Unsecured creditors in the XFL Chapter 11 Bankruptcy proceedings are weary of a possible move by Vince McMahon to revive the league and repurchase assets at a lower cost. In recent proceedings, the committee seeking reimbursement from McMahon’s league’s arrears are worried that the auction of assets is being done too soon to the advantage of the WWE head so that he can repurchase the assets.
The Athletic reports that the XFL president Jeffrey Pollack had called venues in St. Louis and Seattle about reinstating lease agreements. With a reinstatement of agreements, this would infer that the league is not dead yet. In addition, Alpha Entertainment, LLC is requesting that season tickets be refunded out of the
The current proposal has the sale of assets occurring via auction on July 8, 2020 which the committee believes is too soon for parties to assess the value of assets that may be sold. The committee is proposing a longer time of September 7, 2020. It also requests that Vince McMahon not be permitted to credit bid as they are not clear as to his intentions prior to Chapter 11 as they infer that there may have been a breach of loyalty and fiduciary duty. In this case, the committee questions the short time from filing of the Chapter 11 until the time of the auction off of assets as it would infer that McMahon may have strategically positioned this bankruptcy in order to avoid paying unsecured creditors. A credit bid is the right of a secured creditor under the Bankruptcy Code to use its secured claim against a debtor as currency in an auction of its collateral. Here, Alpha Entertainment, LLC is in Chapter 11 and McMahon happens to be a secured creditor (i.e., Alpha owns McMahon money and the money is secured by a portion of the assets of the company).
In addition, the committee of unsecured creditors objected to Alpha Entertainment’s proposal to pay $3.5 million in season ticket refunds. In its file this past week, the attorneys for the committee wrote, “The debtor cannot possibly know at this time whether issuing refunds to season ticket holders will preserve the value of the debtor estate’s or benefit any creditor other than possibly McMahon.” As The Athletic points out, the only reason for refunding the money to season ticket holders is to maintain goodwill to the fans for an eventual return. Season ticket holders would likely not receive a refund in the bankruptcy as they are considered unsecured creditors which are last in line in repayment.
The Bankruptcy proceeding differs from Oliver Luck’s lawsuit against Vince McMahon because the former XFL commissioner contends that McMahon personally guaranteed his salary. In opposition papers, McMahon’s lawyer argues that Alpha Entertainment, LLC is an “indispensable party” that Luck must sue in his lawsuit which would force Luck to get in line as a creditor in bankruptcy court.
Payout Perspective:
Based on the reporting from The Athletic and the bankruptcy filings, one may infer that McMahon is positioning himself to reacquire assets from the league as a way to regroup after COVID-19 sorts itself out. In Bankruptcy Law there are there are secured and unsecured creditors. Secured creditors are those that hold a lien on the debtor’s property whether it is real or personal. This gives the secured creditor an interest in property if it is sold to satisfy debt in cases of default. An unsecured creditor does not retain specified assets as collateral. In Chapter 11, unsecured creditor committees deal with the hierarchy of creditor claims. In this case, McMahon’s effort to refund season ticket holders probably drew the ire of other unsecured creditors that will lose money due to the bankruptcy. The unsecured creditors committee has to decipher the hierarchy of claims because they realize that the secured creditors will be paid first and that unsecured creditors are the unlikeliest of parties to receive their full amount of money back.
One might foresee a prolonged legal battle from McMahon, the unsecured creditors, the United States Trustee (which serves as a quasi-referee in the battle for money) and potential buyers of the assets. MMA Payout will continue to follow.
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