WILMINGTON, Del. (AP) — The Chapter 11 case of failed electric car maker CODA Holdings continued on the fast track Wednesday after attorneys resolved several objections to the company's bankruptcy financing and sale plans.
After meeting behind closed doors for several hours, attorneys for the company and its official creditors committee told a Delaware bankruptcy judge they had reached agreements on several disputed issues. The agreements will not be formally submitted to the court for approval until Monday, but Judge Christopher Sontchi nevertheless granted a request by the parties to sign final orders approving CODA's debtor financing and sale plans.
Sontchi, who had expressed concerns about the company's bankruptcy plans at hearing earlier this month, said the changes made Wednesday make them more reasonable.
Attorneys for the U.S. trustee and the official creditors committee argued in court papers last week that CODA's financing and sale plans would unfairly benefit a group of lenders and noteholders, led by an affiliate of Fortress Investment Group, who are seeking to acquire the company with a lead, or "stalking horse" bid of $25 million.
Under a sale order approved Wednesday, competing bids are due Friday, followed by an auction, if necessary, on June 3.
"There is very little prospect for a competitive buyer coming out to bid against the stalking horse bid proposed by Fortress and co-lenders," William Baldiga, an attorney for the creditors committee, acknowledged Wednesday.
CODA, based in Los Angeles, sought bankruptcy protection on May 1 after selling just 100 cars, saying it would quit the automobile business and focus on the energy storage business.
The Fortress group has proposed using a credit bid of $25 million to take over the company. In a credit bid, a lender uses debt it is owed to buy a company's assets, rather than cash.
A key agreement reached Wednesday provides for $1.5 million to be set aside to pay expenses of the creditors committee and provide an initial dividend to unsecured creditors, who would also be allowed to share in any proceeds from lawsuits that might be filed later in connection with the bankruptcy.
While no lawsuits have been filed, officers and directors of a company that seeks bankruptcy protection sometimes are targets of lawsuits by creditors. In CODA's case, some $11 million in payments made by the company to a key battery supplier and former joint venture partner in the year leading up to bankruptcy could also be the subject of so-called "avoidance actions" seeking return of the money.
In response to an objection by the U.S. trustee, Sontchi took the unusual move Wednesday of prohibiting the law firm of White & Case from serving as CODA's lead bankruptcy counsel. The trustee objected because Christopher Rose, CODA's former general counsel and senior vice president of corporate development, joined White & Case last September, one month before CODA and the law firm entered into an engagement letter.
While stressing that White & Case did nothing wrong, Sontchi agreed with the trustee that rules of disinterestedness required that CODA not be allowed to employ the law firm as lead counsel.