In a dramatic turn, a Texas federal judge has unraveled key portions of ConvergeOne’s Chapter 11 plan, finding that an exclusive equity backstop opportunity given to certain secured lenders crossed the line of bankruptcy law’s equal treatment rules.
Unequal Opportunity Sparks Reversal
U.S. District Judge Andrew S. Hanen ruled Thursday that the plan’s equity rights pool—earmarked for a majority of first-lien lenders who backstopped a $245 million rights offering—violated Section 1123(a)(4) of the Bankruptcy Code, which requires creditors of the same class to be treated alike.
By limiting the lucrative backstop role to just one faction, the judge said, ConvergeOne’s plan created an imbalance that left minority lenders in the dust. He noted the equity opportunity was neither market-tested nor opened to all first-lien creditors.
“The plan offered a valuable and exclusive opportunity to backstop an equity rights offering for a portion of the class of creditors, but not the remaining creditors,” Judge Hanen wrote, overturning parts of the earlier confirmation order.
The matter now returns to the Southern District of Texas bankruptcy court for amendments.
