Bankruptcy Court Recommends Approving Hal Luftig Company Reorg Plan, With Caveats

The Bankruptcy Court recommended the Company's reorganization plan be approved, but the District Court must weigh in.

By: Nov. 27, 2023
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Bankruptcy Court Recommends Approving Hal Luftig Company Reorg Plan, With Caveats

As his Here Lies Love played its last performances on Broadway, producer Hal Luftig scored a significant victory in court. The Bankruptcy Court of the Southern District of New York recommended confirming the reorganization plan for Hal Luftig Company, Inc. (the "Company" for short). As I previously wrote in February, in filings the Company indicated the bankruptcy was necessitated after FCP Entertainment Partners, LLC received a large judgment against the Company and Luftig, with monies owed now totaling $2,862,776.

Many small business reorganizations are simple and conclude with a brief opinion. The opinion issued in this case was 65 pages and didn’t even render a final decision confirming the plan of reorganization. Why? The FCP judgment.

Under the reorganization plan, the Company’s expert projected FCP would receive $1,022,500, or approximately a 36% recovery, in installment payments spread out over five years. If the reorganization plan didn’t say anything with regard to Luftig individually, FCP could then still go after Luftig for its money. (Luftig has appealed his personal liability in a separate action, but right now he is on the hook.) So the Company's reorganization plan included a provision about a non-consensual third-party release, which purported to release all claims against Luftig individually held by FCP/related parties. In simple words, almost like a get-out-of-jail-free card. Luftig argued that he personally had less than $100,000 liquid cash, $2.2 million in qualified retirement plans, a 1/3 interest in a home valued at approximately $1.15 million, and about a $500,000 interest in a second home. The proposed reorganization plan would be funded partially by $550,000 from Luftig and an agreement from him to pay $100,000 more. So, basically, Luftig argued he couldn’t do both—he would declare personal bankruptcy if he was required to support the Company and pay FCP. He needed a personal release from FCP as part of the Company's reorganization plan.

FCP objected to the plan. FCP argued the filing was an abuse of the system and approving the release would allow Luftig to escape millions in liability. FCP and the U.S. Trustee, which also objected to the plan based on the release, additionally argued that Luftig would get more from the Company than he was putting in. Luftig receives money under the plan, including a $210,000 per year salary and monies related to claims for deferred compensation, loan repayment, and reimbursement of some expenses Luftig already incurred.

But the Court found the release of the FCP claims against Luftig played “an important part in the debtor’s reorganization plan,” giving it the power to release the claims, even over these objections. (The Court's opinion relied heavily on an appellate decision that will be before the Supreme Court next year, but currently remains good law.) According to the Court, the Company's "creditors—including FCP—will receive more under the Plan than in a chapter 7 proceeding, or in the event Mr. Luftig filed for bankruptcy himself[.]"

However, there are some caveats. The release included a “mutual non-disparagement provision”—basically a provision that said FCP couldn’t badmouth Luftig/the Company and vice versa. Obvious why that was in there, but the Court said it shouldn’t be. Likewise, the Court said the release was too broad because it could release potential claims against Luftig unrelated to the Company. It instructed the Company to file a new plan without a non-disparagement clause and with a narrower release.

Even once the Company does that, there is another hitch. The Bankruptcy Court also said it could not finally approve the plan because of the inclusion of the release. That means a District Court will review the Bankruptcy Court’s findings of facts and law “de novo,” so anew, before final confirmation of the plan.

The Bankruptcy Court has said though, as far as it's concerned, the objections to the plan should be overruled and the plan should be confirmed.

“We are thankful that the Court finds that with a few revisions the plan we proposed should be confirmed and the release of Hal Luftig approved,” a spokesperson for Luftig stated. “This is an equitable ruling and we are grateful to the judge for his wise decision.”

We’ll have to wait to see whether the District Court agrees.

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