Fedders' U.S. Trustee objects to proposal to allow secured creditors to trade company securities

By Reshmi Basu

New York, Sept. 14 - Fedders Corp.'s U.S. Trustee objected to a proposal that would allow certain secured creditors to trade company securities, according to a Friday filing with the U.S. Bankruptcy Court for the District of Delaware.

The creditors are seeking a court order that allows them to make trades without violating their duties as committee members. As part of the proposal, the creditors designed an ethical wall, which they said would prevent the misuse of any material nonpublic information that may be obtained through activities as a committee member.

However, the trustee said the plan does not go far enough to preserve the committee members' fiduciary duties and has asked the court to deny the motion unless additional protective measures are included, according to the objection.

As previously reported, the creditors committee ethical wall procedures include:

• Written acknowledgement by personnel performing committee work that they may receive non-public information and that they are aware of the ethical wall procedures;

• A ban on the sharing of non-public committee information with certain other employees;

• Non-public information generated by committee work will be inaccessible to other employees;

• Restrictions on committee personnel's access to trading information; and

• A compliance review process.

Meanwhile the trustee's proposal seeks to expound upon the creditors' proposed "efficacious" procedures, according to the court document.

Additional measures under the trustee's proposal include:

• Members will file a declaration with the court and a letter acknowledging that they are aware of the information blocking procedures and that they will abide by them and will inform the trustee if the procedures are materially breached;

• Committee personnel will maintain all hard copies containing information in secured cabinets inaccessible to other employees. And the committee personnel will have office spaces separate from other employees;

• Committee personnel will not receive any information regarding committee members' trades in advance of the execution of such trades; and

• Members will provide a declaration on a quarterly basis to committee counsel and the trustee as well as file an initial certification of the amount and types of claims against interest in Fedders.

A hearing is scheduled for Sept. 20.

Fedders, a Liberty Corner, N.J., producer and marketer of air treatment products, filed for bankruptcy on Aug. 21. Its Chapter 11 case number is 07-11176.

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