KServicing’s plan draws limited objections from trustee, lenders

By Sarah Lizee

Olympia, Wash., March 1 – The plan of Kabbage, Inc., which does business as KServicing, has drawn limited objections from the U.S. trustee overseeing the case and lenders, according to documents filed with the U.S. Bankruptcy Court for the District of Delaware.

Regions 3 and 9 U.S. trustee Andrew R. Vara said he objects to the plan because certain aspects of the plan’s third-party release and the injunction provision amount to a discharge of a liquidating debtor, contrary to bankruptcy code.

Vara said the plan shouldn’t be approved until those provisions are revised or removed from the plan.

Meanwhile, lender Cross River Bank said that the debtors haven’t demonstrated that they will be able to transfer servicing of Cross River’s PPP loans and files as required by court order.

“This raises critical confirmation issues because the debtors’ failure to do so will result in substantial administrative claims against the estate and make consummation of the plan impossible,” Cross River said in its limited objection.

“Moreover, failure to transfer servicing will cause substantial harm not only to Cross River, but also to thousands of borrowers who depend upon the servicing to obtain PPP loan forgiveness from the Small Business Administration.”

Cross River said the debtors also haven’t identified the wind-down officer who will have significant control over the liquidation of the estates and prosecution of valuable estate causes of action.

Customers Bank joined Cross River’s limited objection to the plan, and said the combination of the plan providing the debtors the right to escape servicing transition undertakings approved post-petition by the court, the nearly exclusive reliance by unsecured creditors on expensive litigation, and the broad releases, call into question whether the plan meets the good faith requirement of bankruptcy code.

The confirmation hearing is scheduled for March 13.

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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