New Timeline for Approval of Amended Plan and Payment of Priority Amounts to Employee Class Members

A status report by the Blum| Collins class counsel (Steve Blum, Craig Collins, Teresa Blasberg, and Doug Thorpe)

GOOD NEWS! It appears that as a result of recent efforts to resolve and collect amounts due to the Heller bankruptcy estate, all priority amounts payable to employees under the Settlement Agreement will now be paid by the end of July, 2010.

HISTORY:

In September and October we negotiated a settlement of the class claims.  The economic terms of the settlement were (and still are, with very minor adjustments): 

Vacation

Bonuses/
Wage Contracts

Admin. Priority

Total=
$950,000

$0

$0

Priority

Total=

$4,561,427.04

$2,994,456.80  (100% treated as priority treatment)

$66,970.24

Non-Priority

Total=

$7,471,578.50

$4,201,395.17

(allowed as non-priority general unsecured claim based on vacation entitlement)

$920,183.33

Subordinated

to all other allowed claims

Total=

$7,000,000

$0

$0

Total

$19,983,005.54

$7,195,851.97

$987,153.57

 

WARN

Waiting Time Penalties/
Exemplary Damages

Attorneys’ Fees & Costs

$0

$0

$950,000

$1,500,000

$0

$0

$2,350,000

(allowed as non-priority general unsecured claim based on WARN damages)

$0

$0

$0

$7,000,000

$0

$3,850,000

$7,000,000

$950,000

This settlement was tied to a proposed Plan of Reorganization.  Both our Settlement Agreement and the initial Plan were submitted to the Bankruptcy Court for preliminary approval on October 29, 2009.  At the hearing, the Court deferred consideration of the Plan pending progress in mediation of the claims against former shareholders.  That put the Settlement Agreement in limbo since the timing of payments and other important parts of the Settlement Agreement were tied to dates for Plan confirmation and other procedures set forth in the Plan.

Since then, lawyers for Heller and the Creditors’ Committee have been involved in addressing Judge Montali’s concerns about the initial Plan and in attempting to maximize the returns to the Heller bankruptcy estate on claims against those who owed money to Heller.  Those are claims that belong to the Heller estate in which we have an interest but no standing to assert.

After Judge Montali put the first Plan that was proposed on hold, we began discussions with the other side regarding changes in the Settlement Agreement that might be required to accommodate an amended Plan.  These discussions related to procedural issues and the need to amend the Attorneys’ Fees provision because one of the triggers for fees changed as the Plan changed.  Nothing changed regarding the economic terms of the settlement or the amount of our fees.  We exchanged drafts from mid-November until mid-December but final negotiations languished since Heller was not close to being ready to propose an amended Plan.

In December 2009 Heller filed an amended Schedule E (which lists the amounts of undisputed claims) to address errors made in its first filing.  The significance of the amendment was discussed in a January 6 posting on Heller Highwater (http://hellerdrone.wordpress.com/2010/01/06/signifigance-of-new-schedule-e-filing/)(sic).  Almost all of our clients are favorably impacted by a change in the date for calculation of the priority amounts of wages from 180 days before the date of filing (December 28, 2009) to 180 days prior to the last day that Heller did business (October 30, 2009), as required by the Bankruptcy Code.  A separate change that impacts very few of our clients but in greater individual amounts is that Heller originally included all accrued sabbatical as a priority claim, which was not permitted under the Bankruptcy Code.  We have not checked employee by employee, but Heller tells us that only 21 employees had reductions in their respective overall Schedule E amounts and that only 35 employees had reductions in their respective priority amounts.  On the positive side, the overall amount of allowed priority claims went up slightly.

We have had several exchanges with Heller’s lawyers related to the calculations that resulted in reduced priority amount for the small number of employees who have sabbatical claims (probably fewer than 10).  These reductions all concern interpretation of the bankruptcy code provision that governs what portion of a claim for sabbatical is entitled to priority treatment.  We are now satisfied that the new Heller calculation complies with the Code even though the original Schedule E created a mistaken impression in the mind of a few class members as to how their sabbatical claims would be treated.

We should mention that Schedule E does not include Warn Act Claims or waiting time penalty claims. Heller disputes those claims and can’t admit liability for those amounts except as part of the settlement.  That means that you can’t tell your share of the settlement of those claims from Schedule E.  You should be aware, however, that those individual employee claims are included in Exhibit A to the Settlement Agreement.  The cumulative total of those claims is reflected in the foregoing chart.  While Blum|Collins has a copy of a draft of Exhibit A, a confidentiality agreement prohibits us from sharing the information at the present time.  Once the settlement receives preliminary approval from the Bankruptcy Court, each member of the class will receive specific information concerning her or his interest in the totals listed in the chart.

RECENT EVENTS:

Since mid-January the pace has picked up in working out the details of our Settlement Agreement as well as those related to the revised Plan.  Last week we were told the following:

  1. There is a tentative agreed timetable for filing a revised Plan, obtaining preliminary approval of the class settlement, giving notice to the class, obtaining final approval of the class settlement and paying the employee priority claims.  There seems to be a high likelihood that a new plan will be filed by March 31.  In our negotiation of amendments to the Settlement Agreement Heller agreed to a June 1, 2010 deadline for meeting the conditions to closing our settlement.  Heller’s bankruptcy counsel tells us that Plan confirmation and final approval of the class and the Settlement Agreement should indeed be completed before the June 1 deadline, and we would waive that precise deadline if we’re close to a payment date by then.  Assuming things go smoothly without delays caused by objections to the Plan, objections to our settlement or other contingencies that might influence Judge Montali to move the dates, the effective date will be in mid-June and the members of the class will receive their priority amounts in late June or July, 2010.
  2. The non-priority share of the settlement will be paid to our class members, along with other non-priority claimants, as funds become available and the Debtor obtains court permission to make distributions.  The primary sources of funds for non-priority payments are (1) collection of accounts receivable, (2) collection of all or a portion of the Bank of America preference and (3) collection of amounts from former shareholders.  Accounts receivable are self explanatory.  The B of A claims and shareholder claims are discussed below.
  3. The preference claim against B of A is proceeding vigorously.  Bankruptcy counsel for Heller believes that the estate has a good claim but it is very time consuming and expensive to pursue because B of A and its counsel (Pillsbury) are stonewalling.  Heller has provided over 1 million pages of documents and the Bank has produced about half that many.  As a refresher, B of A’s exercise of its security interest was not a breach of its agreement with Heller, which means that Heller does not have a claim that it failed because of B of A asserting its contractual security interest even if the Bank’s original UCC-1 had been terminated.  That is so because a security agreement is always enforceable against the debtor even if it is not entitled to a priority over other creditors who had filed UCC-1s.  The filing of a new UCC-1 within 90 days of the bankruptcy filing, however, is voidable as a preference.  No trial date or date for the motion for summary judgment that is contemplated by Heller has been set.
  4. Counsel for the Creditors’ Committee, Thomas Willoughby, is handling the claims against former shareholders and their successor firms.  Very recently he has made settlements with enough of them sufficient to fund (along with other sources of funds) the priority payments to employees and he anticipates litigating the claims against those shareholders who have not settled.
  5. A new claims bar date will be established for employees (meaning that employees may file new or amended proofs of claim) for several reasons, including because of the amendment to Schedule E.

We hope this report provides the information you need in order to have an idea where things stand.  We will keep you posted on further developments.

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11 Responses to “New Timeline for Approval of Amended Plan and Payment of Priority Amounts to Employee Class Members”


  1. 1 Casey 10 February 2010 at 4:03 am

    I would like to thank you Thomas for keeping us all informed. I defiantly know that this site has keep me a little more sane. In this whole ordeal of Heller closing. Though like you wished that this would have been resolved a lot sooner. For all the former Heller people, I hope and prey all is well.

    Again Thank you Thomas.

  2. 2 Former NY Associate 10 February 2010 at 11:11 am

    Does anyone know whether the amount in Schedule A of the Settlement Agreement is based on Schedule E or whether it is based on the claims filed by the employees?

  3. 3 Seattle Secretary 10 February 2010 at 3:14 pm

    If we are not listed on Schedule E (amended or original), how do we determine if we are listed on the Exhibit A to the settlement agreement?

  4. 4 SFLegalSecretary 10 February 2010 at 5:50 pm

    Why is the Schedule A and E continuing to be confusing? I thought Schedule E was amendments to claims but if the claimant was not listed on Schedule E then it meant no changes were made. Also, what is Administrative Priority and how do you determine if a claimant is not in the Bonus category?

  5. 5 Doug Thorpe 11 February 2010 at 8:08 pm

    The amounts in Exhibit A should include the amounts in amended Schedule E as to categories of claims that are included in Schedule E PLUS amounts for WARN claims and waiting time penalties.

    Let us know (collins@blumcollins.com) if you are not included in the amended Schedule E and believe that you should be so we can determine if the omission was intentional (and why) or unintentional.

  6. 6 Former SF Heller Employee 12 February 2010 at 12:36 am

    Thank you Thomas,

    How refreshing to finally have a timeline to receive the monies owed to us legally by California state law from Heller.

  7. 7 svstaff 15 February 2010 at 3:11 am

    Has there been a new claims bar date set for employees as referenced in number 5 above? If so, what is that date?

  8. 8 Observer 15 February 2010 at 4:37 am

    A new claims bar date is in the process of being set.

    We will get notice of it. If you have a proof of claim already on file that you are satisfied with, you won’t have to do anything about the new bar date.

    The people most affected would be those whose scheduled claim has changed unfavorably AND they didn’t file their own proof of claim or would like to amend it. These folks get a new chance with the new deadline.

  9. 9 Observer 15 February 2010 at 5:42 am

    An order setting the new claims bar date has been issued. Here are the key provisions:

    “The original bar date of April 27, 2009, established by the Clerk of the Court, remains applicable, except as to the creditors listed on the amended Schedules B, E and F of the Debtor’s Schedules of Assets and Liabilities, filed on December 15, 2009 (the “Affected Creditors”), which shall be subject to the New General Bar Date for Affected Creditors (defined below).
    … 4:30 p.m. Pacific Time, March 19, 2010 (the “New General Bar Date for Affected Creditors”) shall be the deadline pursuant to Bankruptcy Rule 3003(c) by which Affected Creditors that wish to assert claims pursuant to section 501 of the Bankruptcy Code must file proofs of claim or forever be barred from asserting such claims.”

  10. 10 Doug Thorpe 15 February 2010 at 8:13 pm

    CLARIFICATION REGARDING AMENDED SCHEDULE E:

    The amendment to Schedule E only addressed the claims of those who are affected by the changes. You can view the amendment to Schedule E by following this link:

    http://www.docstoc.com/docs/25407911/Amendment-to-Schedules-B-E-and-F.

    If you are not listed on this amendment to Schedule E, your claim is shown on the original Schedule E filed at the outset of the bankruptcy action. Here is the link to the original Schedule E:

    http://www.docstoc.com/docs/25408181/Heller-Ehrman-Schedules-in-Bankruptcy

    CLARIFICATION REGARDING PROOFS OF CLAIM:

    Blum Collins filed a proof of claim on behalf of the members of the class we have asserted. The Court has not been asked to rule to the effectiveness of that class proof of claim.

    On February 11, 2010, the Bankruptcy Court ordered that any employee whose claim was changed by the amendment to Schedule E would have until March 19, 2010 to file a proof of claim.

    If you are satisfied with a previously filed timely proof of claim, or if you are satisfied with the amounts Heller has attributed to your claims as described in the original or amended Schedule E, there would be no reason to file another proof of claim. If, on the other hand, you elected not to file a proof of claim because you were satisfied that the original Schedule E showed your claim accurately but you believe that the amendments to Schedule E have unjustly reduced your claim, you are able to file a proof of claim before March 19.

  11. 11 hellerstaff 17 February 2010 at 8:19 pm

    What if an EE is not listed on the original Schedule E nor the amended Schedule E, is not a party of the class action and said employee filed a proof of claim late. Should EE refile same proof of claim prior to the new bar date and if so would it be deemed timely filed if it wasn’t originally timely filed?

    Thx


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