Home Interiors' trustee, creditors ink settlement to avoid administrative insolvency

By Caroline Salls

Pittsburgh, April 22 - Home Interiors & Gifts, Inc.'s Chapter 11 trustee requested court approval of a settlement agreement designed to resolve pending and proposed lawsuits and avoid administrative insolvency, according to a Tuesday filing with the U.S. Bankruptcy Court for the Northern District of Texas.

The parties to the settlement are Faulkner, Home Interiors' official committee of unsecured creditors, pre-bankruptcy secured lenders, its new board of directors, Highland Capital Management, LLP, Barrier Advisors, Inc. and Haynes and Boone, LLP.

According to the motion, Home Interiors' bankruptcy cases are "at a crossroads." The trustee said he has liquidated substantially all of the company's assets and business operations, but the liquidation did not generate enough proceeds to pay the pre-bankruptcy secured lenders' claims in full.

In addition, the committee has been granted standing to prosecute potential claims against Highland, Home Interiors' pre-bankruptcy agent, pre-bankruptcy secured lenders, new board of directors and other "target parties."

"The trustee recognizes that should these cases proceed down the litigation path, the litigation will be long and expensive, and, unless the litigation is substantially successful, the debtors' estates will likely end up being administratively insolvent with unsecured creditors not receiving any distributions," Faulkner said in the motion.

Under the settlement:

• The company will pay $3.41 million to the pre-bankruptcy agent for the benefit of the pre-bankruptcy secured lenders;

• The pre-bankruptcy lenders will receive all other proceeds from the sale of the company's assets that are subject to liens;

• $3 million of previously approved cash collateral will be held in escrow for payment of estate professional fees;

• $1.9 million of the cash collateral will be used to fund a wind-up reserve; and

• A residuary creditors' reserve will be created to pay administrative, priority and unsecured claims using the rest of the company's assets.

A hearing on the settlement is scheduled for May 28.

Home Interiors & Gifts is a Dallas-based integrated manufacturer and distributor of home decorative accessories. The company filed for bankruptcy on April 29, 2008. Its Chapter 11 case number is 08-31961.

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