Liquor Company’s $172M Deal Prohibited By Bankruptcy Code, U.S. Trustee Argues

by Tara Arick on April 24, 2013 · 0 comments

in Bankruptcy

- From LexisNexis® Mealey’s™ Daily Legal News.

The U.S. trustee in the Chapter 11 bankruptcy of liquor company Central European Distribution Corp. (CEDC) on April 22 filed a brief objecting to the debtor’s motion seeking approval a $ 172 million investment agreement on grounds that the assumption of the contract at the heart of the investment agreement is prohibited by the Bankruptcy Code (In Re: Central European Distribution Corporation, No. 13-10738, Chapter 11, D. Del. Bkcy.).

On April 7, CEDC filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the District of Delaware.

CEDC listed debts of $ 1,739,936,000 and assets of $ 1,980,166,000.

11 U.S. Code Section 365

U.S. trustee Roberta A. DeAngelis contends that CEDC is not permitted to assume the contract pursuant to 11 U.S. Code Section 365(c)(2).

Specifically, CEDC’s motion seeks to assume the securities purchase agreement by and between it, Roust Trading Ltd. (RTL) and JSC Russian Alcohol Group. The agreement is referred to as the RTL Investment Agreement.

Under the RTL Investment Agreement, RTL plans to invest $ 172 million in CEDC and terminate the $ 50 million RTL Credit Facility that is currently in place in exchange for equity in the reorganized version of CEDC, the U.S. trustee says.

Reorganization Plan

CEDC’s reorganization plan provides that RTL’s $ 172 million cash outlay would be used to fund distributions and the reorganized version of CEDC would issue new common stock to RTL, the trustee contends.

The trustee adds that even if the RTL Investment Agreement were assumable under 11 U.S. Code Section 365(c), its assumption would be premature.

Even if, for the sake of argument, the RTL Investment Agreement is assumable, the U.S. trustee argues that the break-up fee in the RTL Investment Agreement should not be approved at this time.

Prepackaged Plan

CEDC, along with its subsidiaries, refers to itself as one of the world’s largest producers of vodka and the largest integrated spirit beverages business by total volume in central and eastern Europe. Its portfolio of beverages includes BOLS, Zubrowka, Absolwent and Soplica in Poland; Green Mark and Parliament in Russia; and Royal Vodka in Hungary.

When CEDC filed for bankruptcy, it did so with a prepackaged Chapter 11 reorganization plan that relies on cash obtained from RTL New Equity Infusion, from RTL fund distributions and other cash on hand from continuing business operations.

CEDC is represented by Sarah E. Pierce of Skadden Arps Slate Meagher & Flom in Wilmington and Jay Goffman and Mark A. McDermott of the firm’s New York office. The U.S. trustee is represented by Benjamin Hackman of the Office of the U.S. Trustee in Wilmington.

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