Extended Stay's U.S. Trustee objects to company's reorganization plan

By Jennifer Lanning Drey

Portland, Ore., July 7 - Extended Stay Inc.'s U.S. Trustee objected to the company's amended plan of reorganization and said the plan is not in the best interest of its creditors, according to a Wednesday filing with the U.S. Bankruptcy Court for the Southern District of New York.

U.S. Trustee Tracy Hope Davis said the plan should not be confirmed because it contains improper non-debtor releases that include releases for gross negligence, willful misconduct and breach of fiduciary duty.

However, no justification for the non-debtor releases is provided in the plan, the trustee said.

The released parties include HVM and affiliated parties, according to the filing. HVM manages the company's hotels.

Additionally, Davis said that under the plan, distributions to unsecured creditors are limited to the proceeds of causes of action placed into a litigation trust, but not all causes of action are placed into a litigation trust.

Specifically, the trustee said no causes of action against HVM were placed into the trust. The non-debtor releases also limit the causes of action creditors may bring, the trustee said.

As a result, unsecured creditors will receive less under the plan than if the company's case was converted to Chapter 7 bankruptcy, Davis said.

Extended Stay's plan confirmation hearing is scheduled for July 20.

Extended Stay, a New York-based owner and operator of mid-priced extended stay hotels, filed for bankruptcy on June 15, 2009. Its Chapter 11 case number is 09-13764.

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