“A little extra benefit…” – the hidden agenda behind Global Brokerage’s bankruptcy
“In the context of what is supposed to be a limited restructuring targeted only on the notes with little effect on anybody else, I have buried in here the Debtor dropping its potential claims against officers and directors”, Judge Michael E. Wiles says.
Many of FinanceFeeds’ readers probably remember the press releases issued by Global Brokerage Inc (OTCMKTS:GLBR), formerly known as FXCM Inc, about its entry into and “exit” from Chapter 11 bankruptcy. And those announcements put the stress on the notes restructuring, which was supposed to be the aim of the whole Chapter 11 procedure the broker went through.
FinanceFeeds has obtained access to the transcripts of the hearing that followed Global Brokerage’s filing for bankruptcy and the hearing before the so-called “exit” from Chapter 11 restructuring. The picture these documents paint is more detailed and somewhat different from the glossy press releases Global Brokerage has posted on its website.
The fact that there was hidden agenda in the bankruptcy plan has been revealed by the Honorable Michael E. Wiles of the New York Southern Bankruptcy Court. Did Global Brokerage succeed in pulling this off? Well, we know the company formally exited bankruptcy. But a certain part of the plan did not go through – the part where Global Brokerage provides releases to its directors and officers, that is, gives them a clean slate to move on, while quietly nixing a number of derivative lawsuits against them.
The concerns of the Judge were raised when Global Brokerage’s counsel started explaining about the derivative legal actions against the directors of the broker. FinanceFeeds has covered one of these lawsuits in detail. But there are at least two more (we are keeping an eye on them too – Ed.).
So when Ms Borders, for the debtor, said that “both of those actions under the plan will be released”, the Court reacted by asking “What notice did you give them that they’re going to be released?”.
At that moment, Global Brokerage’s reluctance to provide information about its bankruptcy became clear.
“MS. BORDERS: Well, we gave the notice to — as part of the general notice of the plan. Global Brokerage, Inc is a public company, and so we did have — you know, we have SEC disclosures, we had listings on the website…
THE COURT: But you obviously know who the Plaintiffs are in these actions. Did you send them anything saying, “Hey, by the way, unless you come in and speak up, you’re released”?
THE COURT: Did anybody say, “This means you” to these particular Plaintiffs?
MS. BORDERS: No, Your Honor.
THE COURT: I don’t think that it is sufficient to say, “There’s a bankruptcy, go figure out everything about it and how it will affect you.” I don’t think that’s enough”.
The Judge then sought to address the issue of the proposed releases by Global Brokerage of its own present and former officers, directors and employees. He voiced his concerns that these are proposed, but no supporting information has been offered as to what the potential claims were, the extent of any investigation of them, why it’s appropriate to do this.
The only ones that got the disclosure statement were the noteholders. No other parties that actually may be affected by the releases were duly informed.
THE COURT: So I just don’t understand the point of this. It seems like somebody decided, “Well, it’s a little extra benefit that maybe we can grab.”
“THE COURT: And what’s its necessity?
MS. BORDERS: Well, the necessity is to allow the Debtor to come out of this Chapter 11 case with a clean slate.
THE COURT: This doesn’t let the Debtor come out of it. It lets the directors and officers come out of it with a clean slate”.
Whereas Global Brokerage’s counsel continued to insist that the releases are integral part of the plan, the Judge said he was not convinced:
“All I know is that in the context of what is supposed to be a limited restructuring targeted only on the notes with little effect on anybody else, I have buried in here the Debtor dropping its potential claims against officers and directors in situations where I don’t see any compliance with what the directors would have to do ordinarily under state law to get blessed for that. Why should I bless it?”
The Judge explained that the essence of a pre-packaged reorganization is that in contrast to a full-blown bankruptcy case that includes a disclosure statement that is sent to everybody, usually, as is the case with Global Brokerage, one particular part of the capital structure is targeted by the restructuring, and everybody else is meant to sail through with the bankruptcy not really affecting them.
The provisions about the releases did not fit within the context of the case, he noted.
“When as part of that I get a provision like this, which actually strikes me as having nothing to do with the note restructuring that’s being accomplished by the pre-pack, and looks almost like a little gratuitous effort to just kind of take some benefit on potential litigations, while at the same time telling the world that litigations aren’t affected”.
As a result, the release provisions did not go through.
The latest updates from the Court about Global Brokerage’s bankruptcy concern the approval of the payment of fees to the advisers of Global Brokerage. It remains unclear, however, how the sum of nearly $3 million paid to these professionals could not result in the company filing its 10-K report for 2017 with the Securities and Exchange on time. The document was supposed to be posted in March 2018. Where is it?
