CRYSTAL BRANDS’ BANKRUPTCY JUDGE BLASTS ‘VAGUE’ DISCLOSURE STATEMENT
NEW YORK — A bankruptcy judge here has given Crystal Brands’ disclosure statement a scathing rebuke, saying the document neglects unsecured creditors and is too vague to be approved.
Also, Crystal Brands, helped by improved gross margins and a strong performance by its core men’s wear operations, has reported third-quarter operating income grew to $3.7 million from $644,000 a year earlier.
As to the disclosure statement, Judge Prudence Abram said: “It is not clear that anybody was at home in the company who felt they had any duty to unsecured creditors.” Abram said the statement was written in an “extraordinarily subtle way — probably inappropriately so.”
As reported, unsecured creditors, who feel the $160 million value on the banks’ claim is excessive, filed an objection to the disclosure statement and requested a 50 percent payout, much higher than the 31 percent payout detailed in Crystal Brands’ plan.
At the hearing, held Friday, the judge also slammed Crystal Brands management for appearing to be more concerned with its own stock options than with the firm’s unsecured creditors.
“I’m very troubled that management’s trying to get its stock options, when unsecured creditors are saying, ‘What’s for me?’ ” said Abram, who noted that the company’s attitude toward unsecured creditors exemplified a “woeful failure of duty.”
Crystal Brands’ counsel, Alan Miller, of Weil, Gotshal & Manges, jumped to the company’s defense, telling the judge that management “tried to establish a fair plan for creditors.”
The judge suggested that the company’s liquidation analysis, provided by Bear Stearns and said to be accurate as of July 31, be updated. She scheduled a second hearing for Nov. 8 to consider a revised disclosure statement.
At the same time, Abram, citing Crystal Brands’ hope of emerging from Chapter 11 by the end of the year, also scheduled a tentative confirmation hearing date for Dec. 12.
Thomas Maloney, of Cleary, Gottlieb, Steen & Hamilton, counsel to the unsecured creditors, said he would file an objection to the banks’ claim before the next disclosure statement hearing.