U.S. Trustee says Residential Capital disclosure statement incomplete

By Jim Witters

Wilmington, Del., Aug. 9 - Residential Capital, LLC's disclosure statement for the joint plan of reorganization is incomplete and describes a plan that contains provisions incompatible with the bankruptcy code, the U.S. Trustee says in an Aug. 8 filing with the U.S. Bankruptcy Court for the Southern District of New York.

Specifically, the plan requires impermissible payments for the reimbursement of legal expenses for certain creditors that do not meet the requirements of the code, according to Tracy Hope Davis, Region 2 trustee.

"Unless these provisions are removed from the plan, the plan is not confirmable and neither the plan nor the disclosure statement may be approved," Davis wrote.

The debtor also should be required to include in the disclosure statement:

• The identity of all parties for which the plan provides for reimbursement of fees and expenses and the legal and factual bases for those not seeking prior court approval for payment;

• The legal and factual bases for the proposed partial substantive consolidation of the debtors;

• The proposed non-debtor third-party releases, exculpation provisions, limitations of liability and injunction; and

• Each debtor's obligation to pay U.S. Trustee fees and to separately report its disbursements.

A hearing for approval of the disclosure statement is scheduled for Aug. 21.

Residential Capital, a New York-based mortgage originator and servicer, filed for bankruptcy on May 14, 2012. Its case number is 12-12020.

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