The Cooley Godward Kronish Bankruptcy & Restructuring group has been involved in several prominent Chapter 11 cases on behalf of equity committees, including shareholder committees in the Seitel, Peregrine Systems, Bush Industries, Revco, Search Financial, Salant Corporation, Johns-Manville and Lionel Corporation cases. In addition, we recently represented RCG Carpathia Master Fund, Performance Capital and Smith Management in connection with their ownership of common stock of Northwestern Corporation.
Representative Cases
Seitel
The debtor in the Seitel case proposed a prepackaged plan of reorganization before the equity committee retained Cooley as counsel. Under that plan, the shareholders’ equity interests would have been extinguished in exchange for $10 million, and a Berkshire Hathaway affiliate would have obtained 100% of the company’s equity in exchange for a portion of its bond debt. Cooley successfully fought the cramdown and was instrumental in the confirmation of a vastly improved alternative plan devised by the Firm’s corporate attorneys, which enabled existing shareholders to retain substantial equity in the reorganized company. As a result, Seitel’s market capitalization soared to over $100 million—more than 10 times the amount offered to shareholders by the debtor in its initial plan proposal.
Peregrine Systems
In the Peregrine Systems case, the Bankruptcy & Restructuring team worked with the Cooley’s litigation attorneys to successfully battle senior bondholders on behalf of the equity committee. Senior bondholders sought to wipe out the shareholders’ pre-petition equity interest. After receiving de minimis offers from the bondholders, the Firm pursued a hard-fought valuation trial in which the court largely adopted the views of the committee concerning the debtor’s valuation. As a result, Peregrine shareholders received 37% of the company’s post-petition equity under the confirmed plan of reorganization. The stock distributed to old equity under that plan had a market value exceeding $100 million.
Lionel
Cooley won an important victory for shareholders in the Lionel case. At the urging of the creditors committee, the debtor requested permission to sell its 82% stock interest in a subsidiary, Dale Electronics. The equity committee, represented by Cooley, opposed the application, asserting that the debtor had not provided adequate justification for the sale of an important asset. After extensive litigation, the U.S. Court of Appeals, Second Circuit rendered a decision in favor of the equity committee, holding that a debtor must show a good business reason—other than appeasement of major creditors—for the sale of a debtor’s property out of the ordinary course of business. The ruling is the leading decision in the country concerning the standard for the sale of a debtor’s assets.
Related practices
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