Former Bumble Bee seeks conversion of bankruptcy cases to Chapter 7

By Sarah Lizee

Olympia, Wash., Dec. 30 – Old BBP, Inc., formerly Bumble Bee Parent, Inc., has asked the U.S. Bankruptcy Court for the District of Delaware to convert its Chapter 11 cases to Chapter 7, according to a motion filed Tuesday.

On Jan. 24, 2020, the court approved the sale of substantially all of BBP’s assets to FCF Co., Ltd., and the sale closed on Jan. 31, 2020.

As part of the pre-petition negotiations that resulted in the FCF asset purchase agreement and BBP’s debtor-in-possession financing, the debtors obtained sufficient funding and other assurances of payment to satisfy the costs incurred in the operation of their businesses through the closing of the sale, plus a wind-down budget to administer the Chapter 11 cases for a period of time following the sale.

However, the debtors believe that the sale may have resulted in a taxable gain attributable to the debtors’ assets and that the resulting tax on that gain would be substantial.

The debtors were able to consummate the sale without delay and minimizing expense in large part due to the global settlement reached among the key parties in the Chapter 11 cases. The settlement provided that a trust would be established for the benefit of the debtors’ creditors and that $1.4 million would be funded into the trust account for counsel for the official committee of unsecured creditors pending approval of the settlement. In the event the settlement was not approved, the trust funding would remain in escrow pending further order of the court.

The debtors and the committee jointly sought approval of the global settlement in July, and the debtors subsequently sought to dismiss the Chapter 11 cases in August.

Both motions were opposed by the U.S. trustee and Lion Capital (Americas), Inc., which alleged that the structured dismissal was not in the best interests of the debtors’ creditors. Instead, the objectors argued that the debtors should file a liquidating plan, dismiss their cases without their proposed structure or convert the Chapter 11 cases.

The court denied the global settlement and dismissal motions at a hearing on Sept. 10 and encouraged the debtors to engage in discussions with the Internal Revenue Service in light of the substantial tax claim the IRS may hold.

The debtors and the committee engaged with the IRS, and the IRS indicated that it was not supportive of the global settlement stipulation and dismissal motions but was aligned with the objectors in seeking a conversion of the cases.

“In light of the observations of the court ... and the position of the objectors and the IRS, the debtors determined, in consultation with the committee and the debtors’ term loan lenders, that conversion is in the best interests of creditors and the estates,” the motion said.

A hearing is scheduled for Jan. 25.

Bumble Bee is a San Diego-based shelf-stable seafood supplier. The company filed bankruptcy on Nov. 21, 2019 under Chapter 11 case number 19-12502.

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