* Trustee says third party releases may be improper
* Dynegy, Dynegy Holdings to combine
* Sept. 5 hearing to approve Chapter 11 plan
Aug 28 The U.S. government is opposing the
effort by Dynegy Inc and its Dynegy Holdings LLC unit
to emerge from Chapter 11 bankruptcy, saying their
reorganization plan may improperly limit the ability of third
parties to bring liability claims.
U.S. Trustee Tracy Hope Davis, whose office is a component
of the Department of Justice, filed an objection to the plan on
Monday in the U.S. bankruptcy court in Poughkeepsie, New York,
nine days before a Sept. 5 hearing in which Dynegy hopes to win
court approval of its reorganization.
Dynegy this week said its plan had won overwhelming support
from creditors holding about $3.5 billion of claims.
But Davis, whose office oversees bankruptcy cases in the New
York area, said the power producer has not shown that its
proposed "broad, non-consensual third party releases of
liability" comply with bankruptcy law, and that such releases
are proper only in rare circumstances.
"A nondebtor release is a device that lends itself to
abuse," Davis wrote, quoting a 2005 decision by the federal
circuit court of appeals in New York. "Unless and until the
debtors meet their burden by demonstrating compliance with the
law of this circuit and the bankruptcy code, the court should
decline to confirm the plan as proposed."
Katy Sullivan, a Dynegy spokeswoman, said, "Our plan
received widespread support from creditors and we will respond
to the U.S. Trustee's objections through the established legal
Dynegy Holdings filed for Chapter 11 last November amid a
dispute over control of some coal-powered plant assets.
The Houston-based parent filed for bankruptcy in July as
part of a reorganization that calls for creditors to take a 99
percent stake in a combined Dynegy and Dynegy Holdings, with
shareholders getting a claim for the remainder plus warrants.
Dynegy is the same company that in 2001 canceled plans to
buy larger rival Enron Corp, which later collapsed. Shares of
Dynegy closed Monday at 41.6 cents on the Pink Sheets.
The cases are In re: Dynegy Holdings LLC, U.S. Bankruptcy
Court, Southern District of New York, No. 11-38111; and In re:
Dynegy Inc in the same court, No. 12-36728.