Knotel unsecured creditors object to bid procedures, stalking horse deal

By Sarah Lizee

Olympia, Wash., Feb. 16 – Knotel, Inc.’s motion for approval of the bid procedures for substantially all of its assets and entry into a stalking horse agreement drew an objection from the official committee of unsecured creditors, according to a Monday filing with the U.S. Bankruptcy Court for the District of Delaware.

“By the motion, the debtors are proposing a sale of substantially all of their assets to Digiatech, LLC, the newly-minted pre-petition lender, the DIP lender, an affiliate of an equity holder, an affiliate of a pre-petition investment banker, an affiliate of a pre-petition real estate consultant, and now the proposed stalking horse, via a $70 million credit bid on an extremely expedited timeline that cannot possibly lead to a reasonable sale process and higher or better offers,” the group said in the objection.

“To add insult to injury, the debtors and Digiatech, upon completion of this ‘game plan’ will seek to immediately convert this case to Chapter 7.”

The committee said the proposed sale process will chill bidding and prevent the debtors from any opportunity to realize the maximum value for their business and assets, and thereby fulfilling their fiduciary duties to all creditors of the estates.

“If Digiatech intends to use the Chapter 11 process and all of its benefits to simply foreclose on its collateral, it must fund a process that is fair and equitable to all parties in interest,” the committee said.

“This court should not reward Digiatech’s loan-to-own gambit, where it or its affiliates wore and continue to wear multiple hats with respect to these debtors, designed to control the debtors and benefit itself alone.”

As previously reported, the company filed a motion requesting approval of the stalking horse asset purchase agreement with Digiatech, an affiliate of Newmark Group, Inc., which has a 3% termination fee and a $500,000 expense reimbursement, according to court documents.

Under the proposed bidding procedures, bids would be due by 4 p.m. ET on Feb. 28, an auction would be held on March 2, and a sale hearing would be held on March 4.

Competing bids must exceed the stalking horse bid, plus the bid protections and $500,000.

New York-based Knotel operates a flexible workspace platform that matches, tailors and manages space for customers. The company filed bankruptcy on Jan. 31 under Chapter 11 case number 21-10146.

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