Tuscany International Drilling Inc T.TID

Tuscany Drilling Slammed Over Ch. 11 Strategy (Full)

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w360, Wilmington (February 26, 2014, 9:45 PM ET) -- Tuscany International Drilling Inc. was hit with criticism on two fronts Wednesday in its Delaware Chapter 11 proceeding, with the U.S. trustee’s office blasting a request to waive notice requirements for some South American creditors, while equity holders took issue with the case's proposed speed.

U.S. Trustee Roberta A. DeAngelis filed an objection to the Calgary, Alberta-based oil and gas exploration firm's waiver request, which the bankruptcy watchdog says would allow Tuscany to pay certain South American creditors at its discretion while not being required to notice them about the bankruptcy.

Tuscany had contended that the South American creditors' inexperience with bankruptcy could prompt them to cut ties and possibly expose the firm's assets to adverse actions to secure repayment, but the U.S. trustee’s office argues that a waiver of the notice requirements would amount to a “secret bankruptcy filing” regarding those creditors, according to the motion.

“Notice is an important component of a creditor’s due process rights, which should not be waived because of the debtors’ beliefs regarding the possible effect of providing notice to their creditors,” the motion states. “There is no authority to support a ‘secret’ bankruptcy filing.”

The U.S. trustee contends that Tuscany’s request is “unique” and would alter the Bankruptcy Code’s debt schedule scheme by favoring general unsecured creditors in South America over all other creditors in Canada and the U.S.

Moreover, the bankruptcy watchdog argues that the debtor’s motion would allow it to pay the South American creditors at its discretion, and also deprive them of their due process rights while limiting their participation in the case.

“Even if the court were to require payment of such claims in full, the persons being paid would not be informed that they have such a right, or that a court is even considering the matter,” the motion states. “The debtors should not be permitted to cherry-pick which provisions of the Bankruptcy Code they want to comply with. The Bankruptcy Code and bankruptcy rules are not options; they are the law that a debtor agrees to comply with upon filing a bankruptcy petition.”

Tuscany, which focuses on the South American market, requested in its first-day pleadings authorization, but not a requirement, to pay certain foreign claims in order to prevent disruption to the business, according to court records.

The debtor derives nearly all of its revenue from South America, including from nondebtor affiliates in Brazil and Colombia, but its Ecuador business is a branch of the debtor that functions as a distinct entity. Because bankruptcy laws in Ecuador deal mostly with liquidation, Tuscany also requested a waiver of notice requirements out of fear a misunderstanding would stop the flow of goods, money and services throughout the company and erode its value, Tuscany said in its pleadings.

Meanwhile, the oil and gas firm also faced a knock from an ad-hoc committee of equity holders, who argue that the proposed schedule that would see Tuscany travel from Chapter 11 filing to confirmation in about three months is much too squeezed.

The equity holders say the timetable is “particularly troubling” because of what they claim is a lack of disclosure about prior marketing and restructuring efforts, and what appears to have been offers received that would have provided some recovery for shareholders.

“Rather than pursuing an offer that could maximize value for the debtors' estates, they now seek to rush through a transaction that will provide no recovery to existing shareholders, other than certain insiders,” the equity holders’ motion states.

The shareholders are also pushing to delay a Monday hearing on several matters in the case until the U.S. trustee’s office replies to its request for the formation of an official equity committee.

An attorney for Tuscany declined to comment Wednesday.

Tuscany is hoping to sell its assets under a restructuring support agreement with lenders — which hold roughly 95 percent of a $200 million loan administered by Credit Suisse AG —putting in a credit bid, according to a bankruptcy declaration from Chief Restructuring Officer Deryck Helkaa.

Tuscany plans to continue shopping its assets during the Chapter 11, as part of a search for a higher and better offer, the declaration states.

The company filed for Chapter 11 protection Feb. 2, after experience revenue and cash flow woes that began in 2012 due in part to low rig utilization, nonpayment by certain customers on large overdue accounts, and underperforming acquisitions in Brazil and Africa, according to the declaration.

The company listed liabilities of between $100 million and $500 million against the same in assets.

The ad-hoc committee of equity holders is represented by Adam G. Landis, Kerri K. Mumford, J. Landon Ellis and Joseph D. Wright of Landis Rath & Cobb LLP.

Tuscany is represented by Michael R. Nestor and Kara Hammond Coyle of Young Conaway Stargatt & Taylor LLP; and Mitchell A. Seider, Keith A. Simon, David A. Hammerman and Annemarie V. Reilly of Latham & Watkins LLP.

The case is In re: Tuscany International Holdings (USA) Ltd. et al., case number 1:14-bk-10193, in the U.S. Bankruptcy Court for the District of Delaware.

--Additional reporting by Jamie Santo. Editing by Edrienne Su.