Media Source: Law360
The dueling creditor factions in the restructuring of defunct ticket reseller and alleged Ponzi scheme vehicle National Events Holdings LLC reached a tentative deal Thursday in New York bankruptcy court that will center around two parallel investigations into the tangled web of transactions that led to the debtor’s downfall.
Just last week attorneys for creditors Taly USA Holdings Inc. and Hutton Ventures LLC were vigorously protesting Falcon Investment Advisors LLC’s motion to lift the automatic stay and strip the debtor of its roughly $5.8 million in remaining assets, but at Thursday’s hearing the two sides told U.S. Bankruptcy Judge James L. Garrity they’d reached an agreement.
The deal involves separating the debtor and several affiliated entities into two separate bankruptcy cases, one that will be substantially guided and funded by Taly and Hutton, and another that will be guided and funded by Falcon. Both of those cases, in turn, will largely be devoted to conducting two separate, 75-day-long investigations into any claims the creditors might have against each other or third-parties.
If no claims are turned up by the end of that investigation period, then claims by the three major creditors against one another will be barred, Joel H. Levitin of Cahill Gordon & Reindel LLP, who represents Falcon, told the court.
“After long discussion, we think we’ve reached an agreement on the best way forward,” Levitin told the court. “This framework sets up kind of a ‘constructive adversary relationship’ with built-in checks and balances. That is the basis for our proposal.”
Levitin pushed for approval of Falcon’s motion to lift the stay, which he said Taly and Hutton were now on board with as long as the debtor’s assets were kept in a segregated account for now, but Judge Garrity said he wasn’t ready to go that far just yet.
Although he appreciated the progress the creditors had made thus far, Judge Garrity said, he was “simply not prepared” to rule on that motion “today, with the record we have right now.”
He said he would sign an order allowing the debtor to fund itself with roughly $20,000 in cash collateral until the next hearing, on July 17.
Even that compromise required a last-minute round of frenzied negotiations, however, as Taly, Hutton and others had objected to the debtor’s request that it be allowed to sell off a batch of U.S. Open tickets for roughly $240,000, which would provide the cash collateral in question.
The buyers of those tickets had requested broad releases of claims against them as part of the transaction, but Judge Garrity said that, given the history that led up to this point, such a move wouldn’t be appropriate just yet.
“This is a Ponzi scheme, after all,” Judge Garrity said.
The parties later said they could probably get by with tweaking the deal to include only a release of claims related to this specific transaction.
The proposed plan will involve consolidating the cases of debtor-affiliated National Events of America Inc. and New World Events Group Inc., which both filed for bankruptcy on Wednesday, into a single case.
Those entities, referred to by both sides as “the Inc.’s,” are both overseen by a state-court appointed receiver, Edward J. LoBello of Meyer Suozzi English & Klein LLP. The Inc.’s were primarily holding companies owned by Jason Nissen, the disgraced founder and former CEO of the operating company National Events Holdings LLC, and together they own 76 percent of the operating company, National Events Holdings LLC.
Nissen admitted he’d been running National Events as a Ponzi scheme since at least 2015, in a meeting with Taly executives in May. Taly promptly filed suit against Nissen in New York Supreme Court, and LoBello was appointed as receiver for the Inc.’s by the judge in that suit, and National Events filed for bankruptcy the same day.
The bankruptcies of the Inc.’s will be consolidated into one case, while the current National Events case will remain ongoing. National Events filed for bankruptcy alongside several other holding companies that all end in “LLC,” and the parties have taken to calling those entities “the LLC’s,” to differentiate them from the Inc.’s.
Taly and Hutton told the court they will extend a $250,000 debtor-in-possession loan to the Inc.’s, while Falcon said it would extend a $150,000 DIP loan to the LLC’s. Most of that money will go towards funding parallel, 75-day long investigations into any claims they may have as a result of Nissen’s allegedly fraudulent transfers leading up to the bankruptcy.
“We’re not saying there are or that there are not any claims, but this will give the parties time to analyze that,” Levitin told the court. “If there are, hopefully they will be against third parties and not necessarily against each other.”
The motions for those DIP loans, and a motion requesting that LoBello be allowed to continue running the bankruptcy of the Inc.’s, will be filed July 11, the parties said.
Several hurdles still loom for approval of that plan however. The U.S. Trustee indicated it may still appoint a committee of unsecured creditors, and it has also filed a motion to convert the case to a Chapter 7 liquidation, although a hearing on that motion isn’t expected until August.
James M. Sullivan of Windels Marx Lane & Mittendorf LLP, who represents several unsecured creditors in the case, also told the court he had major reservations about allowing the debtors to investigate themselves, given the history of the case. “
“Nobody trusts the debtor to do this,” Sullivan told the court. “From the perspective of my group, this plan looks like the parties are investigating themselves, then everyone will pat themselves on the back and that will be the end of it.”
National Events is represented by Stephen B. Selbst and Hanh V. Huynh of Herrick Feinstein LLP.
Taly is represented in the bankruptcy by Joseph T. Moldovan of Morrison Cohen LLP.
Hutton is represented by Gerard S. Catalanello and James J. Vincequerra of Alston & Bird LLP.
Falcon is represented by Joel H. Levitin, Brian T. Markley and Richard A. Stieglitz Jr. of Cahill Gordon & Reindel LLP.
Edward J. LoBello is represented by William C. Heuer of Westerman Ball Ederer Miller Zucker & Sharfstein LLP.
An unofficial group of unsecured creditors is represented by James M. Sullivan of Windels Marx Lane & Mittendorf LLP.
The bankruptcy is In re: National Events Holdings LLC, case number 1:17-bk-11556, in the U.S. Bankruptcy Court for the Southern District of New York.
The civil case is Taly USA Holdings Inc., et al. v. Nissen, et al., case number 652865/2017, in the Supreme Court of the State of New York, County of New York.