Boy Scouts of America statement draws objection from U.S. trustee

By Sarah Lizee

Olympia, Wash., May 11 – Boy Scouts of America’s (BSA) disclosure statement for its Chapter 11 plan drew an objection from Regions 3 and 9 U.S. trustee Andrew R. Vara, according to a Monday filing with the U.S. Bankruptcy Court for the District of Delaware.

“As the centerpiece of their plan, the debtors have proposed a complex series of releases and injunctions that will channel their tort liability, along with the tort liability of certain non-debtor affiliates and “representatives,” and, depending on the specific version of the plan confirmed, numerous other non-debtors, to a settlement trust that will become the sole source of recovery for persons asserting abuse claims against the debtors and other protected parties,” Vara said in his objection.

The U.S. trustee said the proposed channeling injunction resembles the injunctions that have historically been featured in Chapter 11 cases involving product liability claims for which injuries and claims are expected to arise indefinitely into the future.

“But as the debtors themselves seem to acknowledge, the use of such an injunction is novel in a case such as this, which involves only past torts with no latency period,” Vara said.

The U.S. trustee said the legality and enforceability of the channeling injunction is ultimately a question for confirmation.

“But it is the obligation of the debtors to demonstrate that their plan is capable of proceeding to confirmation and the disclosure statement remains deficient in this regard,” the U.S. trustee added.

Vara said that, apart from a few passing references to section 105 of the Bankruptcy Code and the court’s equity powers, the disclosure statement doesn’t identify any legal authority for the channeling injunction, and the disclosure statement doesn’t attempt to reconcile the relief with the stringent limitations placed by the court on non-consensual third-party releases.

The U.S. trustee said that there are several other deficiencies in the statement, including that it continues to lack critical financial information necessary to allow creditors to meaningfully evaluate their treatment under the plan, including information regarding the funding of the settlement trust.

The statement hearing is scheduled for May 19.

Boy Scouts of America is based in Irving, Tex. It filed bankruptcy on Feb. 17, 2020 under Chapter 11 case number 20-10343.

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