USA Gymnastics Chapter 11 plan draws objection from U.S. trustee

By Sarah Lizee

Olympia, Wash., Dec. 3 – USA Gymnastics’ Chapter 11 plan drew an objection from Region 10 U.S. trustee Nancy J. Gargula, according to a Thursday filing with the U.S. Bankruptcy Court for the Southern District of Indiana.

The U.S. trustee said she has three reasons for objecting to the plan.

First, the plan provides for non-consensual third-party releases of claims between non-debtors that violate the bankruptcy code and seventh circuit law, she said.

Second, the court lacks constitutional authority to adjudicate, and thus release, the state law claims held by one non-debtor against another non-debtor.

She also said that although section 1123(b)(3)(A) authorizes a debtor to release the estate’s own claims in a plan, the release must be a reasonable exercise of the debtor’s business judgment supported by a substantial contribution to the reorganization from the released party. However, USA Gymnastics’ release of many of its claims does not satisfy the business judgment test because many are supported by no contribution at all from a released party.

“The plan’s failure to require all released parties to pay meaningful compensation as required by law is no theoretical concern, it ultimately diminishes recoveries for the abuse survivors and other creditors,” Gargula said in her objection.

The plan confirmation hearing is scheduled for Dec. 13.

The Indianapolis-based gymnastics organization filed bankruptcy on Dec. 5, 2018 under Chapter 11 case number 18-09108.

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