telexfree-logoTo the best of my knowledge there are four claims and allowances matters that are going to be heard next Tuesday.

Alvarez and Marsal initially wanted $876,463.72, Greenberg and Traurig initially wanted $1,044,813.95, Gordon Silver want $230,000 and Stuart MacMillan (interim CEO) is demanding he be paid $107,089.45 for expenses and services rendered.

Following negotiations with the SEC and TelexFree Chapter 11 Trustee, Stephen Darr, Alvarez and Marsal have agreed to a 51.4% reduction ($435,000). Similarly, Greenberg Traurig are now only asking for 37.9% of their initial request ($396,073.82).

Gordon Silver and Stuart MacMillan are still holding out, believing that they are entitled to the full sum of what they are asking.

In a series of filings made yesterday, the Department of Justice’s US Trustee for Massachusetts, William Harrington, advised that he “has no objection” to the adjusted amounts requested by Alvarez and Marsal and Greenberg Traurig.

Not surprisingly, the DOJ have objected to Gordon Silver and MacMillan’s demands.

Harrington’s objection to Gordon Silver is succinct:

William K. Harrington, the United States Trustee, by and through counsel, states that he agrees with the statements made by Stephen Darr, Chapter 11 trustee, and the Securities and Exchange Commission, in their respective objections to the application for fees and expenses filed by Gordon Silver in this case.

The United States Trustee asserts that many of the services described in the fee application were not reasonable and necessary, and did not benefit the estate as these services did not advance the reorganization process.

The SEC filed their objection a few days ago. In it, Gordon Silver’s professional conduct is questioned, along with claims they “shamelessly” handled the case and “should have never been hired at all”.

The objection filed against MacMillan’s claims goes into a bit more detail, and is quite critical of Stuart MacMillan’s conduct.

William K. Harrington, the United States Trustee, by and through counsel, objects to Application for Allowance of Administrative Expense Claim
(“Application”) filed by Stuart MacMillan (“MacMillan”) because MacMillan has failed to show that the compensation and expenses sought in the Application were actual, necessary or of benefit to the estate.

MacMillan, who had been employed by the Debtors as a consultant in March 2014, was named CEO of the Debtors at a Sunday night board meeting on
the eve of the chapter 11 filing.

MacMillan was also appointed as a director to serve along with Wanzeler and Merrill. As CEO, MacMillan was to report to the board.

After Wanzeler fled and Merrill was arrested, MacMillan was the only board member left and ostensibly reported to himself.

After the TRO entered and Debtors’ assets were seized, the Debtors had no cash, operations, or employees, and, hence, no business to run.

On May 28, 2014, MacMillan sought to be employed as Interim CEO of the Debtors, nunc pro tunc as of the date of the bankruptcy petition filing, pursuant to sections 105(a) and 363 of the Bankruptcy Code.

MacMillan now seeks, as 503(b)(1) administrative expenses compensation for services rendered in the amount of $88,333.51 and out of pocket expenses in the amount of $18,755.94.

Section 503(b)(1) allows for the payment of administrative expenses for “the actual, necessary costs and expenses of preserving the estate . . . .” 11
U.S.C. § 503(b)(1)(A).

The party requesting priority payment of administrative expenses bears the burden of showing such payment is warranted. See Woburn Assoc. v. Kahn (in re Hemingway Transport, Inc.), 954 R.2d 1, 5 (1st Cir. 1992).

“Preservation of the estate includes protection of the assets of the estate, as well as postpetition operation of the business of the debtor.” Id.

In the instant case, postpetition there were no assets to protect or a business to run.

The Application is devoid of any detail as to services rendered, or any explanation of why MacMillan is entitled to payment of administrative expenses,
and MacMillan thus fails to meet his burden of proof.

In his own objection, the Chapter 11 Trustee Stephen Darr, remarked that Stuart MacMillan was in actuality interim CEO of a “non-existent business”.

Given the lack of objection remaining to the fees requested by Greenberg Traurig and Alvarez and Marsal (only one objection by a group of net-loser investors remains), I’d imagine both claims will be approved when the matter comes before the bankruptcy court next Tuesday.

At the same hearing Gordon Smith and Stuart MacMillan’s claims are also to be resolved. Those could go either way but how either party can adequately justify the claims being made, in light of other claimants agreeing to massive reductions, escapes me.

Seems a bit of an all-or-nothing gamble if you ask me.

Pending any new filings over the next few days, we’ll in any event get an answer next Tuesday. Stay tuned…


Update 20th September 2014 – Bit of wheeling and dealing going on these last few days.

Filed overnight were two stipulations between the Chapter 11 Trustee, SEC, Stuart MacMillan and Gordon Silver.

MacMillan has agreed to knock his requested amount from over $107,089 to $88,333, a reduction of $18,755.

The SEC and Chapter 11 Trustee have both stated that, if the stipulation is approved, they ‘will not object to the approval of the payment of fees and expenses to MacMillan in the Reduced Amount‘.

Not sure what the play is here but it’s a significantly lesser amount knocked off the original amount asked for than in the other three cases. No word on whether the DOJ are still objecting.

Gordon Silver has also reached a stipulation agreement, consenting to knock their claim down to $150,755.48, a reduction of $79,244. Just over half of what they had initially asked for.

Again, the SEC and Chapter 11 Trustee have stated they will not object to Gordon Silver being paid the reduced amount should the stipulation be approved.