Latam Airlines creditors committee objects to bad-faith plan

Chicago, May 3 – Latam Airlines Group, SA’s sixth revised joint plan of reorganization has been objected to by the official committee of unsecured creditors, according to a filing with the U.S. Bankruptcy Court for the Southern District of New York on Monday.

The objection starts by noting that the plan provides different treatments for claims in class 5. Special treatment is given to a subset of preferred creditors. Additionally, Evercore Group was offered the exclusive opportunity to backstop certain rights that was not offered to other creditors in the same class. Moreover, Latam has agreed to pay the Evercore Group even more excess value in the form of an overpayment of the NY law bonds, a substantial portion of which is held by the Evercore Group.

Second, Latam engaged in a proscribed vote-procurement scheme, according to the committee. The committee claims that the debtors improperly solicited and procured plan acceptances before the court’s approval of their disclosure statement in exchange for the full allowance of their claims.

Third, the committee says that the plan represents a “squeeze out” transaction, one in which shareholders strike a deal with a group of preferred creditors to divide the value of the debtor’s business largely among themselves, leaving other creditors with minimal recoveries.

The fourth objection relates to the plan to pay over $700 million in fees to the Evercore Group. The committee asserts that the fees are not reasonable as required by the law.

Fifth, the plan improperly classifies claims and unfairly discriminates among classes of claims. Rather than place all similarly situated claims together in a single class, the plan reflects a “hodge-podge classification scheme significantly designed to discriminate.”

The sixth part of the objection states that Latam has provided a plan that garners as much value as possible for their majority shareholders at the expense of general unsecured claimants. The company’s fiduciary duties, however, are to pursue transactions on the best available market terms in a manner designed to enhance creditor recoveries rather than diminish them.

Seventh, the plan sweeps under the rug fraudulent transfers with two of the company’s major shareholders where the company transferred hundreds of millions of dollars in value and saddled their estates with more than half a billion dollars in additional liabilities.

Latam Airlines is a Santiago, Chile-based airline. The company filed bankruptcy on May 25, 2020 under Chapter 11 case number 20-11254.

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