In a suit by the trustee of the liquidation trust of Green Field Energy Services, a defunct oil services business, against the debtor’s former CEO and others, the U.S. Bankruptcy Court for the District of Delaware found that the trustee can recover almost $17 million. See Halperin v. Moreno, et al. (In re Green Field Energy Services, Inc.), Bankr. D. Del. Adv. No. 15-50262(KG), D.I. 535.
In a 126-page decision, Judge Kevin Gross found that the former CEO had caused entities he controlled to fail to make required payments under two Share Purchase Agreements (the “SPAs”) that resulted in damages to the debtor in the amount of $16.6 million (inclusive of prejudgment interest). In particular, the SPAs required that entities controlled by the CEO make quarterly purchases of preferred stock. Although the CEO was not a party to these SPAs, the trustee brought related claims against him for the entities’ failures to perform.
In the face of these contractual obligations for quarterly share purchases, and despite that the CEO / his entities had cash on hand to make the required payments, the Court found that the former CEO caused his controlled entities to fail to make the required purchases / payments which deprived the Debtor of much needed cash. These failures eventually led to Green Field’s defaults on secured loans and resulted in its bankruptcy filing. The Court found that the CEO had diverted funds that could be used for the share purchases.
Ultimately, the Court found that the entities controlled by the CEO had breached the SPAs and were liable for contract damages. Further, the Court found that the former CEO “intentional and tortuously interfered with the obligations” under the SPAs. Id. at 125. Although the opinion is long, and a lot to take in, one thing is clear — preservation of litigation claims in liquidating or litigation trusts after plan confirmation remains a valuable asset and can substantially increase the recovery for unsecured creditors. Read our prior blogs on Liquidation Trusts here.