Recently, the LandSource Creditor Litigation Liquidating Trust (the “Litigation Trust”), commenced various avoidance actions in the United States Bankruptcy Court for the District of Delaware. This post will look briefly at the events leading to the commencement of this bankruptcy proceeding. Further, the post will look at some of the issues that confronted the Debtor during the reorganization process.
LandSource Communities Development, LLC (“LandSource”), filed petitions for bankruptcy on June 8, 2008. LandSource is a home builder. Like other builders throughout the U.S., the company was severely affected by the decline in the U.S. real estate market, as well as the decrease in the availability of credit following the subprime mortgage crisis. The drop in the demand for housing led to increased inventories of homes for builders. This further depressed prices, worsening conditions even more for LandSource.
In January of 2008, LandSource was found to be in default of its prepetition loan agreements. Specifically, the company exceeded the credit exposure limit due to the drop in value of its developed and non-developed property. Despite entering into forbearance agreements with its lenders, LandSource was unable to restructure its debt without bankruptcy court protection.
Events During the Bankruptcy Proceeding
From the start, it was important that LandSource receive postpetition financing. Under the debtor in possession financing agreement, LandSource was required to file a plan of reorganization by October 6, 2008. By October 18, 2008, LandSource had failed to file a plan of reorganization resulting in its First Lien Lenders filing their own plan of reorganization. Under the Lenders’ Plan, there would be an auction to sell off the company’s assets.
As economic conditions worsened, LandSource and its lenders determined that an auction to sell off assets was not feasible. Instead, the parties agreed to a plan that reorganized LandSource as a going concern. Under the revised plan, unsecured creditors would receive cash payments versus equity in the reorganized company. Once the plan became effective, Lennar Corporation, a partner of LandSource, agreed to invest over $138 million in the newly reorganized company.
Commencement of the Preference Actions
On July 20, 2009, approximately 13 months after filing for bankruptcy, the Bankruptcy Court entered an order confirming LandSource’s Second Amended Chapter 11 Joint Plan of Reorganization (the “Plan”). LandSource’s Plan became effective July 31, 2009. Pursuant to the Plan, preference actions belonging to the bankruptcy estate were assigned to the Litigation Trust. Under the Order confirming LandSource’s Plan, KDW Restructuring & Liquidation Services LLC was appointed the Litigation Trustee.
Pachulski Stang Ziehl Young and Jones serves as Plaintiff’s counsel. This bankruptcy proceeding, along with these avoidance actions, are before the Honorable Kevin J. Carey, Chief Judge of the Delaware Bankruptcy Court. For further information regarding this bankruptcy proceeding, see the Memorandum of Law in Support of Confirmation of the Second Amended Joint Plan, filed by Barclays Bank as administrative agent. A copy of Barclay’s Memorandum is available here. Prior posts from this blog concerning Delaware preference litigation are available here.