Below is a draft letter requesting an equity committee. The procedure is that if the trustee declines, then you can make a motion to the judge to order appointment. Let me know if you would want to add your name to the letter. Thanks.
August 29, 2012
Nancy L. Holley, Attorney
Office of the U.S. Trustee
515 Rusk, Ste. 3516
Houston, TX 77002
Re: In re ATP Oil & Gas Corporation, Case No. 12-36187-H1-11;
Request for Appointment of Committee representing Equity Shareholders
Dear Ms. Holley:
The purpose of this letter is to request that the U.S. Trustee appoint an official committee to represent the interests of shareholders (both common and preferred) in the above-entitled Chapter 11 case. As shareholders of ATP, we believe that the appointment of an official equity committee is necessary because (1) ATP’s listed assets exceed ATP’s liabilities, (2) ATP’s prospective (but not yet producing) assets significantly exceed the assets listed by ATP in its voluntary petition, and thus present the potential for a significant remaining recovery to ATP’s equity shareholders if the value to the equity shareholders is preserved and not wasted in the bankruptcy proceedings, and (4) the equity shareholders’ interests conflict with, and are not adequately represented by, the committee of unsecured creditors. We believe the law supports our request for the appointment of an equity committee. Some comments on the points above are presented with more detail below.
Section 11 U.S.C. 1102(a)(1) provides that “as soon as practicable after the order for relief under chapter 11 of this title, the United States trustee shall appoint a committee of creditors holding unsecured claims and may appoint additional committees … of equity security holders as the United States trustee deems appropriate.” Appointment of a committee of equity security holders is particularly appropriate in the Chapter 11 case of ATP because of ATP’s likely solvency and the need for adequate representation of shareholder interests to preserve the potential remaining value of ATP’s estate after satisfaction of ATP’s creditors.
Should the U.S. Trustee decline to appoint an equity committee, a shareholder may ask the court to order the appointment of an equity committee under 11 U.S.C. 1102(a)(2). In the event, the court considers the following factors:
“Courts have applied the following factors in determining whether to appoint an equity committee under section 1102(a)(2): (i) whether Debtors are likely to prove solvent, (ii) whether equity is adequately represented by stakeholders already at the table; (iii) the complexity of the Debtors’ cases, and (iv) the likely cost to Debtors’ estates of an equity committee.”
In re Pilgrim’s Pride Corporation, 407 B.R. 211, 216 (B.R. N.D.Tx. 2009). In the Pilgrim’s Pride case, as here, the debtors’ statements and schedules at filing showed assets that exceeded liabilities. Id. at 214. The court in Pilgrim’s Pride of course recognized that the debtor had been losing money and that some assets could “prove illusory.” Id. at 217. However, the court granted the appointment of an equity committee, reasoning that while “appointment of an equity committee should be denied in cases where there is no doubt about the debtor’s insolvency; in cases like the one at bar, the court should not disfavor equity.” Id. at 217 n. 15. Similarly, other courts have held that denial of an equity committee based on insolvency of the debtor should only occur if the debtor is “hopelessly insolvent,” meaning the equity shareholders have effectively no chance of recovery after reorganization. See In re Wang Laboratories, Inc., 149 B.R. 1, 6 (Bankr. E.D.Mass. 1992), citing In re Emons Industries, Inc., 50 Bankr. 692, 694 (Bankr. S.D. N.Y. 1985); In re Williams Communications Group, Inc., 281 B.R. 216, 220 (Bankr. S.D. N.Y. 2002).
Here, ATP is clearly not “hopelessly insolvent.” First, ATP’s listed assets at the time of filing exceeded its listed liabilities. Additionally, ATP successfully obtained DIP financing to continue operations to place at least one additional oil well in production which will further significantly increase ATP’s assets. ATP also has significant prospective and probable oil and gas resources that have potentially billions of dollars in value not reflected in ATP’s listing of existing assets. ATP’s investor presentation prior to filing Chapter 11 listed ATP’s assets, including probable oil and gas reserves, at $7.3 billion dollars, more than twice ATP’s listed liabilities. This does not include ATP’s discoveries in Israel, which also hold promise. In short, ATP has the potential to provide a return to shareholders after reorganization.
ATP’s shareholders need adequate representation of their interests, to avoid undervaluing of ATP in reorganization. In a similar case, the Pilgrim’s Pride court ruled that shareholders are not adequately represented by the unsecured creditors or management (even equity-owning management). Id. at 218. As the court stated, “it is hardly likely that the [unsecured creditors] will be disposed to value Debtors so liberally that equity may be sure to receive its due.” Id. The court noted the prior example of In re Mirant Corp., where “the debtors had concurred with the creditors’ committees in valuing the debtors at 75% or less of what the market, following plan confirmation, concluded they were really worth.” Id. This is because the unsecured creditors have a natural incentive to undervalue the debtor, while the debtors’ management “are likely to be constrained to accept and advocate to the court a conservative value for their business in order to obtain creditor assent to a reorganization plan.” Id. at 218-19. The same situation exists in the present case with ATP; without appointment of an equity committee to provide adequate representation for shareholders, the unsecured creditors and ATP management will likely undervalue ATP in reorganization to the detriment of ATP’s shareholders.
We therefore believe that an equity committee needs to be appointed. We further believe that the cost of the equity committee is appropriately paid from the debtor’s estate, as the equity committee will be of value to the reorganization process and the cost of an equity committee would be outweighed by the benefit it would bring to the reorganization process. Pilgrim’s Pride, at 221.
The ATP shareholders listed below hold preferred and/or common shares of ATP. At this time, we would accept either a common equity committee representing both preferred and common shares, or separate representation of the preferred and common shareholders.
Thank you for your attention to this matter.
Sincerely,
David Read, ATP Shareholder
[address]
[add signatures for other shareholders]
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