On May 14, Judge Kevin J. Carey issued a Memorandum Order in In re: Spansion, Inc., et al. (Case No. 09-10690) denying in whole a motion by the Ad Hoc Committee of Equity Security Holders (the “Ad Hoc Equity Committee”) and in part a motion by the Ad Hoc Committee of Convertible Noteholders (the “Ad Hoc Convert Committee” and together with the “Ad Hoc Equity Committee”, the “Committees”) for payment of professional fees and expenses incurred by the Committees based on asserted substantial contributions to the Spansion bankruptcy case. In rendering his decision, the judge concluded that (i) the Ad Hoc Equity Committee did not provide a substantial contribution to the estate as its valuation played virtually no role in his determination of the Debtors’ value for plan purposes and was duplicative of the Ad Hoc Convert Committee’s efforts and (ii) the Ad Hoc Convert Committee did provide a substantial contribution to the estate limited to its valuation of the Debtors, which did affect his determination of the Debtors value for plan purposes.
On March 1, 2009, the Debtors filed Chapter 11 petitions. On March 12, 2009, an official committee of unsecured creditors was appointed. The Debtors filed a Joint Plan of Reorganization on October 26, 2009, which it amended on December 16, 2009. Also in December 2009, the Court denied a motion to appoint an equity committee, finding that the record did not support a finding that the equity holders were likely to receive a distribution.
Ultimately, on April 16, 2010, the Court confirmed a revised plan (the “Confirmed Plan”) after a contentious confirmation hearing that lead the Court to set the Debtors’ enterprise value between $872 million and $944 million. On July 9, 2010, the Committees filed motions for payment of professional fees and expenses based on assertions that they provided substantial contributions to the Debtors’ estate. The Ad Hoc Equity Committee sought $1,778,700.55. The Ad Hoc Convert Committee sought $3,456,958.40.
The Court noted that, pursuant to Sections 503(b)(3) and (4) of the Bankruptcy Code, it is authorized to award compensation to creditors or committees that make a “substantial contribution” to the case, although the term is not defined in the Bankruptcy Code. The Court also noted that courts have narrowly tailored the circumstances where a substantial contribution award is granted to those in which there is an actual and demonstrable benefit to the debtors’ estates and creditors. Those factors include whether the services were provided for the benefit of the estate itself or all creditors; whether the services conferred a direct benefit upon the estate; and whether the services were duplicative of services performed by others. See In re Summit Metals, Inc., 379 B.R. 40, 51 (Bankr. D. Del. 2007) aff’d 406 F. App’x 634 (3d Cir. 2011).
In applying these considerations to the Committee’s motions, the Court relied on its earlier conclusions that most of the Committees’ plan objections were overruled and their litigation conduct was aimed at a greater recoveries for their constituents. Nonetheless, the Judge acknowledged that the Ad Hoc Convert Committee’s objection to the valuation on which the Confirmed Plan was based and presentation of a competing valuation assisted the Court in fixing the Debtors’ enterprise value. As a result, the Court indicated it would consider an award limited to the Ad Hoc Convert Committee’s work on valuation in a subsequent order, but denied the motion as to additional sums. The Ad Hoc Equity Committee’s valuation did not play a role in the Court’s determination. As a result the Court denied the motion entirely. A copy of the opinion can be found here.