanied by a burgeoning debt load. With new full-flight simulators costing potentially in excess of $10 million each and a limited annual global supply of approximately 50 new units, the filing states that the debt load associated with the company’s growth became unsustainable.

The company also faced industry headwinds. In July 2023, RTX Corporation, the parent company of Pratt & Whitney, announced that it had determined that a condition in the manufacturing of certain engine parts used in the PW1100G-JM turbofan engines—the engines used to power A320neo aircraft—required accelerated inspection and repair. As a result, hundreds of A320neo aircraft were grounded, and airlines temporarily decreased hiring of new crews for that aircraft type, causing decreased demand for A320 simulator training. Over 55% of the company’s owned and operated simulators are A320s.

The filing also identifies the bankruptcies of several major customers as contributing factors. Spirit Airlines, the company’s once-largest customer, filed for Chapter 11 protection twice—in 2024 and again in 2025. The company’s partner in Colombia, Viva Air Colombia, commenced bankruptcy proceedings in early 2023 and ceased operations, leaving the company with no operations in Medellin for nearly three years while continuing to accrue liabilities. The company exited Cancun in 2024 after its main customer at that location, Interjet, was adjudicated bankrupt in Mexico in 2022. On December 29, 2025, the revolving lender terminated the company’s revolving credit facility pursuant to its terms, and no amounts were owed on that facility as of the petition date.

In addition, the company’s new management team, installed following a July 2024 restructuring, discovered significant accounting irregularities affecting all financial statements, insufficient financial controls, and inadequate processes. None of the personnel responsible for these issues remain with the company.

Prepetition Restructuring and Governance Changes

The company’s path to bankruptcy included extensive prepetition restructuring activity. Beginning in 2023, management explored recapitalization and refinancing options, though no actionable proposals emerged. In July 2024, the company completed a restructuring that included refinancing its secured term loan with existing lenders and obtaining equity financing from Seacoast Capital Partners and Patriot Capital, which together came to hold 96.69% of the company’s equity. A six-member board was constituted, with two members each appointed by Seacoast, Patriot, and the prepetition lenders.

Several senior management members were replaced following the 2024 restructuring. A new chief financial officer was appointed in March 2025, a board advisor and chairman was retained in April 2025, and a consulting firm was engaged in May 2025 to assist with cash flow modeling. An independent manager was appointed to AFG LLC in August 2025 after events of default occurred under the prepetition credit agreement.

On November 14, 2025, Seacoast and Patriot abruptly informed the company that they were exercising put options, abandoning their equity, and resigning their four board members. The prepetition lenders’ two board members subsequently resigned, and the lenders appointed a sole independent manager on November 21, 2025. Further governance changes followed in January 2026 when the independent manager resigned from the board to become the company’s chief restructuring officer, and a new sole independent manager was named.

To bridge the company through the prepetition period, the secured lenders provided $11 million in rescue financing—$5 million in September 2025 and $6 million in December 2025. The filing states that absent this bridge financing, the company would have been forced to commence Chapter 11 earlier, without the benefit of consensual resolutions with key stakeholders.

SIM International Settlement

On the petition date, the company, SIM International, and the prepetition lenders entered into a settlement agreement providing a comprehensive resolution of the company’s obligations under its simulator lease agreements with SIM International. SIM International had previously noticed alleged defaults in February 2024 and August 2025. With respect to the company’s German operations, the company had defaulted under the SIM International Germany Agreements both as a result of a payment default to SIM International and due to the company’s failure to pay rent to its third-party landlord. On or about August 12, 2025, SIM International notified the company that it was exercising its rights under those agreements to, among other things, take over the company’s German customer agreements and assets. As of the petition date, the company effectively has no German operations.

Under the settlement, the company will make a lease cure payment to SIM International upon the closing of a sale, the obligations related to the Frankfurt simulators will be deemed terminated, and the SIM International agreement for the simulator in Israel will be mutually terminated. The agreements for simulators in Spain will remain in full force. The debtors will assume the agreements related to four A320 simulators in the United States, with SIM International performing upgrades at its own expense. Additionally, the debtors will transfer rights in four A320 simulators to SIM International, which will upgrade them and lease them back to the company.

DIP Financing and Proposed Sale Process

The debtors have secured a $43.5 million senior secured debtor-in-possession financing facility from the prepetition secured lenders, including $14.5 million in new money. The DIP facility is secured by liens on substantially all of the debtors’ assets and is designed to bridge the company to the closing of a value-maximizing sale. The filing states that the company explored alternative financing sources, but no third-party lenders were prepared to offer DIP financing, particularly on a junior basis to the existing prepetition obligations.

Concurrently, the debtors have filed a bid procedures motion seeking approval for the marketing and sale of their assets. A designee of the prepetition secured lenders will serve as stalking horse bidder, pursuing a credit bid for substantially all of the debtors’ assets. The bid procedures are designed to identify the highest or best offers through a court-supervised overbidding process. The stalking horse bidder has negotiated a $2 million expense reimbursement, payable only from the proceeds of an alternative transaction. The filing notes that the proposed sale timeline balances the need to run a complete marketing process with an efficient timeframe to avoid loss of value and unnecessary administrative expense.

First Day Relief

The debtors filed a series of first day motions seeking authority to, among other things, jointly administer the cases, retain a claims and noticing agent, pay prepetition employee wages and continue benefit programs, maintain existing cash management systems, pay critical vendors and foreign vendors, continue insurance policies, pay prepetition taxes and fees, and provide adequate assurance to utility companies. The filing states that the requested relief is narrowly tailored and necessary to avoid immediate and irreparable harm, to preserve and maximize the value of the debtors’ estates, and to allow them to sustain operations in Chapter 11.

This article was prepared using Stretto Conductor, our new AI-powered assistant that’s here to help. Stretto Conductor was able to create this summary of a 34 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

The Proposed Liquidation Plan

The Plan is structured as a full liquidation. All remaining property of the debtor's estate will be transferred to a Liquidation Trust on the Effective Date, at which point the debtor will cease to exist and will be deemed dissolved without the necessity of filing dissolution documents with any governmental authority. The Liquidation Trustee, who will be selected by the debtor in consultation with the official committee of unsecured creditors, will administer claims, pursue retained causes of action, and distribute proceeds to creditors according to the priority scheme established under the Plan. The debtor's chief restructuring officer may serve as the Liquidation Trustee.

The Liquidation Trust Agreement will provide for separate series of interests, labeled Series A through G, corresponding to each class of claims. The Liquidation Trust is intended to terminate no later than three years after the Effective Date, with possible extensions of up to six months each if approved by the Bankruptcy Court.

Funding the Liquidation Trust

The Liquidation Trust will be funded primarily from the closing of three previously approved asset sales to TexOil Investments, LLC:

Lot 1 will generate $27,520,000, less deposits already paid to the debtor, subject to customary purchase price adjustments.

Lot 2 will produce a minimum of $16,240,000 (including the deposit already paid to the debtor), with the potential for up to $32,480,000 (inclusive of the $16,240,000) depending on the outcome of certain potential avoidance actions as defined in the Lot 2 asset purchase agreement. The remainder of the purchase price at closing will be paid as follows: $5 million transferred to a separate account to fund the prosecution of potential avoidance actions, $12,992,000 paid in cash, and $11,240,000 transferred to an escrow account to be released as title to various Lot 2 assets is cleared after closing.

Lot 3 will generate $10.00, less deposits already paid.

Treatment of Claims and Interests

The Plan classifies claims and interests into nine classes. Administrative claims, professional claims, priority tax claims, and gap period claims are not classified. Administrative claims will be paid in cash from a claims reserve. Priority tax claims and gap period claims will be paid in cash from the Liquidation Trust.

Class 1 — Secured M&M Lien Claims will receive Series A interests in the Liquidation Trust and treatment under Section 1129(b)(2)(A)(i) of the Bankruptcy Code to the extent of the value of the holder's interest in applicable property of the estate. Any excess will be treated as an unsecured claim in Class 5. A sub-class will be created for each M&M Lien Claim. These claims are impaired.

Class 2 — Other Secured Claims will receive Series B interests with treatment under Section 1129(b)(2)(A)(i) to the extent of the value of the holder's interest in applicable property of the estate, with any excess treated as an unsecured claim in Class 5. These claims are impaired.

Class 3 — Mineral Interest Claims will receive Series C interests in the Liquidation Trust. These claims are impaired.

Class 4 — Unsecured Convenience Class provides a mechanism for holders of general unsecured claims exceeding a specified threshold to elect to convert their claims to convenience claims in exchange for a fixed cash payment. The specific dollar amounts were not yet populated in the filing. These claims are impaired.

Class 5 — General Unsecured Claims will receive Series D interests and a pro rata share of available unencumbered Liquidation Trust assets, net of trust expenses. These claims are impaired.

Class 6 — Litigation Claims will receive Series E interests, paid pro rata from trust assets pari passu with Series D, F, and G interests. These claims are impaired.

Class 7 — Rejection Damage Claims will receive Series F interests with the same pari passu treatment. These claims are impaired.

Class 8 — Debtor Affiliate Claims will receive Series G interests with pari passu treatment. These claims are impaired.

Class 9 — Equity Interests of SOS-LMC, LLC and TLB Corp will be cancelled. This class is impaired and is deemed to reject the Plan.

Classes 1 through 8 are entitled to vote on the Plan.

Liquidation Trust Structure

The Liquidation Trust series structure establishes a distribution priority. Series A and B holders (secured claims) receive treatment under Section 1129(b)(2)(A)(i) to the extent of the value of their interest in applicable property of the estate. Series C holders (mineral interest claims) will be paid in full subject to sufficient funds remaining in the Liquidation Trust; otherwise, they will receive their pro rata share of remaining Liquidation Trust assets. Series D, E, F, and G holders will be paid in full subject to sufficient funds; otherwise, they will receive their pro rata share of remaining Liquidation Trust assets on a pari passu basis with each other.

The Liquidation Trustee will have authority to pursue estate causes of action, settle claims, sell non-cash assets, and make distributions without further Bankruptcy Court approval, subject to the terms of the Liquidation Trust Agreement and the Plan. The Trustee will also be authorized to employ professionals and compensate them in the ordinary course of business without further court order.

Executory Contracts and Unexpired Leases

All executory contracts and unexpired leases will be rejected as of the Effective Date, unless they: (1) were assumed and assigned to TexOil in connection with the sale; (2) were previously rejected or assumed by a final order; (3) are the subject of a pending motion to assume or reject on the Effective Date; (4) are subject to a motion to reject with a requested effective date after the Effective Date; or (5) have previously expired or terminated pursuant to their own terms. Insurance policies deemed to be executory contracts will be assumed by the Liquidation Trustee and will continue in accordance with their terms.

Claims for rejection damages must be filed within 21 days following service of the order approving rejection and will be treated as Class 7 claims.

Releases and Exculpation

The Plan includes releases by the debtor in favor of released parties, third-party releases by releasing parties, and exculpation provisions covering exculpated parties. These provisions carve out claims related to actual fraud, willful misconduct, or gross negligence as determined by a final court order. The debtor release also carves out claims against former directors and officers to the extent of available insurance coverage and preserves claims by former directors, officers, or employees who commenced litigation against the debtor prior to the Effective Date.

The Plan permanently enjoins holders of released, discharged, or exculpated claims from pursuing actions against the debtor, exculpated parties, or released parties.

Key Dates and Deadlines

The Plan filing date is February 19, 2026. The Effective Date will occur once all conditions precedent are satisfied, including closing of the sale, entry of a final confirmation order, establishment and funding of the claims reserve, execution of the Liquidation Trust Agreement, and appointment of the Liquidation Trustee.

Administrative claims must be filed within 30 days after the Effective Date. Professional fee claims must be filed within 45 days after the Effective Date. Rejection damage claims must be filed within 21 days following service of an order approving rejection.

Preservation of Causes of Action

The Liquidation Trustee will retain and may enforce claims, demands, rights, and causes of action that the estate may hold against any person, to the extent not satisfied, settled, or released under the Plan. The Trustee will not retain estate causes of action — including potential avoidance actions and the NETX litigation, as each are defined in the Lot 1 and Lot 2 asset purchase agreements — that were assigned to the winning bidder in connection with the sale.

Additional Provisions

On the Effective Date, the debtor will be deemed to abandon its membership interest in BSR Lone Star GP, LLC to the extent not otherwise abandoned under Section 554 of the Bankruptcy Code.

The debtor will procure directors and officers tail insurance covering a six-year period from the Effective Date.

No distribution will be made on account of an allowed claim if the amount has an economic value of less than $250.

The Plan provides that no interest will accrue or be paid on any claims from and after the involuntary petition date.

This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 46-page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Debtor Background and Property

BH Downtown Miami, LLC and 340 Biscayne Owner LLC filed voluntary Chapter 11 petitions on December 13, 2024 and have been operating as debtors-in-possession. 340 Biscayne Owner LLC is the sole fee simple owner of the property located at 340 Biscayne Boulevard in Miami, Florida. BH Downtown Miami, LLC is the sole member of 340 Biscayne Owner LLC, holding 100% of its outstanding membership interests. Both entities are Delaware limited liability companies.

The property currently operates as a Holiday Inn hotel and consists of approximately 39,982 square feet of land. The legal description identifies the property as Parcels, Lots 1, 2, 3, and 4, in Block 83 North, Map of Miami-Dade County, Florida.

The Resumed Auction and Alleged Process Issues

The court previously approved sale and auction procedures for the property. A resumed auction was held on January 28, 2026, with only two registered bidders: the movant, 340 Blue Sky, LLC, and a lender. 340 Blue Sky submitted a bid of $91 million at the auction but declined to increase its offer. The lender ultimately prevailed with a winning bid of $95 million.

The motion raises several concerns about the conduct of the auction process. According to the filing, 340 Blue Sky's registration for the resumed auction encountered the same difficulties it had experienced during a prior auction attempt, which the movant suggests may explain the limited bidder participation. The motion further alleges that 340 Blue Sky's representatives were asked at the outset of the auction how high they were willing to bid and were informed that the lender intended to bid its full credit bid amount. The movant contends that these factors undermined its confidence in the fairness of the process and influenced its decision not to raise its bid. The filing also notes that the auctioneer failed to establish an information phone line during the timeframe directed by the court.

The $107 Million Post-Auction Offer

Following the auction, 340 Blue Sky presented a signed Purchase and Sale Agreement to the debtor with a purchase price of $107 million, representing a $12 million premium over the lender's winning bid. In addition to the purchase price, 340 Blue Sky has agreed to pay up to $4,804,648.01 in seller closing costs. In support of the offer, 340 Blue Sky has transferred $5.25 million to its counsel to be held in escrow and has presented proof of funds to close.

The offer also includes a $750,000 payment to the auction house, Concierge Auctions, representing the amount the auctioneer would have earned from the winning bid. The movant characterizes this as eliminating any argument that overturning the auction result would prejudice the auctioneer, noting that the net effect would be that the estate receives more while the auctioneer is made whole.

Key Terms of the Purchase Agreement

The Purchase and Sale Agreement, dated February 18, 2026, contains the following material terms:

The purchase price of $107 million is structured as an all-cash transaction with no financing contingency. The closing is scheduled for the later of 11 days after entry of a sale order by the bankruptcy court or 45 days after the effective date, with an outside closing date of April 7, 2026. The purchaser has a one-time option to extend the closing by 30 days by depositing an additional $5.25 million in escrow.

The property is being sold on an as-is basis with all faults. The seller is required to wind down the hotel business prior to closing, including terminating the hotel management agreement, canceling all contracts and licenses, removing all Holiday Inn identification, and terminating employees and vendors in compliance with applicable laws, including any WARN Act requirements.

The agreement contemplates that the property will be transferred pursuant to a plan of reorganization under Section 1129 of the Bankruptcy Code, with the provisions of Section 1146(a) applying to the transfer for tax benefits. The sale would be free and clear of all liens, claims, interests, and encumbrances, with valid liens attaching to proceeds in the same order and priority.

Closing Cost Breakdown

The $4,804,648.01 in seller closing costs that the purchaser has agreed to pay includes a 2% broker commission of $2,140,000 to the seller's broker, a $750,000 flat fee to Concierge Auctions, $597,151.05 in outstanding real estate taxes, $11,666.96 in outstanding tangible property taxes, $1,300,000 for payment to creditors and legal fees, and approximately $5,830 in title searches, lien searches, recording fees, and closing agent costs. The closing cost cap is separate from and in addition to the purchase price.

Legal Arguments for Approval

The motion asserts that 340 Blue Sky has standing to challenge the auction as an unsuccessful bidder, citing federal court precedent recognizing that even unsuccessful bidders may challenge the inherent fairness or intrinsic structure of a bankruptcy sale. The movant argues that Section 363(b) of the Bankruptcy Code authorizes the sale of estate property outside the ordinary course of business upon court approval, and Section 363(f) permits such sales free and clear of interests under applicable conditions.

The filing contends that the court should approve the offer because it represents the highest and best offer for the property and because the debtor has been unable to reach an agreement with the lender for the purchase. The motion characterizes 340 Blue Sky as a good-faith purchaser acting at arm's length and states that it is prepared to demonstrate its financial ability to close on an expedited basis. The movant requests that the court schedule a hearing on the motion.

Default Provisions

Under the agreement, if the purchaser defaults and fails to cure within five days of notice, the seller's sole remedy is termination and retention of the deposit as liquidated damages. If the seller defaults after entry of the sale order, the purchaser may either terminate and receive a return of its deposit plus up to $25,000 in out-of-pocket expenses, or seek specific performance limited to compelling conveyance of the property. The purchaser has irrevocably waived any right to monetary damages against the seller.

Case Information

Court: United States Bankruptcy Court, Southern District of Florida, Miami Division

Case Number: 24-23028-LMI (Jointly Administered)

Debtor Entities:

• BH Downtown Miami, LLC
• 340 Biscayne Owner LLC

Property Address: 340 Biscayne Boulevard, Miami, Florida 33132 (Folio #01-0108-030-1010)

Docket Number: 374

Filing Date: February 19, 2026

This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 37-page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background

Carbon Health Technologies, Inc. has its principal place of business at 500 East Remington Drive, Suite 20, Sunnyvale, California. The company filed for Chapter 11 bankruptcy protection on February 2, 2026, and continues to operate its business as a debtor in possession. At the time of filing, the company employed approximately 1,420 individuals. No trustee or examiner has been appointed in the case. The Official Committee of Unsecured Creditors was appointed on February 16, 2026. The motion states that the Debtors commenced the Chapter 11 cases either to reorganize or, in the alternative, to conduct an expedited sale process and wind down the Debtors' remaining business.

The Proposed Employee Programs

The motion outlines two distinct programs that collectively cover 43 individuals the Debtors describe as essential to the success of the Chapter 11 cases. The Debtors enlisted financial advisor Alvarez & Marsal to assist in designing both programs, citing the firm's experience with executive compensation in bankruptcy proceedings and access to extensive industry compensation data. Alvarez & Marsal reviewed sale-based incentive programs and retention-based programs approved for similarly-sized companies in recent Chapter 11 cases. The programs underwent multiple rounds of revision before being submitted for consideration to the Debtors' board of directors. Future Solution Investments LLC, the Debtors' prepetition and proposed postpetition secured lender, supports both programs and has agreed to the use of DIP funds to cover the associated costs.

Key Employee Incentive Plan

The KEIP covers three members of the Debtors' senior leadership team and provides performance-based bonuses. Bonuses are payable based on one of two scenarios: a sale or series of sales of substantially all of the Debtors' assets, or confirmation of a plan of reorganization, which may occur following the sale of a portion of the Debtors' assets. The target bonus pool totals $1.2 million, with the opportunity to earn 50 percent of target amounts at threshold performance levels and up to 200 percent at maximum performance levels.

Bonus payments are contingent on the Debtors achieving specific levels of "Total Consideration Provided," a metric defined in the motion as the sum of the dollar value of current debt converted to equity, the dollar value of all debt assumed, and all proceeds realized from the sale of the Debtors' assets during the bankruptcy period. If threshold performance levels are not met, no bonuses are earned. Earned bonuses would be paid within 30 days following plan confirmation following emergence from bankruptcy protection or the closing of the sale process.

The KEIP supersedes any existing severance obligations to participants. Participants terminated for cause or who voluntarily resign forfeit their bonus payments, while those terminated without cause, who resign for good reason, or who die or become disabled remain eligible for earned bonuses. All participants must execute releases of any claims for severance or other claims under existing bonus programs.

Key Employee Retention Plan

The KERP applies to 40 non-insider employees and provides retention-based awards calculated as a percentage of each participant's base salary. If all participants remain through the retention period, total KERP payments would be approximately $1.59 million.

The retention period runs from January 30, 2026, through July 30, 2026, though it would end earlier upon the Debtors' emergence from Chapter 11 or a change in control. Payments are structured in two installments: 30 percent within 15 days of court approval and 70 percent at the conclusion of the retention period, with both payments contingent on continued employment.

Participants who voluntarily leave or are terminated for cause before the end of the retention period forfeit unpaid installments. To receive payments, participants must sign releases of all employment-related claims against the Debtors, including severance claims. In exchange, participants who complete the retention period and execute the required releases will also receive payment of all accrued and unpaid PTO. All pre-existing severance benefits are being terminated.

According to the motion, the KERP participants, with the exception of one executive, are not responsible for setting company policy and generally do not attend senior management meetings or participate in meetings of the Debtors' board of directors. Although certain participants hold titles such as vice president, senior manager, or director, the motion states their scopes of authority are limited and their duties are generally limited to implementing tasks within a particular division or department. The one senior executive included in the KERP has received a bona fide job offer from another business at the same or greater rate of compensation.

Legal Basis

The motion seeks approval under several provisions of the Bankruptcy Code. For the KEIP, the Debtors argue the plan should be approved under Section 363(b)(1) as an appropriate exercise of business judgment and that it satisfies the "facts and circumstances" test under Section 503(c)(3). The motion states the KEIP is incentive-based rather than retention-based and therefore is not subject to the restrictions of Section 503(c)(1).

The motion analyzes the six factors established in In re Dana Corp. to support approval of both programs, addressing the relationship between plan design and desired results, the reasonableness of costs and scope, consistency with industry standards, and the due diligence and independent advisory oversight that went into plan development.

For the KERP, the Debtors argue the plan is not subject to Sections 503(c)(1) and (2) because the participants are not "insiders" as defined by the Bankruptcy Code. The Debtors additionally seek approval under Section 105(a) and characterize the payments as administrative expenses under Section 503(b)(1).

Professional Representation

The Debtors are represented by Pachulski Stang Ziehl & Jones LLP. Alvarez & Marsal serves as the Debtors' financial advisor. The case is assigned to Judge Christopher M. Lopez. A proposed order approving both programs was filed alongside the motion but had not yet been signed as of the filing date.

This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 24 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Company Background and Business Operations

Carbon Health Technologies operates as a management services organization providing non-clinical, administrative, and operational support to medical service providers across its clinic network. The company was founded in San Francisco in 2015, initially as a software platform and mobile application development company for medical records, telehealth, doctor-patient messaging, and scheduling.

In 2017, the debtors launched their first urgent care clinics in the San Francisco Bay Area. Through a series of strategic partnerships and geographic expansion, the company grew to operate approximately 93 clinics across Texas, Washington, California, Colorado, Kansas, Missouri, New Jersey, and Massachusetts. The current headquarters is located in Sunnyvale, California.

The company's operational model centers on its proprietary software platform called CarbyOS, which enhances patient engagement and drives operating efficiency. The platform enables the debtors to provide a flexible range of services tailored to patient needs across locations while maintaining consistent operations. The system assists physicians and care teams by simplifying scheduling, billing, and day-to-day operations.

Carbon Health Technologies maintains a corporate structure with approximately 41 active subsidiaries and affiliates, of which 28 are debtors in the Chapter 11 cases. The company has three foreign subsidiaries that are not debtors: Carbon Health Colombia S.A.S. in Colombia, Carbon Health Turkiye in Turkey, and Avante Limited in the United Arab Emirates.

The physician-owned entities that provide medical services are each solely owned by the company's Chief Medical Officer, in compliance with laws regulating the corporate practice of medicine. These physician-owned entities are parties to Management Services Agreements with Carbon Health Technologies under which the company provides practice management services in exchange for compensation.

Financial Condition and Path to Bankruptcy

The debtors recorded revenues of approximately $166 million in 2024 and approximately $154 million for the trailing twelve months ended November 30, 2025. The revenue reduction is primarily attributable to deliberate sales of clinics and wind-down of certain programs undertaken to reduce debt and right-size the business, rather than a decline in underlying demand.

During 2020 and 2021, the debtors expanded operations in response to increased demand for accessible healthcare services, including COVID-related testing and vaccinations. This expansion included investments in technology, clinical footprint, and personnel to support efficient delivery of care.

Beginning in 2022, as pandemic-related demand subsided and capital markets tightened significantly for healthcare growth companies, the debtors experienced material decline in revenue and access to external financing. In response, the company implemented cost-reduction initiatives including workforce reductions, clinic closures, and discontinuation of certain service lines. Despite these measures, the debtors continued to face liquidity constraints as the scale of the business no longer aligned with available capital.

Ongoing operating losses and limited financing alternatives ultimately led to the liquidity challenge that precipitated the bankruptcy filing. The debtors face a cost structure built to support a larger enterprise in a materially different capital markets environment.

Judgment Levy Dispute

On January 2, 2026, a Writ of Garnishment was issued to Silicon Valley Bank by the Circuit Court in the Fifteenth Judicial Circuit in Palm Beach County, Florida, in favor of RPT Realty, L.P., a former landlord of certain debtors. Silicon Valley Bank received the writ on January 5, 2026, and froze approximately $1.9 million in a bank account maintained by Carbon Health Technologies.

On January 12, 2026, the prepetition secured lender's agent delivered a letter to Silicon Valley Bank challenging the judgment levy on the basis that the frozen funds constitute prior existing collateral of the secured lenders. The debtors also assert that the judgment levy was executed within the 90 days prior to the petition date and constitutes an avoidable preferential transfer. The debtors indicated they are prepared to bring an adversary proceeding to avoid the judgment levy.

The debtors dispute that the judgment creditor has any valid or enforceable lien against the frozen funds. The secured lenders have asserted that their liens are senior to the judgment creditor as proceeds of the lenders' collateral.

Capital Structure

Secured Term Debt

The debtors and Future Solution Investments LLC, as agent for prepetition lenders, are parties to a Loan and Security Agreement dated November 14, 2025, under which lenders originally advanced an initial term loan in the original principal amount of $10 million.

On November 24, 2025, the parties amended the agreement to provide for an additional term loan in the original principal amount of approximately $61.9 million, the proceeds of which were used to pay off the company's secured credit facility with its prior lender. On January 20, 2026, the parties further amended the agreement to provide for an additional term loan in the original committed principal amount of $6 million.

As of the petition date, the debtors were indebted to the prepetition secured parties for an aggregate principal amount of not less than $77 million, plus accrued and unpaid interest, fees, costs, expenses, charges, and other obligations under the loan documents. The obligations are secured by first priority liens on substantially all of Carbon Health Technologies' assets, including goods, accounts, equipment, inventory, investment property, general intangibles including intellectual property, cash, deposit accounts, and proceeds from intellectual property. The obligations are also secured by certain accounts, cash, deposit accounts, books and records, and proceeds of certain physician-owned debtor entities.

Clinic Level Secured Debt

Certain debtor entities borrowed from three separate lenders for developing and opening clinics:

John Muir Health provided a delayed draw term loan under a Credit and Guaranty Agreement dated November 5, 2021, with borrowing capacity of $20 million. Outstanding principal obligations total approximately $3.9 million as of the petition date. The loan is secured by assets of two affiliated entities that do not themselves operate any clinics.

Stanford Health Care provided a delayed draw term loan under a Credit and Guaranty Agreement dated May 23, 2022, with borrowing capacity of $25 million. Outstanding principal obligations total approximately $3.8 million as of the petition date. The loan is similarly secured by assets of two affiliated entities that do not operate clinics.

Prime Healthcare Services, Inc. provided financing under a Credit Agreement dated October 20, 2021, as amended May 29, 2024, agreeing to provide $1.25 million for each healthcare clinic developed by certain borrower entities. Outstanding principal obligations total approximately $7.6 million as of the petition date. The borrower entities under this facility do not operate clinics, and the lender's security interest is not perfected as no UCC-1 statement was recorded.

Unsecured Debt

As of the petition date, the debtors estimate they owe approximately $36 million in unsecured obligations, primarily to trade creditors arising in the ordinary course of business operations and including approximately $7 million of unsecured promissory notes.

Dual-Track Restructuring Strategy

Following months of negotiations, the debtors and the prepetition secured lender's agent reached agreement on terms of a dual-track comprehensive restructuring process. The process allows the debtors to pursue in parallel both confirmation of a Chapter 11 plan premised on a debt-for-equity exchange and a postpetition marketing and sale process for assets, in whole or in part, in one or more sale transactions.

Shortly after the petition date, the debtors plan to file a combined plan of reorganization and disclosure statement. The plan provides for an internal reorganization where secured lenders exchange their secured debt, or a portion thereof, for equity in the reorganized debtors in the event there is not an acceptable sale transaction for substantially all of the enterprise.

The debtors filed a motion seeking court approval of bid procedures for the sale of assets. The proposed procedures provide flexibility to pursue either a sale of the entire enterprise or one or more partial sales on a timeline consistent with milestones agreed upon with the secured lender's agent, along with the option to proceed with the plan process in the event the sale process does not yield actionable results.

The dual-track approach builds upon efforts undertaken as part of a months-long prepetition marketing process that ended in November 2025. Prior to the petition date, the debtors' investment banker commenced a new comprehensive marketing effort for the assets.

First Day Relief

On the petition date, the debtors filed motions seeking various forms of relief intended to stabilize business operations and facilitate efficient administration of the Chapter 11 cases. Key among the first day motions is a request for approval of debtor-in-possession financing from the prepetition secured lenders and authorization to use cash collateral. Without this authority, the debtors would not have sufficient liquidity to continue operations.

Additional first day motions seek authorization to maintain existing bank accounts and cash management systems, pay prepetition employee wages and benefits, maintain patient programs, obtain adequate assurance of utility services, continue insurance coverage, and extend time to file schedules and statements of financial affairs.

The debtors also filed a motion seeking authorization to reject certain unexpired leases and executory contracts and to abandon personal property located at leased premises. The debtors sought approval to redact certain personally identifiable information from creditor matrices and to establish procedures for notifying creditors of the bankruptcy filing.

This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 21 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.

Chief Judge Eduardo V. Rodriguez issued a memorandum opinion on February 5, 2026, ordering the representative of The Monson Law Firm to appear for examination on February 26, 2026, and directing the firm to produce extensive categories of documents by February 19, 2026. The ruling addresses what the court characterized as a matter of first impression regarding whether a debtor can use Rule 2004 discovery powers to investigate alleged defamatory statements made about the debtor during its bankruptcy case.

Background of the Dispute

The discovery dispute arose after MMA Law Firm issued a Notice of 2004 Examination of The Monson Law Firm on January 15, 2026. The examination sought information that MMA alleged The Monson Law Firm distributed which defamed MMA during the bankruptcy proceedings.

The parties initially attempted to resolve their disagreements through stipulations. On January 23, 2026, they filed an Agreed Emergency Motion for Resolution of Objections Regarding Rule 2004 Examination, asking the court to rule on disputed categories of documents and testimony rather than engaging in traditional motion to quash or motion to compel proceedings. The parties filed two subsequent stipulations on January 27 and January 28, 2026, which narrowed some issues but left core objections unresolved.

The court held an evidentiary hearing on January 29, 2026, at which MMA moved for judgment on partial findings under Federal Rule of Civil Procedure 52(c) after The Monson Law Firm rested its case.

The Discovery Requests and Stipulations

Through their stipulations, the parties resolved several categories of discovery disputes. The Monson Law Firm agreed to produce documents responsive to certain requests and to have its managing attorney appear as the firm's representative at the examination. MMA narrowed Request No. 3 to include only materials actually used in presentations where MMA was discussed, limiting the timeframe to January 1, 2022 through April 9, 2024. MMA withdrew Request No. 4 entirely but preserved the right to question the managing attorney about social media posts and online content created by The Monson Law Firm.

After these stipulations, the remaining disputed requests included Request Nos. 1(a), (b), (c), (e), (f), (g), (k), (l), (m), (o), and (p) and Request Nos. 2(a), (b), (c), (e), (f), (g), (k), (l), (m), (o), and (p). The Monson Law Firm objected to these requests on multiple grounds, including state-law privileges and constitutional protections.

State-Law Privilege Claims

The Monson Law Firm asserted that the requested information was protected under several state-law provisions, including Texas Insurance Code Section 34.002, Texas Rules of Disciplinary Procedure Part XVII, Rule 17.09, Louisiana Supreme Court Rule 19 Section 12, and Louisiana Revised Statute Section 22:1971.

The court found these objections insufficient, noting that The Monson Law Firm's pleadings failed to articulate the specific information allegedly protected by these statutes and rules. At the evidentiary hearing, the only evidence admitted into the record consisted of two letters from MMA's counsel: a cease-and-desist letter and a preservation letter, both dated July 9, 2025. The court determined this evidence was insufficient to meet The Monson Law Firm's burden of establishing entitlement to protection under the asserted state-law privileges, characterizing the objections as vague and unsupported by evidence.

First Amendment and Anti-SLAPP Arguments

The Monson Law Firm's central objection rested on constitutional grounds, arguing that MMA was using Rule 2004 to punish the firm for exercising its First Amendment rights and to avoid the burden of proving a prima facie defamation case under the Texas Citizens Participation Act. The TCPA is an anti-SLAPP statute designed to encourage and safeguard constitutional rights to petition, speak freely, associate freely, and otherwise participate in government.

The Monson Law Firm contended that if MMA had filed a state law defamation suit, MMA would have been required to prove its defamation case by clear and convincing evidence pursuant to Texas Civil Practice and Remedies Code Section 27.005. The firm asserted that in such a hypothetical defamation lawsuit, it would have filed an anti-SLAPP motion to dismiss that likely would have been granted, thereby preventing MMA from obtaining the discovery it now seeks through the Rule 2004 examination.

Court's Ruling and Analysis

The court established jurisdiction under 28 U.S.C. Section 1334 and determined that the proceeding contained core matters under 28 U.S.C. Section 157(b)(2)(A) and (O), as it primarily involved proceedings concerning the administration of the estate. The court further concluded it had constitutional authority to enter a final order both because the discovery dispute was a core proceeding and because all parties consented to adjudication by filing an agreed motion requesting the court to resolve the discovery disputes.

Addressing the First Amendment objections, the court found that The Monson Law Firm offered insufficient evidence at the evidentiary hearing to support its assertion of MMA's intent to circumvent defamation lawsuit requirements or the likely success of an anti-SLAPP motion to dismiss in a hypothetical defamation lawsuit. The court noted that The Monson Law Firm failed to demonstrate that any potential defamation lawsuit filed by MMA would be litigated in state court or how the TCPA would apply in federal court.

Significantly, the court cited Fifth Circuit precedent establishing that anti-SLAPP statutes, such as the TCPA, cannot apply in federal court if they conflict with the Federal Rules of Civil Procedure. The court referenced the Fifth Circuit's decision in Klocke v. Watson, which held that because the TCPA's burden-shifting framework imposes additional requirements beyond those found in Federal Rules 12 and 56 and answers the same question as those rules, the state law cannot apply in federal court.

The court characterized The Monson Law Firm's assertion that the Rule 2004 examination represents an improper attempt to obtain discovery that MMA would not otherwise be entitled to in a defamation lawsuit as speculative and not supported by evidence. Finding all objections wholly unsupported by the evidence and legal arguments presented, the court overruled The Monson Law Firm's objections to categories of documents and testimony contained in the Rule 2004 Notice.

The court granted MMA's motion for judgment on partial findings pursuant to Federal Rule of Civil Procedure 52(c), made applicable by Bankruptcy Rule 7052. The court applied the standard that as the ultimate fact-finder in a bench trial, it need not draw any special inferences in favor of the nonmovant but rather may weigh the evidence, resolve any conflicts, and decide where the preponderance of evidence lies.

Required Actions and Next Steps

The memorandum opinion requires The Monson Law Firm to take several specific actions. The representative of The Monson Law Firm must appear and testify at a Rule 2004 examination on February 26, 2026, at 10:00 a.m. Central Standard Time, at the offices of Sternberg, Naccari & White, LLC, located at 935 Gravier Street, Suite 1800, New Orleans, Louisiana 70112.

The Monson Law Firm must produce documents responsive to MMA's Requests for Production Nos. 1(a), (b), (c), (e), (f), (g), (k), (l), (m), (o), (p) and Requests for Production Nos. 2(a), (b), (c), (e), (f), (g), (k), (l), (m), (o), and (p) by electronic transmission to MMA's counsel no later than 5:00 p.m. Central Standard Time on February 19, 2026.

The court further ordered that The Monson Law Firm must fully comply with the Limited Stipulation filed at ECF No. 1299 and ruled that all topics addressed in Request No. 1 and Request No. 2 are proper topics for examination and may be inquired into during the Rule 2004 examination.

The memorandum opinion incorporates by reference the background facts from the court's July 18, 2024, Memorandum Opinion in the case, suggesting an ongoing dispute between the parties that predates the current discovery conflict.

This article was prepared using Stretto Conductor, our new AI-powered assistant that's here to help. Stretto Conductor was able to create this summary of a 10 page court filing in less than a minute. Always review the underlying docket filings for accurate information. The information and responses generated by Stretto Conductor may contain errors or inaccuracies and should not be relied upon as a substitute for professional or legal advice.