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Le-Nature's unsecured creditors warn Chapter 7 conversion will harm recoveries
New York, March 8 - Le-Nature's, Inc.'s official committee of unsecured creditors opposed a motion to convert the company's Chapter 11 case to a Chapter 7 liquidation, warning that such a move would hurt the ability to take legal action.
Legal action "could yield the primary source of any recovery to unsecured creditors," the committee said in a filing Thursday with the U.S. Bankruptcy Court for the Western District of Pennsylvania.
The committee noted that it believes there was "extensive mismanagement" of the company by former officers, directors, the agent bank and financial advisors and it anticipates legal moves against these groups.
"In order to provide the estates with a meaningful opportunity to share in any recoveries, the estates, like these private interests, need a funded 'war chest' to pursue litigation claims and garner the estates' fair share of any litigation recoveries," the committee continued.
This would only be possible under a Chapter 11 liquidation, not an unfunded Chapter 7, the committee said.
On Feb. 15, Le-Nature's equipment lessor Merrill Lynch Capital asked the court to convert the case to Chapter 7.
Merrill Lynch said it considers the costs of administering the case in Chapter 11 exorbitant.
If the cases are converted to Chapter 7, Merrill Lynch said Le-Nature's Latrobe facility can be quickly liquidated and any litigation claims can be sought by a Chapter 7 trustee without excessive or redundant costs.
Le-Nature's, a Latrobe, Pa., manufacturer of flavored bottled water and other beverages, had an involuntary Chapter 7 bankruptcy case filed against it on Nov. 1. The case was converted to Chapter 11 on Nov. 3. The case number is 06-25454.
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