According to an article in Reuters, unsecured creditors of Freedom Communications Holdings Inc. called the company’s bankruptcy plan “immoral and wicked.”
The article said:
“Freedom’s proposed bankruptcy plan would give secured bank lenders almost all of the reorganized company’s equity and $325 million in new notes. In return, secured lenders including JPMorgan Chase & Co, SunTrust Banks Inc and Union Bank of California would forgive $770 million in debt…Under the same proposal unsecured creditors with claims of $300 million were to split only $5 million. The unsecured creditors would receive nothing if they voted against the plan.”
Unsecured creditors are now petitioning the bankruptcy court to allow them to create an alternative bankruptcy plan. Normally, a business that has filed bankruptcy is allowed to exclusively develop their own bankruptcy plan; but under certain circumstances that right may be turned over to creditors. This is what occurred during Six Flags’ Chapter 11 bankruptcy.
In the case of Freedom, it is not unusual for unsecured creditors to received very little or even nothing during bankruptcy; however the large disparity between what they would receive if the bankruptcy plan was approved and what the secured creditors would receive has prompted their protest.