Dynegy Inc.’s transfer of some coal plant assets to itself from its subsidiary Dynegy Holdings two months before the latter company filed for bankruptcy protection last November represented a “fraudulent transfer,” a court-appointed examiner in the bankruptcy case said in a report released on Friday.
Dynegy put four subsidiaries and Dynegy Holdings into bankruptcy with the backing of a group of bondholders, including Franklin Advisers Inc. and Avenue Capital Group. But other bondholders—which rank ahead of shareholders in order of priority in bankruptcies—had opposed the restructuring agreement, saying it would protect Dynegy shareholders at their expense, reported Bloomberg on Friday.
In his 173-page report, examiner Susheel Kirpalani said while some Dynegy officials had been ignorant of the consequences to creditors of transferring the coal assets (known as CoalCo), others “knew exactly what was happening.” Kirpalani concluded that Dynegy Holdings creditors could be harmed and urged that the transfer be reversed.
“Throughout the planning and execution of the prepetition restructuring, the Dynegy Inc. board favored paths that benefited Dynegy Inc. and its stockholders to the detriment of Dynegy Holdings and its creditors," he wrote in the report filed with the U.S. bankruptcy court in Poughkeepsie, N.Y.
On Monday, The U.S. trustee for Region 2, Tracy Hope Davis, filed a motion seeking the appointment of a trustee in the bankruptcy case. A bankruptcy trustee is typically appointed when it is thought to serve an estate’s best interest, or when company executives are suspected of transgression. “The mismanagement of the debtors by their current management to the financial detriment of the debtors’ creditors provides cause for the appointment of an independent fiduciary to manage the affairs of these debtors,” she said.
Reuters on Monday reported that Dynegy Holdings plans to renegotiate a bankruptcy plan under the guidance of the examiner. “We look forward to working with Mr. Kirpalani and Dynegy Holdings’ creditors to maintain an open and productive dialogue to make progress in the Chapter 11 proceeding,” Katy Sullivan, a Dynegy spokeswoman, told the news agency.
The case is In re Dynegy Holdings LLC, 11-38111, U.S. Bankruptcy Court, Southern District of New York (Poughkeepsie).
Sources: POWERnews, Bloomberg, Reuters