MTS reorganization plan gets objections from acting U.S. trustee, GE Capital

By Jeff Pines

Washington, March 8 - MTS Inc.'s proposed reorganization plan faces objections from the acting U.S. trustee and General Electric Capital Business Asset Funding Corp., according to March 8 filings with the U.S. Bankruptcy Court for the District of Delaware.

MTS, which owns Tower Records, is trying to do a pre-packaged Chapter 11.

The acting trustee objects on the grounds that the disclosure statement is inadequate because it does not include important documents it refers to. For example, the trustee said it does not include the lock-up agreement among the company, the shareholders and 91% of the noteholders, the liquidation analysis and other documents.

In addition, the plan does not account for payments of quarterly trustee fees, filing monthly operating reports on the effective date of the plan, paying the post-confirmation quarterly fees and operating report obligations.

The releases MTS proposes to use are also not consistent with previous rulings by the Delaware bankruptcy court and the Third Circuit, which it is part of, the acting trustee said.

The company proposes to release all of its directors and officers who have served the company within the last six years, which the acting trustee believes is too broad.

The other release is for claimsholders and any party to the lock-up agreement, plus all former and present officers, directors and attorneys.

To prove his point that the release of claimsholders and parties with interests is too big a group, the acting trustee cited a Third Circuit court ruling In re Continental Airlines: "Nothing in the bankruptcy code can be construed to establish such extraordinary protection for non-debtor parties."

General Electric objects to the plan because it has no procedures about the timing of payment of any cure claims involving unexpired leases and executory contracts.

In addition, it said the plan discusses the sale of the company's assets and liabilities, but does not provide proper notice and an opportunity to object to the assumption and assignment of any lease between the two companies.

MTS filed for bankruptcy on Feb. 9. The Chapter 11 case number is 04-10394.

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