$SOUPQ: Soupman Ch. 11 Sale Gets OK With Buyer Now Acquiring Debt
By Vince Sullivan
Law360, Wilmington (September 7, 2017, 6:23 PM EDT) -- The tumultuous sale process pursued by bankrupt food distributor The Original Soupman Inc. came to a close Thursday when a Delaware judge approved the sale to an affiliate of shareholder WealthColony Management Group LLC after it agreed to acquire $4.7 million of the debtor’s secured debt.
During a hearing in Wilmington, attorneys for Soupman described a global settlement that had been reached between the company, its post-petition lenders, its proposed buyer and secured creditor Hillair Capital Investments LP that addressed issues raised by the court last week when the sale failed to gain approval.
“The parties are prepared to initiate the closing if it’s approved by the court hopefully by this afternoon. We’re trying to move expeditiously,” debtor attorney Jeremy R. Johnson of Polsinelli PC told the court. “We think the deal has improved substantially for the debtor.”
The settlement terms provided an additional $4.7 million in consideration in the form of a credit bid from Gallant Brands Inc. on the secured debt acquired from Hillair, and Hillair would then drop its objections to the sale. The debtor-in-possession lenders allowed for a forbearance on the $1.7 million DIP facility since it matured last week in exchange for the rights to pursue claims against the directors and officers of the debtor. The DIP lenders would receive the first $100,000 of proceeds from the litigation of these claims and thereafter would split them with a Chapter 7 trustee once the case converts from a Chapter 11.
To address issues relating to the court’s decision not to approve the sale last week, Johnson provided proffered testimony from the company’s chief restructuring officer that indicated the terms of the sale had been approved by the debtor’s board of directors and that WealthColony had dropped its efforts to pursue a change in the makeup of the board through a written consent campaign.
U.S. Bankruptcy Judge Laurie Selber Silverstein agreed to allow additional evidence to be presented in support of the sale, but was not pleased with the proposed forbearance fee being proposed for the DIP lenders, who will be repaid in full, plus default interest, regardless of whether the sale closes or not. She said the fee is outrageous and not justified for agreeing to forbear on the matured DIP obligations for just one week.
“You are taking the only assets that are available to pay unsecured creditors, and you want now not only $100,000 up front after you’ve been paid, but 75 percent of those recoveries thereafter,” Judge Silverstein said. “I’m assuming you’re going to get paid out tomorrow if this closes. Explain to me why, as a court of equity, I should approve this. Why should you be entitled to any portion of the assets of this estate?”
Attorneys for the DIP lenders said they were not asking for payment of the forbearance fee in cash, as is typical, because the estate likely would have no cash once it repays the principal and interest on the DIP. Instead it is asking to pursue the claims against the directors and officers of the company on its own dime, which may not provide any recovery to them whatsoever and could wind up costing them money for the effort.
“As part of the global resolution we’re entitled to some kind of forbearance fee,” Robert Hirsh of Arent Fox LLP said. “The debtors were not able to give us any kind of cash fee, so we did this.”
Judge Silverstein said the proposed forbearance fee was so outrageous that she questioned the motives behind it and said there was no evidence it was a reasonable request. She moved ahead with the sale approval but said she would not be considering the fee as part of her decision on the sale.
“No one can say this case hasn’t been interesting from the beginning and it continues to be,’ Judge Silverstein said in her ruling.
Hirsh asked to reserve the DIP lenders’ rights to bring the issue of the forbearance fee before the court at a later date.
Johnson said the debtor intends to close on both Gallant Brands’ acquisition of Hillair’s debt and the asset sale to Gallant as soon as Thursday evening and Friday afternoon at the latest.
The Original Soupman filed for Chapter 11 protection in June along with two subsidiaries listing more than $10 million in debt and hoping to complete a sale as quickly as possible to keep the company running as a going-concern.
The New York-based company licenses and sells soup from chef Al Yeganeh's recipes. Yeganeh owns the Manhattan restaurant Soup Kitchen International, and his brusque demeanor was the inspiration behind the "Soup Nazi" character on the long-running 1990s NBC sitcom "Seinfeld" who had strict ordering protocols and would often turn customers away by yelling, "No soup for you!" if the rules were breached.
The undisclosed group of DIP lenders served as a stalking horse bidder seeking to credit bid its $1.7 million in DIP lending. WealthColony formed Gallant Brands to make a bid on the assets ahead of an auction after months of pursuing a change in the management of the company both before and after the debtor’s bankruptcy filing.
It’s initial offer of $2.05 million failed to receive approval from the court last week, with Judge Silverstein pointing to issues with the corporate authority to enter the deal from Soupman’s end. In the last seven days, negotiations between the parties resulted in the global settlement and an increase in Gallant’s offer to $6.7 million, including a credit bid of $4.7 million derived from the acquisition of Hillair’s debt.
The debtor is represented by Christopher A. Ward and Jeremy R. Johnson of Polsinelli PC.
Hillair is represented by Robert S. Brady of Young Conaway Stargatt & Taylor LLP and Adam H. Friedman of Olshan Frome & Wolosky LLP.
WealthColony and Gallant Brands are represented by Colin R. Robinson of Pachulski Stang Ziehl & Jones LLP and Philip D. Forlenza and Donald F. Campbell Jr. of Giordano Halleran & Ciesla.
The case is In re: Original Soupman Inc. et al., case number 1:17-bk-11313, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Orlando Lorenzo.
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By Vince Sullivan
Law360, Wilmington (September 7, 2017, 6:23 PM EDT) -- The tumultuous sale process pursued by bankrupt food distributor The Original Soupman Inc. came to a close Thursday when a Delaware judge approved the sale to an affiliate of shareholder WealthColony Management Group LLC after it agreed to acquire $4.7 million of the debtor’s secured debt.
During a hearing in Wilmington, attorneys for Soupman described a global settlement that had been reached between the company, its post-petition lenders, its proposed buyer and secured creditor Hillair Capital Investments LP that addressed issues raised by the court last week when the sale failed to gain approval.
“The parties are prepared to initiate the closing if it’s approved by the court hopefully by this afternoon. We’re trying to move expeditiously,” debtor attorney Jeremy R. Johnson of Polsinelli PC told the court. “We think the deal has improved substantially for the debtor.”
The settlement terms provided an additional $4.7 million in consideration in the form of a credit bid from Gallant Brands Inc. on the secured debt acquired from Hillair, and Hillair would then drop its objections to the sale. The debtor-in-possession lenders allowed for a forbearance on the $1.7 million DIP facility since it matured last week in exchange for the rights to pursue claims against the directors and officers of the debtor. The DIP lenders would receive the first $100,000 of proceeds from the litigation of these claims and thereafter would split them with a Chapter 7 trustee once the case converts from a Chapter 11.
To address issues relating to the court’s decision not to approve the sale last week, Johnson provided proffered testimony from the company’s chief restructuring officer that indicated the terms of the sale had been approved by the debtor’s board of directors and that WealthColony had dropped its efforts to pursue a change in the makeup of the board through a written consent campaign.
U.S. Bankruptcy Judge Laurie Selber Silverstein agreed to allow additional evidence to be presented in support of the sale, but was not pleased with the proposed forbearance fee being proposed for the DIP lenders, who will be repaid in full, plus default interest, regardless of whether the sale closes or not. She said the fee is outrageous and not justified for agreeing to forbear on the matured DIP obligations for just one week.
“You are taking the only assets that are available to pay unsecured creditors, and you want now not only $100,000 up front after you’ve been paid, but 75 percent of those recoveries thereafter,” Judge Silverstein said. “I’m assuming you’re going to get paid out tomorrow if this closes. Explain to me why, as a court of equity, I should approve this. Why should you be entitled to any portion of the assets of this estate?”
Attorneys for the DIP lenders said they were not asking for payment of the forbearance fee in cash, as is typical, because the estate likely would have no cash once it repays the principal and interest on the DIP. Instead it is asking to pursue the claims against the directors and officers of the company on its own dime, which may not provide any recovery to them whatsoever and could wind up costing them money for the effort.
“As part of the global resolution we’re entitled to some kind of forbearance fee,” Robert Hirsh of Arent Fox LLP said. “The debtors were not able to give us any kind of cash fee, so we did this.”
Judge Silverstein said the proposed forbearance fee was so outrageous that she questioned the motives behind it and said there was no evidence it was a reasonable request. She moved ahead with the sale approval but said she would not be considering the fee as part of her decision on the sale.
“No one can say this case hasn’t been interesting from the beginning and it continues to be,’ Judge Silverstein said in her ruling.
Hirsh asked to reserve the DIP lenders’ rights to bring the issue of the forbearance fee before the court at a later date.
Johnson said the debtor intends to close on both Gallant Brands’ acquisition of Hillair’s debt and the asset sale to Gallant as soon as Thursday evening and Friday afternoon at the latest.
The Original Soupman filed for Chapter 11 protection in June along with two subsidiaries listing more than $10 million in debt and hoping to complete a sale as quickly as possible to keep the company running as a going-concern.
The New York-based company licenses and sells soup from chef Al Yeganeh's recipes. Yeganeh owns the Manhattan restaurant Soup Kitchen International, and his brusque demeanor was the inspiration behind the "Soup Nazi" character on the long-running 1990s NBC sitcom "Seinfeld" who had strict ordering protocols and would often turn customers away by yelling, "No soup for you!" if the rules were breached.
The undisclosed group of DIP lenders served as a stalking horse bidder seeking to credit bid its $1.7 million in DIP lending. WealthColony formed Gallant Brands to make a bid on the assets ahead of an auction after months of pursuing a change in the management of the company both before and after the debtor’s bankruptcy filing.
It’s initial offer of $2.05 million failed to receive approval from the court last week, with Judge Silverstein pointing to issues with the corporate authority to enter the deal from Soupman’s end. In the last seven days, negotiations between the parties resulted in the global settlement and an increase in Gallant’s offer to $6.7 million, including a credit bid of $4.7 million derived from the acquisition of Hillair’s debt.
The debtor is represented by Christopher A. Ward and Jeremy R. Johnson of Polsinelli PC.
Hillair is represented by Robert S. Brady of Young Conaway Stargatt & Taylor LLP and Adam H. Friedman of Olshan Frome & Wolosky LLP.
WealthColony and Gallant Brands are represented by Colin R. Robinson of Pachulski Stang Ziehl & Jones LLP and Philip D. Forlenza and Donald F. Campbell Jr. of Giordano Halleran & Ciesla.
The case is In re: Original Soupman Inc. et al., case number 1:17-bk-11313, in the U.S. Bankruptcy Court for the District of Delaware.
--Editing by Orlando Lorenzo.
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Food & Beverage
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Giordano Halleran
Olshan Frome Wolosky
Pachulski Stang
Polsinelli
Young Conaway
Companies
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