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.

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First Brands' Business and Financial Condition

First Brands Group, LLC operates as a supplier of aftermarket automotive parts, including brakes, filters, wipers, lights, pumps, and towing solutions. Various First Brands entities filed for bankruptcy on September 24, 28, and 29, 2025.

At the bankruptcy filing, First Brands reported approximately $11.5 billion in financing obligations against roughly $12 million in corporate bank accounts. Approximately $2.3 billion of the liabilities relate to accounts receivable factoring arrangements.

The Accounts Receivable Factoring Dispute

The litigation concerns First Brands' accounts receivable factoring arrangement with Evolution Credit Partners. Under accounts receivable factoring, First Brands sold rights to customer receivables at a discount to maintain cash flow. First Brands received immediate cash while Evolution would collect the full value when customers paid.

Evolution asserts a first-lien security interest on approximately $60.5 million worth of First Brands' receivables. First Brands contests this claim, arguing that significant irregularities in prior factoring practices undermine Evolution's rights to these receivables.

First Brands represents that its forensic expert determined the $60.5 million claim does not match any valid invoices in First Brands' records. This factual dispute forms the background for the adequate protection litigation.

The Bankruptcy Court Proceedings

After filing bankruptcy, First Brands moved for permission to use funds from the Factored Receivables Account, which collects receivables paid back to First Brands. The account contained between $105.9 million and $109 million when the bankruptcy court considered the motion.

First Brands requested authority to spend $63 million representing certain categories of receivables. Evolution objected, arguing that if First Brands spent this amount, insufficient funds would remain in the account to satisfy Evolution's asserted first-priority security interest.

The bankruptcy court authorized First Brands to draw up to $60 million from the account. The court did not definitively rule on the validity or priority of Evolution's interest, cautioning that its assessment was preliminary. The court authorized the release based on its determination that any creditor's interest would be adequately protected by the remaining funds.

After the authorized withdrawal, approximately $49 million would remain in the Factored Receivables Account.

Evolution's Appeal

Evolution appealed the bankruptcy court order on grounds that the $49 million remaining in the account would leave Evolution's lien underprotected by approximately $20 million. Evolution argued the bankruptcy court erred in ruling that its interest was adequately protected, asserting that $49 million does not adequately secure its claimed right to $60.5 million.

The district court expedited the appeal based on the record showing First Brands would likely exhaust the collateral by early February 2026.

First Brands responded that the bankruptcy court did not err for two reasons. First, additional receivables collected during the pendency of the appeal brought the account balance to over $67 million, allegedly sufficient to adequately protect Evolution's interest. Second, even if the bankruptcy court initially authorized withdrawal of more than Evolution's lien amount, the court appropriately balanced remaining cash against the likelihood that Evolution could establish a first-priority security interest.

The District Court's Analysis

The district court addressed two principal issues: the proper scope of bankruptcy court inquiry into asserted property interests, and whether Evolution had adequate protection.

Scope of Lien Validity Inquiry

The district court ruled that bankruptcy courts addressing cash collateral use under section 363 may conduct limited examination of lien validity. Section 363(p) provides that entities asserting property interests bear the burden of proof on validity, priority, and extent.

The court held that in the absence of an adversary proceeding, bankruptcy courts should assess only whether a prima facie showing or colorable claim exists. Courts may consider evidence that clearly refutes a creditor's claim but should stop inquiry once a colorable claim is established.

The court reasoned that permitting broader inquiry would bypass Rule 7001(b)'s requirement for adversary proceedings to challenge lien validity and section 363(c)(3)'s rules for preliminary hearings on cash collateral use.

The district court noted this legal question was not dispositive because the bankruptcy court had reserved ruling on Evolution's asserted security interest. The bankruptcy court had instead focused on adequate protection assuming Evolution held the claimed interest.

Adequate Protection Analysis

The district court ruled that at the time Evolution appealed, its interest was not adequately protected because the Factored Receivables Account did not contain enough funds to cover Evolution's $60.5 million interest. The court found the bankruptcy court likely miscalculated the amount in the account, believing it held $56 million to $59 million rather than the lesser amount actually present.

However, the court found that additional receivables flowing into the account during the appeal created genuine factual disputes about current adequate protection. The Factored Receivables Account now allegedly holds over $67 million, and First Brands represents the estate is owed approximately $230 million in outstanding prepetition receivables.

The district court determined it could not resolve these factual disputes. The court also noted it could not make the initial ruling on Evolution's security interest validity without the benefit of evidentiary or adversary proceedings.

Remand and Path Forward

The district court remanded the case for proceedings consistent with its opinion. The court ruled that parties may litigate through appropriate procedures whether Evolution has a first-priority security interest. The parties may also litigate whether Evolution is adequately protected by receivables that may flow into the estate.

In determining adequate protection, the bankruptcy court may consider the amount of funds in the segregated account, the likelihood additional funds may enter the account, and other potential recovery sources for Evolution. If the bankruptcy court finds adequate protection exists, it must specify what funds or property, whether currently in the estate or projected, adequately protect Evolution.

The bankruptcy court may grant release of additional funds consistent with the district court's opinion or with agreement of directly affected parties. The district court retained jurisdiction over the appeal if the bankruptcy court rules on adequate protection.

First Brands agreed not to seek release of additional funds before February 19, 2026, the date of a scheduled evidentiary hearing in bankruptcy court on a related matter.

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Company Background and Business Operations

Luminar Technologies was founded in 2012 to develop advanced Light Detection and Ranging hardware and software solutions for autonomous vehicles. The company went public in December 2020 through a de-SPAC transaction that raised over $500 million. The business operated two distinct segments: LiDARCo, which developed and sold LiDAR sensors for autonomous vehicles, and LSICo (Advanced Technologies and Services), which developed semiconductor components through its Luminar Semiconductors Inc. subsidiary.

The company's competitive advantage centered on its use of a 1550-nanometer laser wavelength, compared to the 905-nanometer standard used by competitors, which allowed for detection of objects at longer distances. The company pursued a growth strategy through multiple acquisitions, including Black Forest Engineering in 2018, OptoGration in 2021, Freedom Photonics in 2022, and EM4 in 2024.

Partnership Deterioration and Industry Challenges

The disclosure statement identifies the deterioration of the company's relationship with Volvo as a primary factor leading to the bankruptcy filing. In 2020, Volvo initially estimated purchasing 39,500 Iris LiDAR units. By 2021, Volvo increased this estimate to 673,000 units, and in 2022 to 1.1 million units. Based on these projections, Luminar invested heavily in manufacturing capacity.

In early 2024, Volvo reduced its 2024 volume estimate by 75 percent. In September 2025, Volvo further reduced its lifetime volume projection by 90 percent and announced it would not use LiDAR technology in future vehicles. On November 14, 2025, Volvo sent a notice terminating the agreement. The company also experienced terminated or reduced partnerships with Polestar and Mercedes.

The disclosure statement notes several industry-wide challenges that contributed to the company's difficulties, including the complexity of integrating LiDAR into vehicle technology systems, pricing pressure from China-based competitors benefiting from government subsidies, and fluctuating market demand for autonomous vehicle technology.

Financial Difficulties and Capital Structure

The company accumulated a deficit of $2.4 billion as of December 31, 2025, following net losses of $273.1 million in 2024, $573 million in 2023, and $445.9 million in 2022. The disclosure statement attributes these losses to low sales volumes of LiDAR technology despite significant investments in development and manufacturing infrastructure.

As of the petition date, the company's capital structure consisted of $104.6 million in First Lien Notes (including interest), $247.7 million in Second Lien Notes (including interest), and $135.7 million in Unsecured Notes (including interest), totaling approximately $488 million in funded debt. The First Lien and Second Lien Notes were secured by substantially all assets of the debtors, with GLAS Trust Company LLC serving as trustee and collateral agent for both note issuances.

Asset Sale Process and Transaction Structure

The debtors marketed their assets in two separate segments through a court-supervised sale process. For the LSI semiconductor business assets, Quantum Computing, Inc. emerged as the purchaser at $110 million. For the LiDAR technology business, the debtors conducted a competitive auction on January 26, 2026, with MicroVision, Inc. prevailing as the winning bidder at $33 million. The bankruptcy court approved both sales on January 27, 2026.

The disclosure statement indicates that sale proceeds will be used to satisfy secured creditor claims according to the priority waterfall established in the plan, with any excess proceeds flowing to the liquidation trust for distribution to lower-priority creditors.

Liquidation Plan Structure and Administration

The plan proposes establishment of a liquidation trust to hold remaining assets, pursue any avoidance actions, wind down operations, and make distributions to creditors. The liquidation trust will be funded with a Wind Down Reserve of up to $3 million to cover administrative expenses during the wind-down period.

A GUC Reserve will be segregated and maintained by the liquidation trustee, funded with either $200,000 if the plan is confirmed by March 21, 2026, or $100,000 if confirmed later. This reserve, along with any proceeds from avoidance actions, will be available for distribution to holders of general unsecured claims.

The plan includes a special provision addressing approximately 5 percent of parent equity interests that are subject to an OFAC blocking order. The plan provides for cancellation of unblocked shares on the effective date, with new common stock issued to the liquidation trust. Blocked shares will be canceled after obtaining the necessary OFAC license.

Treatment of Claims and Recovery Projections

The plan classifies creditors into eight classes with varying levels of impairment and projected recoveries. Class 1 (Other Priority Claims) is unimpaired and will receive 100 percent recovery. Class 2 (First Lien Noteholder Secured Claims) is impaired but projected to recover 100 percent through receipt of First Lien Liquidation Trust Interests.

Class 3 (Second Lien Noteholder Secured Claims) is impaired with projected recovery between 72 and 100 percent through receipt of Second Lien Liquidation Trust Interests. Class 4 (General Unsecured Claims) is impaired with projected recovery between 0 and 1 percent through receipt of GUC Liquidation Trust Interests.

Classes 5 through 8, covering Intercompany Claims, Intercompany Interests, Subordinated Claims, and Parent Interests (equity holders), are all impaired and projected to receive no recovery under the plan.

Distribution Waterfall Mechanics

The disclosure statement establishes a waterfall for distribution of Post-Effective Date Available Cash. Under this structure, distributions will be made first to fund any deficits in the Senior Claims Reserve, second to holders of Allowed First Lien Noteholder Secured Claims until satisfied in full, and third to holders of Allowed Second Lien Noteholder Secured Claims until satisfied in full.

The distribution mechanics contemplate that First Lien Noteholders will receive full recovery from sale proceeds, with remaining proceeds flowing to Second Lien Noteholders. The limited funding allocated to the GUC Reserve reflects the anticipated shortfall after satisfying secured claims, resulting in minimal projected recovery for unsecured creditors.

Creditors' Committee Composition and Advisors

An official committee of unsecured creditors was appointed in the bankruptcy cases. The committee's membership includes U.S. Bank Trust Company, Fujian Hitronics Technologies, Applied Intuition, Optera TPK Holding Pte. Ltd. and TPK Precision Hong Kong Co. Ltd., Workday, STEER Tech LLC, and Alidade Discovery Lakes II, LLC. The committee retained Alvarez & Marsal Holdings, LLC as financial advisor to represent the interests of unsecured creditors in the bankruptcy proceedings.

Timeline for Plan Confirmation and Implementation

The disclosure statement establishes a compressed timeline for solicitation, voting, and confirmation of the plan. The voting deadline for eligible creditors to submit ballots accepting or rejecting the plan is March 11, 2026 at 4:00 p.m. Central Time. The confirmation hearing is scheduled for March 19, 2026, at which the bankruptcy court will determine whether the plan meets the requirements for confirmation under the Bankruptcy Code.

The plan provides that if confirmed by March 21, 2026, the GUC Reserve will be funded with $200,000; if confirmed after that date, the reserve will be reduced to $100,000. This provision incentivizes timely confirmation to maximize potential distributions to general unsecured creditors, though their projected recovery remains minimal under either scenario.

Bar Dates and Claims Process

The bankruptcy court established February 4, 2026 at 5:00 p.m. Central Time as the general bar date for filing proofs of claim. Governmental units have an extended bar date of June 15, 2026 at 5:00 p.m. Central Time to file their claims.

The disclosure statement provides detailed rules for the tabulation of votes, particularly for notes claims held through nominee arrangements.

Professional Representation

The debtors are represented by Weil, Gotshal & Manges LLP as bankruptcy counsel. The disclosure statement was signed by the Chief Restructuring Officer on behalf of Luminar Technologies, Inc. and its affiliated debtors. The case is pending in the United States Bankruptcy Court for the Southern District of Texas, Houston Division under Case Number 25-90807 (CML).

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 176 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 filing follows a series of operational setbacks that eroded the company's liquidity, including compressed mining margins following the April 2024 Bitcoin halving, escalating litigation costs, and a fire at the company's primary Texas facility between Christmas and New Year's Day that reduced mining capacity and revenue by as much as 50 percent.

Company Background and Business Operations

The debtors operate an industrial-scale Bitcoin mining business through a parent company structure. NFN8 Group, Inc. serves as the parent entity and owner of NFN8 Capital, LLC and NFN8 Holdings, LLC. Through these entities, the debtors own, lease, and operate thousands of industrial-grade Bitcoin mining supercomputers deployed across multiple facilities with dedicated power infrastructure, hosting arrangements, and operational personnel.

The company generates revenue primarily from Bitcoin block rewards and transaction fees produced by mining operations. Additional revenue sources include equipment sales and leases, joint ventures, and hosting fees. Mining revenues are used to fund equipment acquisition, operations, hosting, repairs, fleet expansion, lease obligations, joint venture payments, and operational continuity investments.

NFN8 Capital owns over 5,000 unencumbered Bitcoin mining supercomputers that are not subject to lease or financing arrangements.

The Sale-Leaseback Equipment Financing Program

A key component of the debtors' capital structure is a sale-leaseback equipment financing program that enabled the company to fund the acquisition and deployment of Bitcoin mining equipment at scale. Under this program, NFN8 Capital sold Bitcoin mining supercomputers to third-party counterparties pursuant to purchase and sale agreements, while NFN8 Holdings simultaneously leased the same machines back under fixed-term lease agreements, typically ranging from two to four years.

The program involves more than 250 separate lease counterparties and several thousand miners deployed across the debtors' hosting facilities. NFN8 Capital was responsible for procuring, assembling, deploying, hosting, and maintaining the equipment, while NFN8 Holdings operated the machines as part of its integrated mining platform.

Lease payment obligations under the program were funded from revenues generated by mining operations and were therefore dependent on the continued operation of the underlying equipment and prevailing mining economics. For several years, the debtors performed under these arrangements and made lease payments as required.

Events Leading to Bankruptcy

Hosting Provider Bankruptcy and First Payment Suspension

In approximately 2020, the debtors entered into a strategic hosting arrangement with Core Scientific, Inc., then described as the world's leading digital infrastructure provider. By late 2022, Core Scientific hosted a majority of the miners operated by the debtors.

In December 2022, Core Scientific filed for bankruptcy protection in the U.S. Bankruptcy Court for the Southern District of Texas. Although Core Scientific continued hosting certain miners during the early stages of its bankruptcy case, in mid-2023 it terminated the debtors' hosting agreements, leaving the debtors with thousands of operational miners that could not be immediately redeployed.

To avoid a disorderly shutdown, the debtors implemented a targeted, temporary suspension of lease payments tied to miners that were no longer operational due to the Core Scientific termination. For lessors whose miners remained operational at non-Core Scientific sites, the company continued both operations and lease payments. For lessors whose miners were stranded, the company provided notice and temporarily suspended payments absent objection. For any lessor that objected, payments continued.

In February 2024, once alternative hosting arrangements were identified, the company proposed a uniform modification under which suspended payments would resume on a staggered basis and lease terms would be extended by the duration of the suspension. Over 95 percent of affected lessors agreed to this modification.

Bitcoin Halving and Second Payment Suspension

In early 2024, the company expected to resume full lease payments based on several assumptions: self-hosted facilities would be operational by spring 2024, the company had paid off its only outstanding loan by February 2024, and post-halving mining economics would follow historical patterns.

Although the April 2024 Bitcoin halving was anticipated, the post-halving market response deviated materially from prior cycles. Revenue per terahash recovered far more slowly than in previous halvings, resulting in sustained compression of mining margins across the industry. Simultaneously, the company experienced unexpected delays and cost overruns in building its hosting facilities.

By June 2024, mining revenues were insufficient to fund lease obligations, operating expenses, and capital expenditures simultaneously. To preserve liquidity and maintain operations, the company implemented a second temporary suspension of certain lease payments.

As conditions improved through increased miner deployment, reduced capital expenditures, and partial recovery in mining economics, the company resumed payments in mid-November 2024. Payments continued until late 2025, when further disruptions necessitated another suspension.

Litigation

On October 10, 2024, three participants in the sale-leaseback program filed suit in the U.S. District Court for the Western District of Texas against the debtors and certain affiliates and control persons. The lawsuit asserted claims for breach of contract, fraud, and alleged securities violations, all of which were denied by the debtors. The plaintiffs sought extraordinary pre-judgment relief, including injunctive relief and the appointment of a receiver. After extensive discovery and briefing, the court denied all such relief.

On March 17, 2025, the court granted the defendants' motion to compel arbitration. A final arbitration hearing was scheduled for January 26, 2026, but did not proceed. The disclosure indicates that the cost of completing the arbitration is substantial, and an adverse ruling followed by post-judgment collection efforts could result in value-destructive disruption of operations.

Catastrophic Fire

During the week between Christmas and New Year's Day 2025, a fire occurred at the company's Crystal City, Texas facility, reducing mining capacity and revenue by as much as 50 percent. The debtors maintain insurance coverage and expect insurance proceeds, although the timing of payment remains uncertain.

Hosting Facilities

Following the Core Scientific disruption, the debtors internalized their hosting operations. The debtors currently operate three mining facilities: one at 2205 Old Uvalde Highway, Crystal City, Texas; one at 38773 Whippoorwill Road, Shelby, Iowa; and one at 2004 F58, Walnut, Iowa.

NFN8 Capital leases approximately 78,377 square feet of warehouse space at the Crystal City location from Midnight Enterprises, LLC, a non-insider, pursuant to a lease expiring March 31, 2029.

The Iowa facilities are both subject to separate but materially identical real property leases between NFN8 Capital and UR Management, LLC. Both leases commenced on December 21, 2023, and expire on January 31, 2029. After the five-year lease term for each Iowa location, NFN8 Capital has the exclusive option to purchase each site with all improvements for $100,000.

Chapter 11 Strategy and Relief Sought

The filing declaration states that despite sustained efforts, the debtors have been unable to resolve the pending arbitration. The escalating cost of litigation, combined with the operational disruption caused by the fire, materially impaired liquidity. An adverse arbitral award followed by post-judgment collection efforts would likely result in operational paralysis and value-destructive dismemberment of the mining platform.

The debtors seek Chapter 11 protection to preserve value and ensure an orderly, transparent restructuring. The stated strategy includes obtaining approval of debtor-in-possession financing, conducting a court-supervised marketing and sale process for substantially all assets pursuant to approved bidding procedures, and maximizing recoveries for stakeholders. Following a sale, claims will be reconciled and proceeds distributed in accordance with the Bankruptcy Code.

First Day Relief

The debtors filed several first-day motions seeking relief to facilitate operations during the bankruptcy case:

Joint Administration: The debtors request that the three cases be jointly administered for procedural purposes to save time and expense, while not seeking substantive consolidation of the bankruptcy estates.

Complex Case Designation: The debtors filed a notice designating the cases as complex due to more than 100 creditors and debts exceeding $10 million.

Extension for Filing Schedules: The debtors request an additional 21 days to file their schedules of assets and liabilities, schedules of current income and expenditures, schedules of executory contracts and unexpired leases, and statements of financial affairs, for a total of 35 days after the petition date through March 9, 2026.

DIP Financing: The debtors seek approval of a $2,750,000 multi-draw term loan facility from Twelve Bridge Capital, LLC, a third-party lender not affiliated with insiders of the debtors. An initial interim draw will be funded promptly upon entry of the interim order, with subsequent advances subject to court approval and milestones tied to the proposed sale process. The liens granted in connection with the DIP facility attach solely to the debtors' unencumbered property and do not prime or otherwise impair any existing secured creditor.

Cash Management System: The debtors seek authorization to continue using their existing cash management system, maintain their existing bank accounts and business forms, honor certain prepetition obligations related thereto, and continue performing certain intercompany transactions. The system includes five bank accounts at Burling Bank and a cryptocurrency wallet with Kraken that holds the debtors' cryptocurrency interests. When Bitcoin is successfully mined, those interests are sold on the Kraken platform and the resulting cash is transferred to the NFN8 Holdings account. The debtors pay approximately $2,500 per month in bank fees.

Premium Finance Agreement: The debtors seek authority to continue meeting payment obligations under a premium finance agreement with IPFS Corporation for commercial property, general liability, and inland marine insurance. The premium finance agreement grants IPFS a security interest in all right, title, and interest to the policies, funds which may become payable under the scheduled policies, unearned premiums and dividends, and interests arising under a state guarantee fund.

Corporate Governance and Conflict Management

The filing disclosure indicates that one of the debtors' principals is affiliated with a potential purchaser. To eliminate any appearance of impropriety and actual conflicts of interest, that principal has been fully removed from all decision-making authority relating to the bankruptcy cases and any sale process and is walled off from all such matters.

To effectuate this separation, the debtors appointed an independent director as sole director and a Chief Restructuring Officer, vesting them with exclusive authority over all restructuring and sale-related decisions, including negotiation and execution of transaction documents, selection of bidders, engagement of professionals, and appearances before the court.

The Chief Restructuring Officer is a Managing Director of HMP Advisory Holdings, LLC d/b/a Harney Partners. Harney Partners was initially retained as financial advisor to the company in March 2025 to provide financial and restructuring advisory services in connection with the debtors' evaluation and development of strategic alternatives to address operational and liquidity challenges. Those challenges led to the conclusion that a targeted sales process would provide the best results for creditors and the estate.

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

Nine Energy Service is a publicly traded company listed on the New York Stock Exchange under the symbol "NINE" that provides completion solutions for unconventional oil and gas resource extraction across North America. The company operates through four main business segments serving exploration and production customers: Cementing (approximately 37% of revenue), Wireline Services (approximately 21% of revenue), Coiled Tubing (approximately 18% of revenue), and Completion Tools (approximately 24% of revenue).

Headquartered in Houston, Texas, the company employs approximately 1,100 full-time employees and engages approximately 30 independent contractors. The company maintains operations across all major onshore basins in the United States and Canada, with additional research and development facilities in Norway serving international markets.

Corporate History and Strategic Acquisitions

The company was formed in 2013 through a merger of three energy service companies owned by SCF Partners, L.P. and its affiliates: Northern States Completions, Integrated Production Services (Canada), and CDK Perforating (US). Following the merger, the company expanded through a series of strategic acquisitions, including Peak Pressure Control, Crest Pumping Technologies, Dak-Tana Wireline, G8 Oil Tool, and Beckman Production Services, Inc. in 2017.

In January 2018, the company completed an initial public offering with J.P. Morgan Securities LLC, Goldman Sachs & Co. LLC, and Wells Fargo Securities, LLC acting as joint book-running managers. The IPO raised approximately $169.5 million in net proceeds, which the company used to commence operations as a public company, repay existing financing facilities, expand customer relationships, and further expand service offerings.

A pivotal transaction occurred on October 25, 2018, when the company acquired all equity interests of Magnum Oil Tools International, LTD. and certain affiliates. The Magnum Acquisition augmented the company's completion tools segment by adding proprietary downhole completions consumables products, including specialized components such as frac plugs, disk subs, and other bespoke parts. The company financed this acquisition by issuing $400 million in aggregate principal amount of 8.750% senior unsecured notes due 2023.

In August 2019, the company divested its production solutions segment through the sale of interests in wholly owned subsidiary Beckman Holding Production Services, LLC, which provided $17.1 million in cash.

Events Leading to the Bankruptcy Filing

The declaration notes that the company commenced the Chapter 11 cases primarily to address two related challenges: an over-leveraged balance sheet that constrained liquidity and limited operational flexibility, and industry headwinds that tightened already slim margins.

Liquidity Constraints and Industry Challenges

Shortly after the Magnum Acquisition, multiple industry headwinds challenged the company's operations and amplified the effect of its over-leveraged balance sheet. The COVID-19 pandemic triggered a decline in demand for oil and other energy resources as international travel fell to record lows. Oil and gas market activity levels decreased by 50% during the COVID-19 period, causing pricing pressures that decreased the company's revenue, strained liquidity, and exacerbated the effects of newly increased funded debt obligations.

Energy prices remained volatile in subsequent years. The first quarter of 2021 saw oil and natural gas prices rebound from the COVID-19 trough, steadily increasing throughout 2021 and remaining supportive into 2022. Oil prices reached a 13-year high in March 2022, primarily as a result of the conflict between Russia and Ukraine. However, in late 2022, due to the rise in interest rates, economic uncertainty, and fears of recession, oil prices began to decline.

The declaration notes that in 2024, natural gas price averages fell by over 60% compared to 2022 prices. Oil prices continued to fall towards the end of 2024, and the imposition of tariffs in April 2025 led to increased costs for critical raw materials such as steel, aluminum, and other manufactured components, creating further headwinds for the energy industry.

Cash interest payments for the 2023 Notes came due twice each year, forcing the company to consistently absorb material interest expenses and expend a considerable amount of available liquidity.

Refinancing Challenges

As the maturity date for the 2023 Notes neared, the company began exploring options to refinance existing funded debt. Market conditions limited the company's options and lenders demanded more expensive borrowing terms. As a result of the impending maturity and the company's diminished liquidity position, the company was forced to refinance the maturing unsecured 2023 Notes through a transaction that both added to the company's secured debt and increased the interest rate.

In January 2023, the company issued the Senior Secured Notes to fund the redemption of the 2023 Notes and amended the 2018 ABL Credit Facility to extend the maturity date and facilitate the issuance of the Senior Secured Notes. While these transactions enhanced the company's liquidity position and provided additional runway to analyze and develop long-term solutions, they were expensive debt facilities that continued to burden the company's balance sheet. The company further refinanced and replaced the 2018 ABL Credit Facility via the Prepetition ABL Facility on May 1, 2025.

The combination of recent 2023 and 2025 refinancing transactions, high interest rates, and market activity demanding more strenuous terms rendered a regular-way deleveraging transaction untenable. Oil prices and customer demand are both projected to remain stagnant in 2026, minimizing opportunity for additional organic liquidity, making out-of-court deleveraging options impracticable.

Industry Consolidation Pressures

The declaration describes how industry consolidation caused additional economic hardship. Oil and gas businesses commonly gain market leverage by increasing the scale of operations through strategic mergers and acquisitions. As the company struggled to keep up with debt service, the oil and gas industry experienced consolidation and technological advancement, especially with respect to the company's customer base.

The trend towards larger, centralized well development companies that utilize fewer, more technically complex wells limited the number of potential customers. The number of rigs operating in the Haynesville basin declined by 30% between 2023 and 2024. Many oil and gas companies successfully restructured to reduce their leverage profiles towards leaner operations better suited to current market environments. The company, by comparison, remained at a competitive disadvantage.

Investors and market participants began to view North American oil and gas production with increased skepticism, often assigning flat or less optimistic outlooks to pricing and production. This contributed to a reduction in the establishment and deployment of oil rigs, which precipitated a reduction in the number of wells being developed, resulting in fewer opportunities to offer well completion services.

NYSE Non-Compliance

On October 21, 2024, the company received notice from the NYSE that it no longer satisfied continued listing standards because its average global market capitalization was less than $50 million over a consecutive 30 trading-day period and, at the same time, its last reported stockholders' equity was less than $50 million. On April 30, 2025, the company received another notice from the NYSE that it no longer satisfied continued listing standards because the average closing share price of its common stock was less than $1.00 over a consecutive 30 trading-day period. As of the Petition Date, the company is still not in compliance with the NYSE continued listing standards but continues to actively work towards compliance.

Capital Structure and Funded Debt

As of the Petition Date, the company's funded debt totaled approximately $388.0 million, consisting of two principal obligations:

Prepetition ABL Facility

The company entered into a new ABL Credit Agreement on May 1, 2025, with White Oak ABL 3, LLC, as administrative and collateral agent, and White Oak Europe ABL Limited. The Prepetition ABL Facility provides for a senior secured revolving credit facility in an aggregate principal amount of up to $125 million, subject to a borrowing base. As of the Petition Date, approximately $68.5 million is outstanding under the Prepetition ABL Facility, including approximately $1.7 million in letters of credit.

The Prepetition ABL Facility is secured by a first-priority security interest in substantially all assets of the company and its U.S. and Canadian subsidiaries, subject to the first-priority liens granted in favor of Senior Secured Noteholders in Notes Priority Collateral. ABL Priority Collateral includes, among other collateral, all Accounts, Inventory, Controlled Accounts, Chattel Paper, Documents, Instruments, and all General Intangibles (other than equity interests in subsidiaries and intellectual property, which constitute Notes Priority Collateral).

The maturity date for the Prepetition ABL Facility is the earlier of May 1, 2028, and the date that is 91 days prior to the maturity of the Senior Secured Notes. The Prepetition ABL Facility bears interest at a rate per annum ranging from SOFR + 4.00% to SOFR + 4.50%, based on the then applicable Fixed Charge Coverage Ratio. The Prepetition ABL Facility replaced the company's prior ABL facility, the 2018 ABL Credit Facility.

Senior Secured Notes

On January 30, 2023, the company entered into an indenture providing for the issuance of $300 million aggregate principal amount of 13.000% Senior Secured Notes due 2028, with U.S. Bank Trust Company, National Association, as trustee, collateral agent, paying agent, and registrar. The Senior Secured Notes are secured by a first-priority security interest in substantially all assets of the company and its U.S. subsidiaries, subject to the first-priority liens granted in favor of the Prepetition ABL Agent in ABL Priority Collateral.

As of the Petition Date, approximately $319.5 million is outstanding under the Senior Secured Notes, including approximately $19.5 million in accrued interest. The Senior Secured Notes mature on February 1, 2028, and accrue interest at a rate per annum equal to 13.000% cash payable on February 1 and August 1 of each year.

Letters of Credit

The company maintains three letters of credit totaling approximately $2.7 million. One letter of credit secures the company's obligations to WEX, Inc., administrator of the company's fuel card program for employee travel between work sites. The company is also subject to two letters of credit in connection with ongoing litigation. The company posted a $775,000 supersedeas bond in connection with a patent infringement lawsuit involving its Breakthru Casing Flotation Device, which is secured by a letter of credit issued by JPMorgan Chase Bank, N.A., to Trisura Insurance Company. Wells Fargo has also issued a separate letter of credit covering supplemental damages, ongoing royalties, and interest ordered by the trial court judge in connection with the litigation. The total outstanding amount for the letters of credit securing the bond and supplemental amounts is approximately $2.44 million.

Equity Structure

The company is publicly traded, and shares of common stock, par value $0.01 per share, trade on the NYSE under the symbol "NINE." The company's certificate of incorporation authorizes the board of directors to issue 120 million shares of common stock. As of the Petition Date, approximately 43,326,339 shares of common stock were outstanding.

The Restructuring Plan and Support Agreement

In November 2025, the company and its advisors engaged an ad hoc group of holders of the company's Senior Secured Notes, who had organized with Milbank LLP as counsel and Houlihan Lokey Capital, Inc. as financial advisor. The company submitted a non-binding proposal to the restricted members of the Ad Hoc Group for a comprehensive deleveraging transaction to be effectuated through a quick, prepackaged chapter 11 plan.

In parallel, the company engaged with the Prepetition ABL Lenders on the terms of a financing package to fund both a chapter 11 process and the reorganized company's go-forward operations. Following months of negotiations, the Debtors, the Prepetition ABL Lenders, and members of the Ad Hoc Group holding more than 70% of the claims arising under the Senior Secured Notes entered into a restructuring support agreement on February 1, 2026.

Key Terms of the Restructuring

The restructuring support agreement provides for 100% equitization of the Senior Secured Notes. General unsecured claims will be unimpaired under the plan. The $125 million DIP facility will convert to a $135 million Exit ABL Facility upon emergence.

The restructuring transactions are designed to deleverage the company and provide adequate liquidity upon emergence through the upsized asset-based loan facility. The plan contemplates an accelerated timeline with emergence within 31 days of the Petition Date.

All general unsecured creditors, including the company's key trade vendors, are unimpaired under the plan. The restructuring transactions will preserve over 1,000 jobs and maximize the value of the company for the benefit of all stakeholders.

DIP Financing

The company seeks approval of a $125 million senior secured superpriority asset-based financing facility composed of postpetition access to all commitments under the Prepetition ABL Facility, a roll-up or refinancing of all prepetition ABL obligations upon entry of the Interim DIP Order, and a $5 million sublimit for the issuance of standby letters of credit. The company will also have access to cash collateral subject to a prepetition security interest in favor of the Prepetition ABL Lenders on a consensual basis.

DIP Marketing Process

In the weeks preceding the Petition Date, the company, with the assistance of Moelis & Company, launched a targeted market test process to gauge third-party interest in providing debtor-in-possession financing. The company contacted third parties that specialize in special situation direct lending to solicit interest in extending financing on the timeline and in the quantum required. In total, the company contacted 25 parties and 15 executed confidentiality agreements.

In response, the company received two additional DIP proposals to refinance the prepetition ABL obligations, and the company closely engaged those parties to gauge the potential for securing better terms for chapter 11 financing. No alternative third-party financing was offered on better terms than those proposed under the DIP Facility.

The declaration notes that the DIP Facility is essential to the company's ability to continue operations and administer the chapter 11 cases. Based on the company's forecast, absent the funds available from the DIP Facility, the company would hit a liquidity shortfall in the first week of the chapter 11 cases and would face a value-destructive interruption to business and lose support from key customers, stakeholders, and vendors.

Prepetition Solicitation and Voting

Given the high level of consensus for the restructuring transactions and the need to limit the cost and disruption of the chapter 11 cases, the company intends to proceed through the cases quickly and efficiently. To meet various milestones and minimize the effect of the chapter 11 cases on the company and its businesses, the Debtors successfully launched solicitation prior to the commencement of the chapter 11 cases.

On February 1, 2026, the Debtors commenced service of the solicitation materials, including the Disclosure Statement, the plan, various exhibits, and a ballot to vote to accept or reject the plan, pursuant to sections 1125 and 1126(b) of the Bankruptcy Code on holders of Senior Secured Notes entitled to vote on the plan. The Debtors required that such holders submit their ballots by March 2, 2026. The Consenting Noteholders who hold more than 70% of the claims in Class 4 of the plan—the only voting class—have committed to vote in favor of the plan through the restructuring support agreement.

Independent Investigation

In December 2025, the company, at the direction of the company's independent director, engaged Kane Russell Coleman Logan PC as independent counsel to assist in conducting an independent investigation into any and all potential estate claims and causes of action, including as against related parties of the company arising from the company's prepetition transactions.

The independent director instructed Kane Russell to conduct a thorough review of the company's books and records, transactions, and actions taken prior to the Petition Date. The company provided the independent director with access to documents and personnel, and Kane Russell conducted interviews of current directors, officers, and employees. The declaration notes that the investigation concluded prior to the commencement of the chapter 11 cases. The Debtors intend to provide additional information regarding the investigation and evidentiary support for the plan's various release and exculpation provisions prior to confirmation.

Timeline and Key Dates

The restructuring support agreement and DIP Credit Agreement contain various milestones designed to advance the chapter 11 cases expeditiously. The Debtors are seeking entry of a scheduling order establishing a hearing to approve the Disclosure Statement and confirm the plan 31 days after the Petition Date and emergence the following day, or as soon as practicable thereafter.

Key dates in the restructuring process include:

• February 1, 2026: Petition Date; execution of restructuring support agreement; commencement of voting solicitation
• March 2, 2026: Voting Deadline for holders of Senior Secured Notes
• March 16, 2026: Target date for Court to approve Disclosure Statement and confirm plan
• March 31, 2026: Target Plan Effective Date

Historical dates relevant to the company's capital structure include:

• January 30, 2023: Issuance of $300 million of 13.000% Senior Secured Notes due 2028
• May 1, 2025: Entry into new Prepetition ABL Credit Agreement
• October 21, 2024: Receipt of NYSE non-compliance notice regarding market capitalization
• April 30, 2025: Receipt of NYSE non-compliance notice regarding share price
• November 2025: Engagement with Ad Hoc Group of Senior Secured Noteholders

Professional Representation

The Debtors are represented by Kirkland & Ellis LLP as legal counsel. The company's financial advisors include Moelis & Company and FTI Consulting, Inc. as restructuring advisor.

The Ad Hoc Group of Senior Secured Noteholders is represented by Milbank LLP as legal counsel and Houlihan Lokey Capital, Inc. as financial advisor.

The company engaged Kane Russell Coleman Logan PC as independent counsel to the independent director for purposes of the investigation.

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 145 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 filing comes after years of industry challenges that reduced the company's revenue from $3.56 billion in 2022 to $3.06 billion in 2025, a 14% decline. Multi-Color operates more than 90 facilities across 25 countries and employs approximately 12,800 people worldwide, including 4,870 in the United States.

Company Background and Business Operations

Multi-Color Corporation traces its origins to 1916, when it was founded as Franklin Development Company in Cincinnati, Ohio. Now headquartered in Atlanta, Georgia, the company manufactures prime labels for major global brands in food, beverage, home care, beauty, automotive, and pharmaceutical industries. The company's operations span more than 25 countries with 39 facilities in North America.

The company provides six main categories of label solutions: Pressure Sensitive Labels, which account for 45% of revenue; Cut & Stack Labels at 19%; In-Mold Labels at 13%; Roll-Fed Labels at 9%; Shrink & Stretch Sleeve Labels at 8%; and RFID-Enhanced Labeling at 2%. Multi-Color employs multiple print technologies including flexography, gravure, offset/lithography, digital, and rotary screen printing.

Multi-Color's growth strategy centered on acquisitions. In 2017, the company acquired the labels division of Constantia Flexibles GmbH. In 2019, it merged with W/S Packaging Group. In October 2021, Clayton, Dubilier & Rice acquired the company and merged it with Fort Dearborn Company. The company continued acquisitions between 2022 and 2024, including Flexcoat, Korsini Packaging, Starport Technologies, and Eximpro.

Events Leading to Bankruptcy

The prime label industry experienced significant volatility beginning in 2021. Following heightened demand at the outset of the COVID-19 pandemic, Multi-Color faced rapid cost inflation and significant raw material and labor constraints between 2021 and 2022 due to market and supply chain disruptions. As these issues subsided, a sustained period of customer destocking caused significant volume declines in demand for the company's products. These industry challenges coincided with uncertainty around tariffs and macroeconomic conditions.

The company's efforts to navigate this volatility overlapped with its integration of Fort Dearborn Company and subsequent acquisitions. In response to challenging industry conditions and hyperinflation, Multi-Color implemented pricing increases between 2022 and 2023 and initiated reductions to headcount and inventory. Management turnover and a lack of quality data-driven insights contributed to the business challenges.

The company's financial performance deteriorated significantly. Revenue declined from $3.56 billion in 2022 to $3.06 billion in 2025. Adjusted EBITDA fell from $598 million in 2022 to $409 million in 2025. As of the petition date, the company had approximately $67 million in cash on hand.

On January 15, 2026, Multi-Color elected not to make a $36.2 million interest payment due on its 2027 Unsecured Notes. The 30-day grace period for this payment expires on February 14, 2026.

Prepetition Capital Structure

As of the petition date, Multi-Color had approximately $5.9 billion in aggregate outstanding principal debt. The secured debt totaled $4.788 billion and included a $445 million ABL Facility, a $200 million Cash Flow Revolving Facility, a $1.598 billion U.S. Term Loan Facility, a $569 million European Term Loan Facility, $1.75 billion in various Secured Notes, and $226 million in finance leases and other obligations.

The unsecured debt totaled $1.15 billion, consisting of $690 million in 2027 Unsecured Notes and $460 million in 2029 Unsecured Notes.

The Restructuring Support Agreement and Plan

On January 25, 2026, Multi-Color entered into a Restructuring Support Agreement with Consenting First Lien Lenders holding approximately 72.3% of First Lien Claims and Clayton, Dubilier & Rice as Plan Sponsor. The company began soliciting votes on the prepackaged plan on January 27, 2026, two days before filing for bankruptcy.

The restructuring will provide a $3.9 billion reduction in net debt, adequate capitalization with over $550 million of liquidity at closing, cash savings of approximately $350 million in annual debt service obligations, and a seven-year maturity runway on the new debt.

The plan includes debtor-in-possession financing of up to $657.5 million, comprising $250 million of new money commitments, a 1:1 roll-up of First Lien Secured Claims, a $7.5 million DIP Backstop Premium, and up to $150 million in incremental new money loans.

Treatment of Claims and Interests

Under the plan, ABL Facility Claims will be paid in cash or refinanced. First Lien Secured Claims will receive New Preferred Equity Subscription Rights, New Debt Allocation, Cash Consideration, New Warrants, New Preferred Equity, and New Common Equity. Junior Funded Debt Claims will receive Cash Consideration and New Common Equity.

General Unsecured Claims will be unimpaired and reinstated, meaning these creditors will receive full payment of their allowed claims. Existing Equity Interests will be cancelled with no recovery.

First Day Relief and Timeline

Multi-Color filed various first day motions seeking relief to maintain business operations during the bankruptcy case. The company requested authority to continue using its existing cash management system, pay critical vendors and trade claims, pay employee wages and benefits, maintain insurance policies, continue customer programs, pay taxes and fees, and protect tax attributes including net operating losses.

The company estimates it had approximately $22 million of state net operating losses, approximately $1.5 billion of 163(j) Carryforwards, approximately $400,000 of U.S. federal Capital Loss Carryforwards, approximately $1.3 million of general business credits, and approximately $3.5 million of foreign tax credits as of December 31, 2025.

The restructuring operates on an aggressive timeline. The plan includes milestones for entry of an interim DIP order within three business days of the petition date, entry of a final DIP order within 35 days of the petition date, court approval of a confirmation order within 60 days of the petition date, and a plan effective date within 90 days of the petition date.

Professional Representation

Kirkland & Ellis LLP serves as lead counsel to the debtors, with Cole Schotz P.C. serving as local counsel in New Jersey. The Chief Restructuring Officer is a former Chief Financial Officer of the company who joined in January 2024 and was appointed to the restructuring role in January 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 241 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 United States Bankruptcy Court for the Southern District of Texas issued a memorandum opinion on January 26, 2026, denying International Brotherhood of Teamsters, Local 117's motion for reconsideration of the court's order approving the sale of PokerCo assets to Maverick Gaming LLC. The court rejected the union's arguments that it lacked jurisdiction to rule on successorship under the National Labor Relations Act.

Company Background and Business Operations

RunItOneTime LLC and affiliated debtors are a privately held gaming and entertainment company founded in 2017. The debtors own and operate several card rooms in Washington state and casino hotels in Nevada and Colorado. The PokerCo assets specifically include Washington card rooms known as Aces Poker Lakewood, Aces Poker Mountlake Terrace, Caribbean Casino and Caribbean Cardroom.

As of the petition date, the debtors employed approximately 2,900 workers, with 1,250 represented by Teamsters Local Union Nos. 38, 117, 750 and 839. Approximately 350 workers are employed at the PokerCo facilities, of which approximately 220 employees are unionized and represented by Local 117. The debtors' relationship with Local 117 is governed by a collective bargaining agreement ending February 28, 2027.

Bankruptcy Filing and Sale Process

The debtors filed voluntary Chapter 11 petitions on July 14, 2025, in the Houston Division of the Southern District of Texas bankruptcy court. The debtors continue to operate their businesses as debtors in possession.

On August 1, 2025, the debtors filed a motion for approval of a sale process and bidding procedures, describing the PokerCo assets as a segment to be sold and asserting the sale should be free and clear of liens and claims pursuant to Section 363(f) of the Bankruptcy Code. Following a hearing, the court approved the proposed sale process, noticing procedures and bidding procedures on August 28, 2025.

On September 4, 2025, interested parties including Local 117 were served a notice of sale that stated the assets would be sold "free and clear of all liens, claims, encumbrances and other interests." The notice provided in bold typeface that parties failing to timely file objections would be "forever barred from asserting any Sale Objection, including with respect to the transfer of the Assets free and clear of all liens, claims, encumbrances and other interests."

On September 17, 2025, the debtors filed a notice of auction, which Local 117 acknowledges receiving. The auction was held on September 19, 2025, with the objection deadline set for September 23, 2025. The sale hearing occurred on September 24, 2025, and the court entered the sale order approving the PokerCo sale on that date.

The Insider Sale Transaction

Maverick Gaming LLC was determined to be the successful bidder at the auction with a bid of $28 million in total cash and non-cash consideration. The manager of Maverick Gaming was the debtors' pre-petition chief executive officer and majority shareholder. The sale was considered a sale to an insider.

Given the insider relationship, the debtors took steps to ensure fairness in the sale process. The former chief executive officer was screened from the sale process, was represented by independent counsel, and the entire process was overseen by the Special Committee of the Board and the Unsecured Creditors Committee.

The sale order entered by the court included a provision stating that the buyer is not an "alter-ego of, or a successor to, or a mere continuation of or substantial continuation of" any debtor or its estate, and that there is no continuity of enterprise between the buyer and the debtors as a result of the sale transaction. The order further provided that the buyer would not be deemed a "successor employer" for purposes of the National Labor Relations Act or other federal or state labor laws.

Union's Motion for Reconsideration

On October 8, 2025, Local 117 filed a motion seeking reconsideration of the sale order, specifically contesting the paragraph providing that the buyer is not an alter-ego or successor to any debtor. The union argued it did not object earlier because it did not know the debtors and purchaser were seeking a determination on successorship.

The union advanced three arguments for reconsideration. First, it contended the court exceeded its jurisdiction by ruling on successorship under the National Labor Relations Act. Second, it alleged the court erred in finding that the purchaser is not an alter ego without conducting a factual analysis. Third, it argued that denying its motion would cause manifest injustice by contravening public policy and Section 1113 of the Bankruptcy Code.

The debtors and purchaser objected to the union's motion, arguing that Local 117 waived its ability to object because it received sufficient notice of the sale and hearing. The court held a hearing on the motion on November 19, 2025.

Court's Jurisdiction Analysis

The court began its analysis by addressing whether it had jurisdiction to approve a sale free and clear of successor liability, noting that subject matter jurisdiction cannot be waived by a party's failure to challenge it earlier in proceedings.

The court determined the sale order is a core matter under 28 U.S.C. §§ 157(b)(2)(A) and (N) because an order approving a sale under Section 363 of the Bankruptcy Code can only arise in a bankruptcy case. The Bankruptcy Code gives debtors in possession a substantive right to sell property of the estate, and Section 157(b)(2) explicitly lists "order approving the sale of property" as a core proceeding.

The court found that under Section 363(f), it had authority to approve sales free and clear of successor liability. Although the statute refers only to a sale free and clear of "interests" in property being sold, the court noted that courts have interpreted this provision to more broadly extinguish claims that arise from the property being sold.

The court cited case law from multiple circuits supporting the interpretation that Section 363(f) permits bankruptcy courts to approve sales free and clear of successor liability claims. Sister courts have held that an "interest" under Section 363(f) might encompass various successor liability claims including obligations under labor laws, travel vouchers from discrimination settlements, and licenses for intellectual property.

Sale Order Interpretation and Effects

The court clarified that the sale order does not foreclose liability for the purchaser's post-sale conduct. The order solely transfers assets free and clear of liability for the debtors' pre-sale-closing actions. The court emphasized that the point of Section 363(f) is not to determine who would win or lose successor or alter ego litigation in the future, but rather to allow buyers to purchase assets without the risk of being forced into successorship or alter ego disputes.

The court distinguished cases cited by Local 117, noting that those decisions did not involve Section 363 sales but rather National Labor Relations Board proceedings and Chapter 7 bankruptcies. The court found that in the present case, the successorship determination was made in conjunction with a Section 363 sale and is a collateral issue that influences the value of the PokerCo assets.

The court noted that the sale order makes clear the buyer would not have entered into the transaction and provided the agreed consideration without receiving the assets free and clear of all interests. The court stated that granting the union's motion would have potential negative effects, as purchasers may pay less for debtors' assets without such protections, which runs counter to the Bankruptcy Code's goal of maximizing value.

Court's Ruling on Reconsideration

The court found Local 117 had notice and opportunity to object to the sale but chose not to do so. The union was served with the sale notice on September 4, 2025, as evidenced by an affidavit of service, and acknowledges receiving the auction notice on September 17, 2025. Both notices clearly outlined the debtors' intention to sell assets free and clear of all interests and claims.

The court determined that denying the union's motion would not result in manifest injustice because the union had notice and opportunity to object before the sale order was granted. The court also rejected the union's argument that the ruling would undermine public policy goals of Section 1113 of the Bankruptcy Code, noting that Section 1113 has no relevance to the matter because it provides protections for workers when debtors seek to assume or reject collective bargaining agreements, not when assets are sold.

Regarding the union's assertion that the court did not conduct a factual analysis, the court stated this argument was incorrect. At the sale hearing, the court admitted several pieces of evidence it considered in approving the free and clear sale, including declarations from the debtors' investment banker, an independent director, and the purchaser's manager.

Because the court granted a substantive right provided by the Bankruptcy Code under Section 363(f), and because the union had notice and an opportunity to object, the court concluded the sale order did not contain a clear error of law and denying the motion would not result in manifest injustice. The court denied Local 117's motion for reconsideration.

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 14-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

Shannon Wind owns a 204.1 megawatt wind farm located in Clay County, Texas, in the North Texas region known for strong wind resources. The facility consists of 119 General Electric 1.7-103 wind turbines and began commercial operations in December 2015. The project feeds power into the Electric Reliability Council of Texas grid and connects via transmission lines managed by Oncor Electric Delivery Co.

The company is wholly owned by Shannon Wind Holdings, LLC, which has Class A "tax equity" interests owned by Citicorp North America, Inc. and MidAmerican Wind Tax Equity Holdings, LLC, while Class B interests are owned by Shannon Partnership Holdings, LLC, ultimately controlled by Lotus Infrastructure Partners, a private equity firm focused on energy infrastructure investments.

Shannon Wind operates without employees, relying instead on independent contractors and service providers. GE Vernova International LLC provides operation, monitoring, and maintenance services for the wind turbine generators. Consolidated Asset Management Services provides administrative and asset management services, while Tenaska Power Services Co. acts as the exclusive qualified scheduling entity and energy manager, handling all operational functions with ERCOT and marketing the project's production.

The Energy Hedge Structure and Original Financing

On June 29, 2015, the debtor entered into two key agreements with Citigroup Energy Inc.: the Energy Hedge Agreement - Power and the Energy Hedge Agreement - REC and Capacity. Under the power hedge agreement, Shannon Wind was required to provide a fixed quantity of electricity in exchange for a fixed price of $26.20 per megawatt-hour. The company continues to sell Renewable Energy Certificates generated by the project to CEI at a fixed rate of $0.75 per REC.

The same day, the debtor entered into a Construction Credit Agreement with Citibank providing construction loans not to exceed $212,245,700 along with letter of credit facilities. These obligations were secured by substantially all of the debtor's assets. Shannon Wind satisfied all obligations under the construction facility in December 2015, after which the energy hedge agreements became secured by a first priority lien against substantially all company assets, as well as a pledge of the parent company's membership interests in the debtor.

Like many renewable energy generators, Shannon Wind executed these hedge agreements to lock in predictable cash flow and reduce merchant price risk.

Winter Storm Uri and Its Impact

In February 2021, Texas experienced extreme conditions during Winter Storm Uri, including freezing temperatures and dangerous weather that prompted state and federal disaster declarations and caused widespread power outages. The wind turbines at the Shannon Wind facility suffered significant blade icing that impeded energy production during the storm.

As a result of the storm conditions and widespread outages, ERCOT and the Public Utility Commission of Texas issued orders that raised the market price of electricity to the regulatory ceiling of $9,000 per megawatt-hour. The price increase was intended to reflect the scarcity of supply, incentivizing generators capable of adding supply to do so and encouraging large industrial users to reduce demand. The elevated pricing remained in place for approximately four days.

Because Shannon Wind was producing little or no energy due to the blade icing, the company could not fulfill its obligations to deliver electricity at the fixed hedge price of $26.20 per megawatt-hour. Instead, under the terms of its hedge agreements, the debtor became liable to purchase the required electricity at the regulatory ceiling price of $9,000 per megawatt-hour.

Facing these circumstances, Shannon Wind issued notices to CEI asserting a force majeure event that would excuse its obligations under the energy hedge agreements. However, on March 11, 2021, CEI issued an invoice to Shannon Wind in the amount of $39,486,641.34, calculated primarily based on alleged delivery shortfalls at or by reference to the imposed $9,000 per megawatt-hour pricing during Winter Storm Uri.

Litigation Over Force Majeure and Hedge Obligations

Shannon Wind disputed CEI's invoice but did not have sufficient cash to satisfy the demand for payment. Following the debtor's failure to pay, CEI issued notices of default.

In April 2021, Shannon Wind and its parent company sued CEI in the District Court of Harris County, Texas. In the state court litigation, the companies sought declaratory judgments that Shannon Wind was excused from performing its obligations under the energy hedge agreements due to force majeure, that CEI's $39 million invoice was not calculated properly, that the invoice constituted an unenforceable penalty, that there was no event of default under the agreements, and that CEI's notice of default was not valid. The debtor also asserted a breach of contract claim against CEI.

Given the deadlines in CEI's demands, Shannon Wind requested a temporary restraining order and injunction to stop any enforcement actions pending resolution of the disputes. The state court granted a temporary restraining order but denied the request for a preliminary injunction. The debtor's lawsuit against CEI was ultimately dismissed in February 2023.

Cash Sweep and Failed Negotiations

During the Texas state court litigation, CEI issued additional notices of default to Shannon Wind under the power hedge agreements. On April 13, 2022, CEI exercised remedies under its collateral documents to direct Citibank, as first lien collateral agent, to deliver an account stop notice and take other actions, which resulted in a cash sweep of the collateral accounts totaling approximately $14 million in partial satisfaction of the outstanding amounts.

Following CEI's notices of default, CEI, Citibank, and principals of Lotus engaged in negotiations over the course of several years to resolve the debtor's obligations, including dozens of discussions and exchanges regarding amounts owed and proposals to satisfy the debt. However, the parties never reached agreement on an actionable plan to resolve the dispute.

Appointment of Chief Restructuring Officer and Independent Manager

On September 16, 2025, CEI exercised remedies under its collateral documents to direct Citibank to cause Shannon Wind to approve amendments to the debtor's operating agreement, execute an engagement letter with Accordion Partners, LLC, and retain a chief restructuring officer. The CRO has been focused on day-to-day operations of the project, communicating with stakeholders, and ensuring the company has sufficient cash for operations while considering strategic and financial restructuring alternatives, including a potential sale.

On November 5, 2025, Shannon Wind and CEI entered into a Senior Secured Promissory Note (the Protective Advance Note) to fund the business and operations of the debtor. The obligations under this note total approximately $5 million and are secured by a first-priority lien against substantially all assets of the debtor on a pari passu basis with the lien securing obligations under the energy hedge agreements.

On January 22, 2026, CEI exercised remedies to cause the parent company to appoint an independent manager for Shannon Wind through Redbud New Energy, LLC. The independent manager brings over 30 years of experience in the development, acquisition, commercial execution, and financing of wind, solar, energy storage, and natural gas fired independent power projects, including experience with project-financed assets and matters involving hedging strategies, covenant compliance, and liquidity management in volatile commodity markets.

Capital Structure at Filing

As of the petition date, Shannon Wind's obligations to CEI totaled approximately $108.1 million, consisting of approximately $102.9 million under the Energy Hedge Agreement - Power and approximately $5.1 million under the Protective Advance Note, exclusive of accrued and accruing professional fees and expenses. These obligations are secured by substantially all of the debtor's assets and a pledge of the parent company's membership interests.

Shannon Wind currently has full merchant exposure for its electricity production. Effective September 17, 2025, CEI terminated the Energy Hedge Agreement - Power due to the debtor's failure to satisfy its obligations, though the company continues to sell Renewable Energy Certificates to CEI under the separate REC and capacity agreement.

The Proposed Sale Process

Prior to the petition date, Shannon Wind engaged Nomura Securities International, Inc. as investment banker to assist in the marketing and sale of the debtor or its assets. This process is in early stages, and the company does not have a binding offer from a proposed buyer.

According to the first day declaration, a bankruptcy sale process represents the most efficient means of pursuing a sale free and clear of all claims against the debtor and its assets, thereby maximizing value for all stakeholders. The company is targeting a sale closing within 150 days after the petition date, with a liquidating plan of reorganization or other appropriate relief to follow.

The debtor will be filing a bid procedures motion requesting court approval of the marketing and sale timeline. The company believes this expedited sale process is necessary to bring the Chapter 11 case to a successful conclusion.

First Day Relief Requested

Shannon Wind filed six first day motions seeking various forms of relief intended to stabilize business operations, facilitate efficient administration of the Chapter 11 case, and expedite the restructuring:

Cash Collateral Motion: The debtor seeks authorization to use cash collateral to maintain operations during the bankruptcy case. Shannon Wind and CEI have agreed upon an initial 13-week budget setting forth expected material cash receipts and disbursements. Without approval to use cash collateral, the company would be forced to shut down operations, which would be value destructive and harmful to all interested parties.

Cash Management: Authorization to maintain existing cash management system and honor certain prepetition obligations related thereto, with waivers of certain operating guidelines and suspension of time to comply with Section 345(b) of the Bankruptcy Code.

Utilities: Approval of the debtor's proposed form of adequate assurance of payment to utility companies, establishment of procedures for resolving objections, and prohibition on utilities altering, refusing, or discontinuing service.

Critical Vendors and Lien Claims: Authorization to pay critical vendor claims and lien claims to maintain essential business relationships and operations.

Insurance: Authorization to continue existing insurance policies and pay all obligations with respect thereto to maintain coverage without interruption.

Extension of Time: Extension of time to file schedules and statements of financial affairs.

Litigation Notice Procedures: Approval of notice procedures for litigation claimants and form of notice of commencement of the case.

According to the first day declaration, the relief requested in these motions is necessary to enable Shannon Wind to transition into Chapter 11 with minimal disruption or loss of productivity and value. Without this relief, the company's business and estate would suffer immediate and irreparable harm.

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 16 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 debtor entered bankruptcy between September 14-16, 2025, with approximately $9.57 million in assets against $20.2 million in liabilities, including an administrative claim held by Hallmark Marketing Company LLC resulting from debtor-in-possession financing.

Company Background and Business Operations

The debtor operates as a substantively consolidated group of 41 entities, with 39 entities corresponding to individual brick-and-mortar retail locations in Virginia, one management company overseeing operations, and one entity that formerly operated a Maryland location before selling its assets pre-petition.

All retail locations operate under licenses from Hallmark, not franchise agreements, with the debtor operating the majority of Hallmark "Gold Crown" stores in Virginia. The stores also sell products from more than 100 "Allied" vendors beyond Hallmark-branded merchandise. The business employs approximately 518 people.

All 41 debtor entities are owned by A & S, Inc., a corporation that is not itself in bankruptcy. The owners serve as active management and salaried employees of the debtor.

The debtor's asset base consists primarily of retail inventory valued at more than $7.9 million, with additional assets including $811,411 in office furniture and fixtures, $358,485 in automobiles, less than $500,000 in cash and cash equivalents, and litigation rights of undetermined value.

Capital Structure and Claims

The disclosure statement identifies three secured creditors with priority claims:

Hallmark Marketing Company LLC holds an allowed superpriority administrative claim totaling approximately $6,948,973.85 as of January 5, 2026, plus additional costs, fees, and interest at 11% per annum. This claim arose from a debtor-in-possession financing facility with an original principal amount of $10,720,562 authorized by court order on November 24, 2025. The claim is secured by liens senior to all other creditors except for PNC Bank's interest in specific collateral.

Gold Crown Managers Acceptance Corp holds claims totaling $5,350,168, bifurcated into a secured claim of $2,606,723.41 and an unsecured claim of $2,743,444.59. The secured portion is subordinate to Hallmark's lien and PNC Bank's senior secured claim.

PNC Bank, N.A. holds total claims of $2,950,878.93, divided into a senior secured claim of $543,000 (secured by specific collateral) and an unsecured claim of $2,407,878.93.

The debtor also owes trade creditors, including Ganz USA LLC ($176,606.28), Godiva Chocolatier Inc. ($213,072), and Stonewall Kitchen ($196,308), as well as approximately 40 landlords and more than 100 employees with wage claims.

The Proposed Reorganization Plan

The plan proposes to pay all allowed claims in full through a combination of continued retail operations, potential asset sales, and pursuit of litigation claims. The disclosure statement includes cash flow projections demonstrating the debtor's ability to meet these obligations through 2035.

Payment Structure by Creditor Class:

The plan establishes ten classes of claims with varying payment timelines:

Class 1 addresses PNC Bank's claims, with the $543,000 secured portion to be paid over five years at 8% interest through monthly payments of $13,491.08 beginning December 2026, and the unsecured portion paid between December 2026 and December 2035.

Class 2 encompasses Hallmark's superpriority claim, to be repaid through monthly payments and annual principal reductions. The amended credit agreement extends the maturity date to April 1, 2030, with monthly payments of $67,500 initially, increasing to $70,000 and then $75,000 in later periods. The plan requires mandatory annual principal reduction payments: $1,200,000 in December 2026, $1,800,000 in December 2027, $1,200,000 in December 2028, and $1,000,000 in December 2029. Interest accrues at a fixed rate of 11% per annum.

Class 3 covers Crown MAC's bifurcated claims. The secured portion of $2,606,723.41 will be paid over five years at 8% interest, while the unsecured portion follows the general unsecured creditor payment timeline.

Class 4 addresses real estate lessors, split into assumed leases (Class 4.1) and rejected leases (Class 4.2). Cure payments for assumed leases total $159,600 and will be paid over four months beginning after the plan's effective date. The plan rejects four specific leases, with rejection damages calculated under Section 502(b)(6) of the Bankruptcy Code paid alongside other unsecured claims.

Classes 5 and 6 encompass general unsecured trade creditors and employee wage claims, respectively, to be paid between December 2026 and December 2035 according to a payment schedule designed to accommodate the seasonal nature of the retail business.

Class 7 represents the equity interest of A & S, Inc., which retains ownership but cannot take dividends or distributions until all other classes are paid in full.

Hallmark Release and Anti-Refiling Provisions

The plan includes release provisions for Hallmark Marketing Company LLC and its affiliates. The disclosure statement notes that the debtor investigated potential claims against Hallmark related to pre-petition shipment disruptions but determined that pursuit was inadvisable. The stated justifications include prior compensation from Hallmark for disruptions, Hallmark's agreement to extend payment terms under the plan, the debtor's reliance on Hallmark as both licensor and vendor for ongoing operations, and the desire to emerge from bankruptcy without litigation against a key business partner.

The plan also contains anti-refiling provisions agreed upon with Hallmark. If the debtor or its successors file a subsequent bankruptcy case before the Hallmark claim is retired, the automatic stay will be deemed modified to permit Hallmark to enforce its rights in collateral, and the debtor is enjoined from contesting such relief. The confirmation order will constitute a final order of abstention not subject to review, and the debtor is barred from seeking to have the automatic stay apply to Hallmark's collection efforts against guarantors. These provisions terminate only upon full payment of Hallmark's allowed claim.

Litigation Rights and Additional Recovery Sources

The debtor holds two categories of litigation rights that may provide additional recovery:

Bankruptcy Litigation Rights include preference claims under Section 547 of the Bankruptcy Code against a merchant cash advance entity (approximately $125,000 in potential recoveries) and a private lender (approximately $330,000 in potential recoveries), as well as potential fraudulent conveyance claims against the merchant cash advance entity and automatic stay violation claims against the private lender.

Non-Bankruptcy Litigation Rights consist of claims against purchasers of assets formerly held by the debtor, where the disclosure statement indicates the debtor believes it did not receive full compensation pursuant to asset purchase agreements. The plan appoints a representative of the estate to pursue these claims.

All litigation rights remain subject to liens of secured creditors. The plan does not rely on successful prosecution of these claims for feasibility but provides that any net recoveries would be applied first to litigation expenses, then to Hallmark's remaining claim, and finally to other secured and unsecured creditors according to priority.

Feasibility and Cash Flow Projections

The disclosure statement includes monthly cash flow projections for 2026 and annual projections through 2035 demonstrating the plan's feasibility. The projections show the debtor generating between $41 million and $53.6 million in annual cash receipts, with expense categories including payments to Hallmark and Allied vendors, rent of $480,000 monthly, and payroll costs.

The projections show the ending cash balance dropping to approximately $219,000 in September 2026 before recovering. The annual projections show the ending cash balance growing from approximately $1.1 million in 2026 to $14.5 million by 2035. The projections show positive net cash flow in all years except 2027, which projects a negative cash flow of $419,250.

The plan proposes to fund payments primarily through continued operation of the retail stores, with the cash flow analysis accounting for the seasonal nature of the Hallmark retail business. The debtor may also sell one or more retail locations with Hallmark's written consent, with proceeds applied to plan payments.

Alternative Scenarios and Creditor Recovery

The disclosure statement addresses the consequences of plan rejection or conversion to Chapter 7 liquidation. The debtor asserts that liquidation would result in lower distributions to creditors, with Hallmark likely to recover through its liens on substantially all assets, potentially leaving some recovery for Crown MAC but no funds available for unsecured creditors or landlords seeking cure payments. The disclosure statement estimates that liquidation would provide unsecured creditors with no recovery compared to full payment under the proposed plan.

Plan Implementation and Governance

Upon effectiveness, all debtor assets will vest in LBPO Management LLC as the reorganized debtor, which will continue operations using that entity's existing articles of organization. The plan deems all 41 entities to have merged into the reorganized debtor as of the petition date, eliminating the need to maintain separate corporate existences for the other entities.

The reorganized debtor will execute amended and restated agreements with Hallmark, including a credit agreement, account agreement, trademark sublicense agreement, and Crown Rewards program agreement. Personal guarantees by the owners and their holding company, which existed pre-petition, will continue but with a cap at the guaranteed amounts as of the petition date.

Voting and Confirmation Process

All impaired classes under the plan are entitled to vote. The disclosure statement notes that confirmation requires acceptance by at least one impaired class and that the plan proponent reserves the right to seek confirmation through "cramdown" provisions under Section 1129(b) of the Bankruptcy Code if any class votes against the plan.

The effective date is defined as the first business day following the fourteenth calendar day after entry of the confirmation order.

Treatment of Executory Contracts

The plan assumes substantially all executory contracts and unexpired leases, including leases for improved non-residential real estate, utility contracts, employee agreements, and customer contracts. The plan rejects four specific real estate leases:

• Fairfax Company of Virginia LLC
• Bull Run Plaza LLLC
• South Riding Owner LLC
• Fair City HHH LLC

Landlords under rejected leases hold allowed claims for pre-petition arrearages and rejection damages capped under Section 502(b)(6) of the Bankruptcy Code.

Unclaimed Property Provisions

The plan contains provisions for unclaimed property. If any distribution remains unclaimed for 90 days after delivery or attempted delivery, it will be paid first to other members of the same class until that class is paid in full, then to junior classes until all classes are paid in full. Any remaining unclaimed funds will be donated to the University of Miami School of Law Bankruptcy Clinic to support pro bono bankruptcy services and legal education. The plan authorizes the bankruptcy court to appoint an alternative charitable recipient if circumstances change.

Risk Factors

The disclosure statement identifies several risks to plan implementation:

Market-wide economic risks include potential broad economic downturns that could reduce consumer spending in the retail sector, renewed pandemic outbreaks affecting retail operations, and general vulnerabilities in the retail industry.

Geographic concentration risks stem from the debtor's significant presence in the Washington, DC metropolitan area, making the business vulnerable to prolonged government shutdowns, federal government downsizing, or other disruptions affecting disposable income in that region.

Operational risks include the revocability of Hallmark licenses, potential creation of competing licensed locations near existing stores, and possible brand deterioration affecting Hallmark's market position.

The disclosure statement notes these risks are most relevant during the 2026-2030 period when plan payments to Hallmark are due, with the ending cash balance increasing after 2030 according to the projections.

Dates and Deadlines

The disclosure statement identifies the following dates:

• January 26, 2026: Bar date for non-governmental creditors to file proofs of claim
• March 13, 2026: Bar date for governmental entities to file proofs of claim
• Administrative claims bar date: 30 days after the plan's effective date
• First Class 4.1 payment: First business day of first month after effective date
• First Class 1.1 and 3.1 payments: First business day of first month after effective date
• First unsecured creditor payments: December 2026
• Hallmark maturity date: April 1, 2030 (subject to earlier acceleration upon default)
• Final unsecured payments: December 2035

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 78-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.