U.S. Bankruptcy Judge Steven Rhodes, the judge assigned to the City of Detroit’s Chapter 9 bankruptcy filing, has advised that he will hire his own expert or experts for an independent review of feasibility for Detroit’s bankruptcy plan.
In Chapter 13 bankruptcy, the reorganization form of bankruptcy for individuals, the bankruptcy lawyers for the standing trustee (and potentially creditors) would submit arguments called objections regarding feasibility of a proposed Chapter 13 Plan. The bankruptcy attorney for the debtor would then put together a plan of action to address the objections. From there the bankruptcy lawyers for both sides usually meet and agree on terms that fit all sides without concerning the judge.
In Detroit’s bankruptcy filing, however, it is a very large organization and the court needs to deal with the complexities of an operating municipality with an annual budget in the billions. So, despite the bankruptcy lawyers of all sides bringing their arguments and experts, the bankruptcy court believes it best to seek out its own experts to better fulfill obligations required of it.
Detroit’s bankruptcy judge is hiring his own independent expert witness to testify on whether the city’s municipal debt-adjustment plan is feasible and based on reasonable assumptions.
U.S. Bankruptcy Judge Steven Rhodes said in a court filing that he has “an independent duty” to determine whether the plan is feasible, “even if no party objects to plan confirmation.”
Rhodes set a hearing for April 2 to establish procedures for selecting the expert, who would testify at the confirmation hearing for Detroit’s plan. The court-appointed expert would also file a written report.
The judge said he’s seeking one or more experts in municipal finance, budgeting and planning who will be “fair, unbiased and independent.” The assignment includes analyzing the “reasonableness of the assumptions that underlie the city’s cash flow forecasts and projections.”
A bankruptcy judge made an independent analysis of feasibility in the reorganization of Las Vegas Monorail Co., the 3.9 mile driverless transportation system that winds its way behind the casinos on the east side of the Las Vegas Strip.
In that case, U.S. Bankruptcy Judge Bruce Markell, now a law professor, decided on his own from court testimony that the monorail probably couldn’t refinance debt when it matured. Even though all creditors wanted him to approve the plan, Markell refused and didn’t give his consent to exit Chapter 11 until May 2012, when the plan had been modified to cut debt significantly.
Rhodes said it’s “particularly important” to determine whether the plan is feasible, both to assure the payment of debt and the delivery of municipal services.
Feasibility is one of the requirements for approval of a plan. The court must be convinced the plan can be carried out without further financial reorganization. In other words, there must be a reasonable likelihood the plan can be executed without triggering another default.
Rhodes has the authority to appoint an independent expert under Rule 706 of the rules governing evidence in bankruptcy cases.
Detroit filed its debt-adjustment plan last month. It promises full payment for holders of secured general obligation bonds and a 20 percent recovery from new bonds for holders of what the city said are unsecured general obligation bonds.
Retired city workers are to have pensions cut 4 percent to 26 percent, if they accept the compromise contained in the plan.
The current schedule calls for the last phase in the plan-approval process, dealing with disputed facts, to run from July 16 to Aug. 1. A hearing is set for April 4 to decide whether the plan can cut city workers’ pensions. The hearing for approval of disclosure materials is scheduled for April 14.
Crains Detroit: http://www.crainsdetroit.com/article/20140327/NEWS01/140329878/detroit-bankruptcy-judge-hiring-his-own-expert-on-plan-feasibility#
