Life Partners Investors Say Trustee Derailing Ch. 11 Plan By Kali Hays
Law360, New York (February 9, 2016, 9:19 PM ET) -- Multiple creditors of Life Partners Holdings Inc. on Monday came out against its current Chapter 11 reorganization plan, with one informal group of investors telling a Texas bankruptcy court the estate trustee essentially forced their objection by insisting that he be appointed to control several trusts proposed in the plan.
The creditor group, composed of smaller-scale investors in Life Partners, which acquires unneeded life insurance policies and sells fractional interests back to investors, said progress with the proposed plan has stalled due to the “remarkable” demand by estate trustee H. Thomas Moran II that he continue to administer at least one of the creditor trusts after the plan is confirmed.
While the investors initially supported the plan when it was filed in December, they said Monday that Moran is now trying to secure “a lucrative post-petition position” of continued involvement in the estate even though plan supporters have held all along that new trustee positions are to be filled “in a full, fair, competitive process.”
Moreover, the investors said, an amended plan disclosure statement still lacks some needed information, including who will actually be in charge of the trusts post-confirmation, how any trustees that have been appointed were selected and whether or not they are free of conflict or disinterested, according to the objection.
“Without this basic and necessary information, the [investors] are being asked to vote on a plan that fails to identify who will be in charge of protecting and managing their investment.”
The investors went on to claim that their repeated demands that Moran disclose and conduct a fair and competitive selection process for appointing post-confirmation creditor trustees have been refused, saying “the only candidate for either position [Moran] has been willing to propose is himself.”
Another group of objecting investors on Monday said the new disclosure statement “bur[ies] the high cost” of the plan, including an explanation of $125 million in professional and administration fees and a new proposal of up to $28 million in trustee compensation.
Life Partners filed for bankruptcy protection in January 2015 in an effort to buy time while it appeals a $47 million judgment the SEC secured in a jury trial over allegations that the company understated the life expectancy of insurance policyholders to attract investors.
The proposed reorganization plan settles the issue of who is the beneficial equitable owner of the policies, according to the disclosure statement, as many holders of fractional positions in the policies claim they, not Life Partners, own the policies.
Moran, who has claimed Life Partners operated a sprawling scheme to defraud investors, holds that the company’s assets consist primarily of interests in the life insurance policies, which together have a face value of $2.4 billion.
However, the ownership issue is potentially resolved by providing all current position holders with the opportunity to choose one of three alternatives for the treatment of each fractional investment they hold. They can either choose to make a contribution and be confirmed as the owner of a fractional interest, contribute the fractional position to a position holder trust in exchange for an interest, or rescind their purchase of the fractional position and receive an interest in the creditors’ trust.
While the objecting investors initially supported the proposal, they’ve now urged the court to deny the amended disclosure statement since they claim investors are being left in the dark and will likely proceed to vote against the plan.
“The trustee has insisted on driving these cases solo, but his efforts will be for naught if he cannot put together a consenting impaired class,” the investors said.
Counsel for the investors and Moran could not be reached late Tuesday for comment.
Moran is represented by David M. Bennett, Richard B. Roper and Katharine Battaia Clark of Thompson & Knight LLP.
Counsel for the objecting investors include Sam Stricklin, Brian N. Hail and Laura Fontaine of Gruber Elrod Johansen Hail Shank LLP, Jeffrey R. Erler of Erler PC, H. Jefferson LeForce of LeForce Law PLLC and Robert R. Burford and Brent C. Perry of Burford Perry LLP.
The case is In re: Life Partners Holdings Inc., case number 4:15-bk-40289, in the U.S. Bankruptcy Court for the Northern District of Texas.
--Additional reporting by Emily Field and Stewart Bishop. Editing by Mark Lebetkin.
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