GigaMonster committee files lawsuit, seeks to recharacterize loans

By Sarah Lizee

Olympia, Wash., June 12 – GigaMonster Networks, LLC’s official committee of unsecured creditors filed an adversary complaint on Friday in the U.S. Bankruptcy Court for the District of Delaware against controlling stakeholders Barings Asset-Based Income Fund (US), LP and Babif Giga Blocker LLC, and three Barings managers, according to court documents.

Through the lawsuit, the committee is seeking to have the defendants’ loans to the company recharacterized as equity or subordinated to unsecured claims.

The committee said that Barings’ loans to the debtor do not constitute true debt and should be recharacterized as equity contributions of an insider of the debtors.

“The loans represent an attempt by Barings (the debtors’ controlling stakeholder) to substitute debt for equity capital, including because each of the transactions under the loan documents was an ‘interested transaction’ approved by three of three interested Barings managers,” the committee said in the complaint.

“Despite titling the loan documents as instruments sounding in debt, the loans represent equity contributions to the debtors.”

The committee said the identity of interest between the debtors and Barings is evident by the complete control Barings has over the debtors through a units purchase agreement and amended and restated limited liability company agreement, which allow Barings, among other things, to appoint the majority of the board and dictate all of material business decisions, including all financial decisions.

The group said that since the debtors made no cash payments to Barings and filed the Chapter 11 cases, it is obvious that repayment of the loans depended on the success of the debtors.

“Moreover, Barings elected – over the course of a two-year period, through seven separate installments – to pile money into the debtors even when previous installments failed to improve the debtors’ financial condition,” the committee stated.

“At the time of each of the loans, the debtors were inadequately capitalized, estimating negative EBITDA and negative gross revenue for the foreseeable future.

“Barings knew when it made each of the loans that the new capital would only permit the debtors to continue to operate for a handful of months.”

The committee said the debtors’ significantly impaired financial condition prevented their ability to obtain outside financing from a third-party source, particularly on the same terms and conditions as the Barings loans.

“Nor did the debtors seek to refinance the loans since the same individuals that controlled the debtors controlled Barings, which allowed Barings to do whatever was in its own best interest, to the prejudice of the debtors’ general creditors,” the committee said.

Barings’ secured claim in the case is for nearly $50 million.

The Marietta, Ga.-based internet provider filed bankruptcy on Jan. 16 under Chapter 11 case number 23-10051.

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