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Nov. 3 — A group of noteholders in the Caesars Entertainment Operating Company, Inc. bankruptcy wants the court to reconsider approving the employment application of law firm Kirkland & Ellis LLP because the noteholder committee has allegedly “recently discovered that testimony offered by Kirkland in support of that application was incomplete and misleading”.
The debtors’ application to retain Kirkland & Ellis and Kirkland & Ellis International LLP as their counsel was approved by the court in May over the objection of the committee.
At the heart of the dispute are some 50 transactions that took place before the bankruptcy that are now the subject of several lawsuits pending in New York and Delaware that were initiated by the noteholders.
“Depending on one’s point of view, these transactions were intended either to increase liquidity and provide [the debtor] with badly needed capital or to loot [the debtor] of valuable assets, transferring them to [the parent] and related companies,” the court said.
The debtor retained Kirkland in July 2014, and the committee alleges that Kirkland led an investigation into the 50 challenged transactions. The noteholders say this investigation revealed that the debtor had “received insufficient consideration” for the transfers and they were therefore “constructively fraudulent.”
Despite these findings, the debtor and its parent company, Caesars Entertainment Corporation, filed suit in New York in August 2014 against various creditors seeking a declaration that the companies had “not breached their fiduciary duties or engaged in fraudulent transfers, or otherwise engaged in any violation of law.”
Caesars filed for bankruptcy on Jan. 15, after creditors filed a competing involuntary bankruptcy case in Delaware (27 BBLR 119, 1/22/15). When the noteholders objected to Kirkland's employment by the debtor in the bankruptcy, they argued Kirkland was not disinterested because of “Kirkland’s acquiescence to the filing of the New York suit, which was, at bottom, an effort to have [the debtor] exonerate [the parent] from any liability to [the debtor] and, therefore, reduce the assets of [the debtor's] estate.”
A witness for Kirkland denied advising the debtor's board on the New York suit, though he admitted participating in a board meeting at which it was discussed. The court went on to approve Kirkland's employment.
The noteholders say they have recently discovered minutes from an Aug. 3, 2014, board meeting at which “Kirkland advised [the debtor's] board of directors in connection with its decision to commence an action in New York against certain of [the debtor's] creditors that would deem numerous challenged transactions as lawful and extinguish [the debtor's] claims against [the parent].” The noteholders say that these minutes show that “Kirkland’s involvement in the decision to file the New York lawsuit was far greater than described to the [c]ourt.”
The noteholders argue that the court should reconsider Kirkland's employment because their witness provided misleading information on a “crucial issue” and argued that “Kirkland should be disqualified from any other form of involvement with the estates’ claims against [the parent] and its affiliates, including any investigation or settlement thereof.”
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