Bankruptcy Judge Approves Breitburn Stakeholders’ Request to Form an Official Committee

by San Antonio Attorney

U.S.  Bankruptcy Judge Stuart Bernstein approved the request of equity investors in Breitburn Energy Partners to form an official committee, which will allow the stakeholders of the bankrupt company to have a say in the process of negotiating the restructuring.

The Los Angeles-based oil and gas producer sought for Chapter 11 bankruptcy protection in May.  It is one of over a hundred energy producers that have declared bankruptcy in the most dire energy price collapse ever.

The public unit investors started pushing for an official representation in the bankruptcy court afterward, arguing they could wind up being accountable for taxes in case Breitburn discharged some of its approximately $3.1 billion in liabilities in a restructuring.

Equity holders need to show that they have a chance to get their investments back when pressing for a representation in court, which would push for recovery of equity.

It is uncommon for bankruptcy judges to grant such requests.  However, as prices of oil have bounced back to around $50 per barrel from $26 per barrel, the judges have approved such committees in energy bankruptcy cases, including Hercules Offshore Inc. and Energy XXI Ltd.

Upon approval of the investors’ request, the judge said the commission should concentrate on the company’s reorganization plan and its ability to meet its long-term expenses and sustain growth.  The commission should also examine the probable tax hit the investors face, Bernstein said.

The lawyers for Breitburn told the bankruptcy judge that the issue about taxes was mainly for Breitburn, and that the company’s plan would seek to alleviate its impact.

Attorneys trying to persuade the court to allow the investors to form a committee had argued that the company had raised $350 million in preferred stocks in early 2015, at the time when oil price was almost the same amount right now, an indication that Breitburn is already “hopelessly insolvent.”

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