Oldcastle Building Envelope Objects to "Hurried Sale" of Vitro SAB U.S. Companies
May 3, 2011
Oldcastle Building Envelope (OBE) filed an objection yesterday to the “hurried sale” of Vitro SAB’s U.S. companies’ businesses. The objection was filed with the U.S. Bankruptcy Court Northern District of Texas, Fort Worth Division. According to the documents OBE’s principal objection is that the proposed purchase price does not appear sufficient to pay its gap claim, which is required to be paid in full pursuant to 11 U.S.C. §1129(a)(9)(A). The objection notes that “the Motions substantially fail to comply with this Court’s Standing Guidelines for Early Disposition of Assets in Chapter 11 Cases. If the Bid Procedures Motion is granted and the Court ultimately refuses to approve the sale because of the objections set forth … the estates will unnecessarily be saddled with a [3 percent] breakup fee of $1,320,000 plus a $250,000 expense reimbursement.” The objection goes on to say that “if granted, the Motions result in a de facto substantive consolidation of four separate debtors which may result in severe prejudice to the creditors of any one particular entity.”
Last month Vitro America LLC in Memphis, Tenn., announced that it and three o ther U.S. indirect subsidiaries of Mexican glassmaker Vitro, S.A.B. de C.V. filed a motion asking the U.S. Bankruptcy Court for the Northern District of Texas to enter orders for relief for the four subsidiaries under Chapter 11 of the U.S. Bankruptcy Code. They also entered into an agreement to sell substantially all of the assets of Vitro America and Super Sky to an affiliate of Grey Mountain Partners LLC, a private equity firm based in Boulder, Colo.
In its objection, OBE says it supplied Vitro with approximately $500,000 of trade credit for a period of five months after the involuntary petitions were filed. “Thus, [OBE] holds a Section 502(f) gap period claim (Gap Claim) against the Debtors in the approximate amount of $500,000 and may hold a small amount of pre-petition claims.”
The documents note that Vitro is seeking to sell substantially all of its assets via an auction to be held on June 1, 2011, fewer than 60 days from entry of the Order for Relief, April 6, 2011. The objection states that “such quick sales are subject to this Court’s Standing Guidelines for Early Disposition of Assets in Chapter 11 Cases. The Asset Purchase Agreement (APA) proposes to sell substantially all of the assets of four separate debtors to an entity known as Vitro American Acquisition Corporation.”
In its objection OBE also says a number of problems exist with respect to the APA, some of which include:
- There is no disclosure of the principals behind this entity;
- The APA calls for a purchase price of $44 million including the assumption of certain liabilities subject to various caps, but there is no way to tell precisely which liabilities will be assumed;
- There is also no way to tell if the purchaser will have the financial wherewithal to pay the assumed liabilities;
- The purchased assets include cash held by the Debtors;
- Other than “boilerplate language” stating that the assets were marketed prior to the order for relief, there is no indication how the $44 million purchase price was determined or whether it is a fair price;
- There is no indication in the APA how the $44 million is to be allocated among the Debtors and no indication how or if any creditor other than the Bank of America will be paid.
The objection also notes that to date, none of the Debtors have filed schedules, statements of financial affairs or even a monthly operating report. Absent these key documents, it is impossible for creditors to determine if the sale makes sense or will generate sufficient proceeds to pay their claims.
Also in its objection, OBE claims it is being denied the following protections provided for in Chapter 11
- Section 1125 disclosure. The Motions fail to contain any information sufficient to enable OBE to determine if the proposed sale is a good deal; and
- Section 1129(a)(9). The Motions fail to provide for the payment in full of Section 502(g) priority gap claims.
In addition, the document also notes that “The APA calls for the sale of substantially all assets of all four Debtors without any allocation of the purchase price. Section 3.7 of APA provides for the purchase price to be allocated by the Purchaser 180 days after closing. Assuming, the Debtors follow up with a liquidating Chapter 11 plan or even convert to Chapter 7, how is the Court going to determine allocation of the purchase price after the sale is complete? Absent a proper allocation, how is the court to determine how much is paid to the creditors of each particular Debtor? Ultimately, it will be impossible to properly allocate the purchase price and the Court will be left with no choice but to create a general pool of funds to be shared pro rata by the creditors of all four entities.