Dynegy U.S. Trustee seeks Chapter 11 trustee after examiner's report

By Caroline Salls

Pittsburgh, March 12 - The U.S. Trustee for Dynegy Holdings, LLC's bankruptcy case is seeking appointment of a Chapter 11 trustee to oversee that case, according to a Sunday filing with the U.S. Bankruptcy Court for the Southern District of New York.

"Based upon the findings and conclusions of the examiner, there are ample grounds for the appointment of a Chapter 11 trustee," U.S. Trustee Tracy Hope Davis said in the motion.

"The mismanagement of the debtors by their current management to the financial detriment of the debtors' creditors provides cause for the appointment of an independent fiduciary to manage the affairs of these debtors."

The U.S. Trustee said the report issued by the court-ordered examiner "presents information that, at a minimum, demonstrates gross mismanagement on the part of current management."

As previously reported, in a report filed with the court on Friday the court-appointed examiner called some asset transfers made by Dynegy Holdings during the spring and summer of 2011 "ill-conceived" and harmful to creditors in favor of stockholders.

Examiner Susheel Kirpalani said Dynegy Holdings' reduction of debt in connection with the CoalCo transaction should have inured to the benefit of Dynegy Holdings and not Dynegy Inc.

"The examiner concludes that the conveyance of CoalCo to Dynegy Inc. was an actual fraudulent transfer and, assuming that Dynegy Holdings was insolvent on the date of the transfer (approximately two months before the bankruptcy filing), a constructive fraudulent transfer, and a breach of fiduciary duty by the board of directors of Dynegy Holdings," Kirpalani wrote.

In Sunday's examiner appointment motion, Davis said "Whether ultimately the examiner's conclusions regarding an actual fraudulent transfer or constructive fraudulent transfer of valuable assets of Dynegy Holdings are sustained by this court, nonetheless, the breaches of duty of the various boards - all alter egos of one another - to the financial detriment of the debtors, demonstrates cause for the appointment of a Chapter 11 trustee," the motion said.

In addition, Davis said the examiner's report raises serious issues for Dynegy that need to be quickly addressed and resolved to bring the cases to a successful conclusion.

The U.S. Trustee said current management is not in a position to assess the examiner's findings and seek appropriate remedies.

A hearing is scheduled for April 4.

Dynegy is a Houston-based producer and seller of electric energy, capacity and ancillary services. The company and four subsidiaries filed for bankruptcy on Nov. 7. The Chapter 11 case number is 11-38111.

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