Order Approving Ratification Motion
Judge David S. Jones granted the Mountain Express Oil debtors’ motion to ratify the debtors’ prepetition appointment of independent directors at a hearing today, subject to modifications to proposed gatekeeping provisions and the effective date of the approval. The judge overruled the official committee of unsecured creditors’ objection
to the motion, which called the request an “extreme overreach.”
Judge Jones said the motion provided “transparency” and “clarity” to the process of appointing independent directors and opened the process up to “reasonable inquiry.”
The UCC specifically argued that a “gatekeeping provision” in the proposed order which prohibited third parties from bringing claims against the independent directors without bankruptcy court approval and a finding that the “action represents a colorable claim of willful misconduct or gross negligence” improperly exculpated and released the independent directors. Judge Jones retained the gatekeeping provision but removed the “standard of care” language regarding willful misconduct or gross negligence, allowing parties to potentially bring a broader spectrum of claims against the independent directors.
The UCC further argued there was no legal basis for the bankruptcy court to ratify the prepetition conduct of the debtors and that such ratification was unnecessary given the debtors’ corporate governance documents and applicable state law authorized the appointment. Judge Jones modified the order to provide that appointment of the independent directors was approved, “effective as of the petition date,” rather than ratified.
The parties also agreed on a board resolution providing that the determination whether a transaction was “conflicted” and thus within the independent directors’ ambit would be made “solely” by the special transactions committee with the advice of counsel and that meetings of the special transaction committee would occur whenever requested by “any member of the Special Transactions Committee.”
Judge Jones remarked that the parties’ consensual resolution of the corporate governance issues served as a “great example” of why such motions should be filed, notwithstanding the UCC’s argument that the motion was not “necessary.”