Medley committee drafts own plan, seeks termination of exclusivity

By Sarah Lizee

Olympia, Wash., July 2 – Medley LLC’s official committee of unsecured creditors is seeking termination of the debtor’s exclusive periods to file and solicit votes on a Chapter 11 plan of reorganization, as well as approval to file its own plan of liquidation, according to a motion filed Thursday with the U.S. Bankruptcy Court for the District of Delaware.

“From the outset, the unfortunate truth of this Chapter 11 case is that it has been run for the benefit of the debtor’s insiders rather than for the debtor’s general unsecured creditors,” the committee said in its motion.

“This was made clear from the terms of the unconfirmable, and since withdrawn, initial plan filed at the outset of the case, which was designed primarily to allow the debtor’s parent company MDLY and its principals, Brook Taube and Seth Taube, to maintain control of the reorganized debtor in contravention of the absolute priority rule.”

The committee said it was made “even clearer” this past week when the debtor filed an amended cash management motion.

“The proposed changes to the cash management order provide no benefit to the debtor and its estate. Rather, their sole purpose cedes control of the debtor’s Chapter 11 case to another insider, Medley Capital,” the committee said.

The group said it will file an objection to the amended cash management motion soon.

The committee said the proposed cash management order would eliminate the ability of both the committee and the court to exercise oversight regarding any cash expenditure of the consolidated Medley companies.

In addition to converting all funds in the debtor’s estate to property of Medley Capital, the amended cash management motion would, among other things, allow all of Medley Capital’s claims against the debtor as administrative expenses regardless of whether such claims provide an actual and necessary benefit to the debtor’s estate, divert to Medley Capital all income streams from the debtor’s revenue-generating subsidiaries that currently flow to the debtor under the terms of the cash management order, and require the debtor to adhere to a budget that Medley Capital controls.

The committee said its plan is structured to maximize the possibility of achieving a meaningful return for unsecured creditors through the pursuit of claims against the Taube brothers and other insiders.

It would pay administrative and priority claims in full and provide a minimum of $500,000 to establish the liquidating trust, which would proceed with causes of action including the potential recovery of the material transfers made during the period between 2017 and 2019 on account of the debtor’s membership interests at a time when the debtor may have been insolvent, and potential claims for breach of fiduciary duties.

The liquidating trustee and any oversight board would be selected by the committee.

“The committee plan provides a structure for liquidating the debtor’s assets through a straightforward plan of liquidation which would provide creditors with far better treatment than they will likely receive in connection with a plan dictated by Medley Capital for the benefit of insiders of the debtor or in the event of conversion,” the committee said.

A hearing is scheduled for Aug. 12.

New York-based Medley is an alternative asset management firm offering yield solutions to retail and institutional investors. The company filed bankruptcy on March 7 under Chapter 11 case number 21-10526.

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