KServicing disclosure statement draws objection from Cross River Bank

By Sarah Lizee

Olympia, Wash., Jan. 12 – Kabbage, Inc.’s (doing business as KServicing) disclosure statement for its Chapter 11 plan drew an objection on Thursday from creditor Cross River Bank, according to documents filed with the U.S. Bankruptcy Court for the District of Delaware.

The bank, probably the company’s largest unsecured creditor by far, said the Small Business Administration has held up payment or forgiveness of hundreds of millions of dollars of Cross River Paycheck Protection Program loans that were originated or serviced by the debtor.

The SBA said the hold-up is due to the actions or inactions of KServicing.

The bank said the debtors have done virtually nothing to address the SBA’s asserted issues and claim they lack the resources to do so.

“They also apparently have no money to pay Cross River and other unsecured creditors anything – let alone to fulfill Kabbage’s obligations to make Cross River whole – and the debtors’ only chance of having the money is pursuing estate cause of action against the parties that created this mess, including shareholders who took out hundreds of millions of dollars less than two years before the petition date,” the bank said.

“Thus, it is Cross River and the other unsecured creditors that have been left holding the bag.”

Cross River said the disclosure statement fails to tell unsecured creditors what they will receive under the plan, or when they will receive it.

“Months into this case – and more than two years into their self-described ‘wind down’ – all the debtors can tell creditors is that their recoveries are ‘TBD,’ ‘unknown,’ and ‘cannot be estimated with any degree of certainty,’” the bank said.

The disclosure statement also doesn’t adequately describe how plan distributions will be funded, other than that they may be made from causes of action. Creditors are left to guess as to what claims might be pursued, who will control those claims, and whether or not the debtors will stay in business and continue servicing some loans, Cross River said.

As previously reported, the disclosure statement has also drawn an objection from Regions 3 and 9 U.S. trustee Andrew R. Vara, who takes issue with the inability for creditors to opt out of third-party releases.

The disclosure statement hearing is scheduled for Jan. 19.

The Atlanta-based servicer and subservicer of small business Paycheck Protection Program loans filed bankruptcy on Oct. 3 under Chapter 11 case number 22-10951.

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