WorldSpace wins court approval to convert Chapter 11 case to Chapter 7

By Jim Witters

Wilmington, Del., June 12 - WorldSpace, Inc. won court approval to convert its Chapter 11 bankruptcy case to Chapter 7 during a June 12 hearing in the U.S. Bankruptcy Court for the District of Delaware.

With less than $10,000 remaining in the estate, WorldSpace argued that it is unable to propose or confirm a plan of reorganization.

Thomas Macauley, representing former WorldSpace employee Mathewkutty Sebastian, objected to the conversion, saying his client is owed $170,000 in back pay and expense reimbursements.

Macauley proposed that the case remain in Chapter 11 and someone review all the disbursements made since the completion of the company's June 2010 $5.5 million asset sale to Yazmi USA LLC.

At issue is what Macauley called the "opaque" public record, which holds few details of who received payments and in what amounts.

Macauley sought to plop all the paid and unpaid administrative claims back into a pot and pay them pro rata with the total funds initially available following the asset sale. He estimated that amount was $3 million.

Debtors attorney Andrew V. Tenzer said all the payments made by the estate were approved by the court and it would be highly impractical to try to retrieve those payments, then begin the disbursement process anew.

Mark Kenney, representing the U.S. trustee's office, said the process Macauley described matches the process a Chapter 7 trustee would undertake after conversion of the case.

Keeping the case in Chapter 11 would result in continuing administrative expenses, for which there is no money available, Kenney said.

A Chapter 7 trustee can examine the payments and determine whether a disgorgement and redistribution of funds is appropriate, he said.

In ruling in favor of the debtors' motion to convert the case, judge Peter J. Walsh agree that the Macauley proposal was not practical.

"I don't know who would conduct the review (under Chapter 11). But it's what Chapter 7 trustees do all the time," Walsh said.

WorldSpace, based in Silver Spring, Md., has established an operational satellite-based digital radio system, commonly known as Digital Audio Radio Service, and is a licensed DARS provider. The company filed for bankruptcy on Oct. 17, 2008. Its Chapter 11 case number is 08-12412.

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