Relevant Document:Motion
The official committee of unsecured creditors in the Heritage Home chapter 11 cases filed a motion on Tuesday afternoon, Oct. 9, seeking derivative standing to pursue claims on behalf of the debtors’ estates. The committee’s proposed complaint, attached as an exhibit to the motion, seeks declaratory judgments that prepetition lenders PNC and KPS did not perfect their liens with respect to certain prepetition collateral, including certain cash, intellectual property and other assets of the debtors located outside of the U.S. The proposed complaint further seeks “substantive consolidation of the Debtors as a predicate to determine that certain assets are unencumbered and the value of which are available for unsecured creditors.”
In addition, the committee asks the court to grant a short extension of the initial challenge period to permit the UCC to complete its investigation into the debtors’ sales of its Lane and Lane Venture assets, which the motion says “are not directly related to the Lenders’ liens and claims.” According to the proposed order attached to the motion, the UCC proposes that the deadline be extended until 30 days after entry of the order.
The standing motion is scheduled for hearing on Nov. 14 at 2 p.m. ET, with objections due on Oct. 23 at 4 p.m. ET.
As a condition to providing the debtors with
DIP financing, the lenders required the debtors to agree to a number of stipulations in the DIP order, including, among other things, a stipulation that the lenders’ liens are valid and binding and are not subject to challenge, recharacterization, or any other defense, says the motion. According to the motion, after undertaking a comprehensive investigation of the facts and statements in the debtors’ stipulations, as well as the lenders’ liens on and claims against the debtors’ assets,
the UCC uncovered several purported liens and security interests that were not properly perfected and may not be enforceable.
In the proposed complaint, the UCC asserts the following claims, which if successful would yield “substantial benefits” for the estates and their creditors, the motion says:
- Count I seeks a judgment that, as of the petition date, the prepetition lenders did not perfect their security interests in any of the debtors’ assets located outside the U.S., including “at least (i) $3.8 million in finished goods owned by Heritage and located at HHG Vietnam, and (ii) $10.8 million in materials owned by Heritage and located at HHG Mexico,” and that those assets are therefore unencumbered assets of the estates.
- Count II seeks a judgment that, as of the petition date, the prepetition lenders did not perfect their security interests in any of the debtors’ non-PNC Bank deposit accounts, and that those assets are therefore unencumbered assets of the estates.
- Count III seeks a judgment that, as of the petition date, the prepetition lenders did not receive perfected security interest in the debtors’ recorded and pending domestic copyrights, and that those assets are therefore unencumbered assets of the estates.
- Count IV seeks substantive consolidation of the debtors’ assets and liabilities.
According to the motion, the UCC demanded that the debtors commence an adversary proceeding against the lenders, and the debtors refused “with a reservation to challenge [the] colorability of such claims.” The UCC maintains that it has satisfied the legal standards for obtaining derivative standing.
With respect to its investigation of the Lane and Lane Venture transactions, the UCC expresses its belief that the “potential issues may sound in affirmative relief against PNC for which the Committee does not require derivative standing to pursue.” The motion explains that the UCC requests the challenge-period extension against PNC “[i]n an abundance of caution.” According to the motion, “substantially all if not all of the proceeds” of the debtors’ sales of their Lane business for more than $25 million and their Lane Venture business for more than $15 million went to PNC.
The committee also notes that it continues to investigate other potential claims against KPS and may file a separate motion for standing to bring those claims.