Mediating Pre-Packaged Plan Disputes: a Recent Example

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A different kind of pre-packaged plan (photo by Marilyn Swanson)

By Donald L. Swanson

Who would ever think that mediation could serve an important role in pre-packaged Chapter 11 cases?

–After all, the essence of a pre-packaged plan is speed: all major issues are supposed to be resolved in advance of the bankruptcy filing so the plan can move promptly to confirmation.

But disputes do arise in pre-packaged cases, despite best efforts to resolve all disputes before the bankruptcy filing.  And these disputes slow things down.

A Pre-Packaged Case — With Mediation

In a recent pre-packaged case, mediation plays a crucial role in confirming the pre-packaged plan. The case is In re Hercules Offshore, Inc., Case No. 16-11385, in the Delaware Bankruptcy Court.

Hercules supplies offshore jackrigs and liftboats to the oil industry in the Gulf of Mexico and around the world. Hercules’s business has been suffering over the last couple years as crude oil prices drop from $100 per barrel in 2014, to $52 per barrel in July 2015, to just under $30 per barrel in early 2016.  Prices have since recovered to $50+ per barrel in December 2016.

Hercules files its first-of-two prepackaged Chapter 11 cases on August 13, 2015, and confirms its first pre-packaged plan on September 24, 2015.

With further declines in crude oil prices into 2016, Hercules needs a second reorganization and files its second pre-packaged Chapter 11 case on June 5, 2016.

The Mediation

Significant disputes surface in the second pre-packaged case, and the Bankruptcy Court refers the disputes to mediation on August 17, 2016. The mediation efforts resolve nearly all disputes, except that the equity class still wants to pursue claims against the Hercules directors for their actions in dealing with financial difficulties.  The plan releases such claims.

Following a confirmation trial, the Bankruptcy Judge confirms the mediated plan on November 15, 2016, and finds that the directors acted properly amid difficult circumstances. No appeal is filed, so confirmation of the mediated plan is final.

A Lesson from the Hercules Case

Even in a fast-paced pre-packaged plan context, mediation can be an effective tool for dealing with and resolving confirmation disputes.
In fact, the need-for-speed is precisely why mediation can be crucial and effective in pre-packaged contexts.

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