Le-Nature's trustee, unsecured creditors committee argue case dismissal would hurt unsecured creditors

By Jennifer Lanning Drey

Portland, Ore., June 20 - Le-Nature's Inc.'s official committee of unsecured creditors and Chapter 11 trustee argue that the company's case should not be dismissed or yet converted to Chapter 7, according to separate documents filed late Tuesday with the U.S. Bankruptcy Court for the Western District of Pennsylvania.

Both filings were made in response to a May 31 court order to show cause for why the company's cases should not be dismissed.

Trustee's response

In his response, Le-Nature's Chapter 11 trustee R. Todd Neilson told the court that there is value for unsecured creditors that would be lost if the case were dismissed.

"Dismissal would send the cases back to the Delaware Chancery Court where there is no mechanism for ratable distributions to creditors. That would virtually assure that unsecured creditors recover nothing on account of their claims," the Chapter 11 trustee said in the filing.

The trustee went on to argue that Chapter 11 protection affords unsecured creditors a forum to investigate and recover the assets of the estates and to distribute those assets equitably to creditors.

Additionally, the trustee said the case should not yet be converted to Chapter 7 for liquidation, as Le-Nature's lender Wachovia Bank NA requested in a June 12 motion.

"Wachovia is a target of litigation and they would love nothing more than the chaos and delay that would be created if the cases are dismissed or converted," the trustee said in the filing.

"It doesn't matter what a plan looks like, Wachovia will not support it because they fare better in a Chapter 7 where litigation against them is unfunded," he continued.

The trustee suggested that the court schedule an evidentiary hearing on the disclosure statement for consideration of the remaining objections to the company's amended plan of reorganization and then continue the hearing on Wachovia's motion to convert the cases to Chapter 7 to the date of that hearing.

At the conclusion of the disclosure statement hearing, if the court determines the plan is confirmable, the cases could proceed. If not, the court should consider whether a conversion to Chapter 7 is appropriate, the trustee said in the filing.

Committee argument

Le-Nature's official committee of unsecured creditors argued in its filing that cause does not exist to dismiss the case and, additionally, told the court that the current Chapter 11 plan of liquidation provides the surest means of providing value to the company's unsecured creditors.

The committee told the court it believes there is an elite group of creditors likely to benefit if the cases are dismissed.

Specifically, the committee went on to say that potential targets of litigation, including Wachovia and the company's management, would benefit from the delay and chaos that would result from a dismissal.

"Accordingly, dismissal will accomplish precisely the result the court wishes to avoid," the committee said in the filing.

The committee also said its amended plan of liquidation filed with the ad hoc committee of secured lenders and ad hoc committee of senior subordinated noteholders presents the best, and possibly the only, means for facilitating a distribution to unsecured creditors because it provides for the formation of a well-financed liquidation trust, of which all unsecured creditors will be beneficiaries, and it allows the committee two representatives on the Liquidation Trust Oversight Board.

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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