Bankruptcy Lawyer Bryan W. Stone answers the question: “What is Chapter 11 Bankruptcy?”
The hits just keep on coming for Caesars Entertainment Corporation. The company is one of the largest gaming companies in the world, owning and operating over dozens of casinos and hotels including Harrah’s. It filed for Chapter 11 business reorganization bankruptcy in 2014 for $18 billion in debts but the case has been fraught with issues ever since: fraud, a 7-million page investigatory report, one very angry judge, and now, a ruling that an extramarital affair nullifies the entire report.
First, some background. Creditors alleged back in 2014 that Caesars had intentionally stripped the entertainment group’s casino operating unit of its best assets before filing for bankruptcy. Junior bondholders claimed that the transfer of Caesars’ more valuable properties and casinos was designed to create a profitable section of the company that would keep returning profits for the company’s private equity owners and a section that was doomed to bankruptcy. Caesars is a publicly-traded company but is majority-owned by a group of private equity firms, including TPG Capital and Apollo Global Management.
What the bondholders allege is referred to as hiding assets in the world of bankruptcy. It is considered fraud and can have civil and criminal consequences.
Court orders investigation into Caesars dealings
The allegations prompted the Chicago bankruptcy judge to order an independent investigation into the matter. The final report would be used to help Caesar negotiate an edited restructuring plan with the bondholders. Months later, as the investigation was drawing to a close, Caesars asked the court for the 7-million page report to filed under seal. The judge was furious. The company’s bankruptcy case was dependent on the examiner’s report, and objecting to the report ever being released was highly suspicious.
Caesars fights release of the investigation’s report
The bankruptcy judge decided to allow for a redacted version of the report to be filed temporarily along with a public summary, but ordered the examiner to figure out a new procedure that would release the full report. The judge threatened to convert Caesars bankruptcy case from a Chapter 11 reorganization to a Chapter 7 liquidation, or dismiss the case altogether if the company continued to insist the report stay sealed.
The report was considered a major hurdle for Caesars in gaining the support of its bitter bondholders for the restructuring plan the company proposed to the court in its bankruptcy filing. The restructuring plan envisioned splitting the bankrupt section of the company into a property company and a casino operator.
…Now throw in an affair
Then, another scandal broke that further complicated the matter. The “independent” investigatory financial team Caesars hired to probe whether or not they were hiding assets turns out to have been headed by financial advisor Melissa Knoll, who at the time was having an extramarital affair with an attorney for Caesars named Vincent Lazar.
Knoll disclosed the affair to the court last year. The judge ordered a separate bankruptcy court investigator to again dig through the company’s finances.
The judge, in a hearing last month that only just recently came to light, flat-out accused Knoll of “sleeping with the enemy.” The investigatory report was now tainted regardless of whether it was released in full, the judge stated. The conflict of interest calls into question whether Knoll shared any of the information in the report with Lazar.
Separate court-ordered bankruptcy investigation
The separate investigator the judge appointed finished his report earlier this year, and the results did not improve things for Caesars. The report concluded that Caesar and its majority backers TPG and Apollo Global Management orchestrated a series of transactions that give rise to up to $5.1 billion in damages for the bankrupt unit and its creditors. This pales in comparison to the $1.8 billion Caesars has offered the creditors as part of its restructuring plan.
The equity firms and Caesars have denied the allegations, but the report could be extremely damaging to the company’s already tenuous bankruptcy case. Experts say it increases the settlement value creditors are pursuing in Caesar’s restructuring plan.
Caesars is supposed to have a plan worked out with the creditors to present to the judge for approval this September, which does not give the company much time to work out all of the issues involved in this case. It will be interesting to see what action the judge decides to take on the case and whether any of the companies involved face fraud charges.
If you are contemplating bankruptcy in the Charlotte area, please call the skilled lawyers at Arnold & Smith, PLLC find additional resources here. As professionals who are experienced at handling all kinds of bankruptcy matters, our attorneys will provide you with legally sound advice for your particular situation.
About the Author
Kyle Frost joined Arnold & Smith, PLLC in 2013 where he focuses his practice on all aspects of civil litigation and bankruptcy, including: Chapter 7, Chapter 11, Chapter 13, home loan modifications and landlord-tenant issues.
Born and raised in upstate New York, Mr. Frost attended the University at Albany on a Presidential Scholarship, graduating magna cum laude with a double major in Political Science and Sociology. He went on to attended Wake Forest University School of Law in Winston Salem, North Carolina.
Following college, Mr. Frost spent over a year teaching English in South Korea. He worked in a private school in Seoul developing curriculum, English programs, and educating both children and adults that were interested in learning a new language.
In his spare time, Mr. Frost enjoys homebrewing, fishing, and travelling.
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