Synergy creditors committee and U.S. Trustee object to plan releases

By Caroline Salls

Pittsburgh, March 5 – Synergy Pharmaceuticals Inc.’s disclosure statement for its plan of reorganization drew objections Tuesday from the official committee of unsecured creditors appointed for its Chapter 11 case and the U.S. Trustee overseeing the case, according to filings with the U.S. Bankruptcy Court for the Southern District of New York.

The committee said in its objection that “the disclosure statement should not be approved because the plan is patently unconfirmable and solicitation of the plan would simply be a waste of estate resources.”

The committee said it will recommend that all unsecured creditors vote to reject the plan because of what it called preferential treatment afforded under the plan to Synergy’s directors and officers.

Specifically, the creditor group said the plan seeks to release valuable causes of action against the directors and officers and to mandate that the estate continue payment in full of the indemnification liabilities of the directors and officers.

“The committee believes there are valuable causes of action against the debtors’ directors and officers, and indeed the committee’s view on potential recovery on these claims was a key consideration in formulating the settlement with the pre-petition secured lenders,” the committee’s objection said.

The committee said Synergy does not have any reason to release these claims.

“Given the committee members themselves hold over 33.3% of the unsecured creditor claim class, the plan cannot possibly be accepted by an impaired class of creditors” as required under the Bankruptcy Code, the committee’s objection said.

Meanwhile, Region 2 U.S. Trustee William K. Harrington said in his objection that the disclosure statement fails to provide the bases for “overly broad release, exculpation and injunction provisions.”

Harrington said the disclosure statement proposes the appointment of an independent director to investigate causes of action against current directors and officers, but the plan potentially releases these same directors and officers even before the investigation is complete.

The disclosure statement hearing is scheduled for March 12.

Synergy is a New York-based biopharmaceutical company focused on the development and commercialization of novel gastrointestinal therapies. The company filed bankruptcy on Dec. 12 under Chapter 11 case number 18-14010.

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