Copia Liquidation Settlement Faces Opposition

Copia has reached a liquidation settlement with its secured creditors, but faces stiff opposition from an organization which feels that a valuable litigation option has been overlooked. A hearing on the settlement has been set for 10 a.m., March 6.

SETTLEMENT WOULD PAY EMPLOYEE, TAX CLAIMS PLUS 5% FOR UNSECURED CREDITORS

The Bank of New York Mellon, N.A. and ACA Financial Guaranty Corporation hold a first trust deed on Copia’s real estate and other financial guarantees in exchange for underwriting revenue bonds totaling more than $77.6 million.

Copia’s total assets are estimated in court documents to be worth about half of that amount. This means, in essence, that the secured creditors could seize all Copia’s assets, leaving nothing for unpaid employee salaries, taxes or unsecured creditors.

However, according to documents filed with the court,  the proposed settlement will provide a “carve out” of $465,349 “as a gesture of goodwill to the local community to ensure payment of priority wage and employee benefit and consumer deposit claims and the costs of an orderly wind-down of the debtor.” The disclosure statement estimates that unsecured creditors will also get about five cents on the dollar for their claims.

The funds will come from the previous sale of artwork as well as all of Copia’s wine inventory, furniture, fixtures and equipment. The disclosure statement states that Copia has already begun the sale process and expects it to be completed in 30 to 60 days.

In exchange for the carve-out funds, Copia will agree to waive all claims it may hold against the lenders or related parties.

COPIA SAYS THE SETTLEMENT IS BEST FOR ALL PARTIES

According to the Copia filing, “the proposed Settlement is in the best interest of creditors of the estate. Absent the Settlement, there is a high probability that the Debtor would have zero funds to pay administrative, priority, and unsecured creditors.

“Additionally, an important component of the settlement is that the Secured Creditors are waiving their unsecured deficiency claim, [the difference between the loan and the proceeds from selling the real estate] which the Debtor estimates could exceed $50 million, and would dwarf any return to the other unsecured creditors even if there were some viable alternate source of recovery to the Estate.”

COPIA CLAIMS LLC CHARGES THAT COPIA HAS OVERLOOKED A VALUABLE ALTERNATIVE

According to court documents, San Francisco-based Copia Claims LLC, a subsidiary of Ferry Claims LLC, has filed objections to the settlement.

Copia Claims was able to intervene in the bankruptcy proceedings because it purchased the existing claim of Hulberg & Associates, an unsecured creditor owed, according to its own prior court filings, approximately $12,000. The San Jose based real estate appraisal company (which appraised the Copia real estate in 2008) sold its claim to Copia Claims, LLC, for a reported $4,000.

According to his declaration filed with the court, San Francisco attorney William McGrane — who represents both Ferry and Copia Claims — asserts that the refinancing of Copia’s bond debt was flawed and that as much as $65 million could be recovered in associated litigation from the Bank of New York Mellon, N.A.

According to McGrane and the Copia Claims documents, when Copia’s original bond debt was refinanced in 2007, the process was never formally completed.

As a result, the documents assert that a “$70 million cash transfer to Bank of New York Mellon, N.A. was a statutory ‘fraudulent transfer’ because the 1999 bonds were never retired, are still trading, and the debtor therefore did not get reasonably equivalent value for its $70 million cash transfer.”

In effect, documents filed by Copia Claims (the creditor)  say that, Copia (the debtor), is still liable on both sets of bonds — the 1999 bonds and the 2007 bonds.

BOND LITIGATION TURNS ON OPINION LETTER

According to Copia Claims’s objection, the terms of the 1999 bonds specifically required a legal opinion letter, “to the effect that the escrow deposit will not constitute a voidable preference or transfer under the bankruptcy code….”

The Copia Claims’s objection filing asserts that the letter which was issued did not fulfill the requirements because it was too equivocal.

The nuanced language was necessary, the filing claims, “by the very unusual fact that the debtor was already insolvent by mid-2007, despite its part in raising such a large sum of money as $77,000,000 in the public securities market.

“Accordingly, it (Orrick [the law firm issuing the letter]) was doubtlessly acutely aware of the difference between the cautious language of its August 24, 2007 preferential transfer opinion letter and the comprehensive language required by the 1999 Indenture.”

5 PERCENT IN HAND VERSUS 20 TO 60 PERCENT IN THE BUSH?

If litigation against Bank of New York, ACA and the associated law firms were successful, the Copia Claims objection document asserts that the return to unsecured investors would be 20 to 60 percent rather than 5 percent under the settlement agreement.

McGrane calls the case a “slam dunk.”

Copia attorney John MacConaghy thinks otherwise.

In a series of contentious emails between the two attorneys (included by McGrane in his declaration), MacConaghy countered that, “This idea will not put money on the table for unsecured creditors; it will result in tons of money being spent on lawyers.”