In re Abengoa Bioenergy Biomass of Kansas, LLC

Abengoa Bioenergy Biomass of Kansas, LLC (ABBK) (debtor) was part of the United States bioenergy group of Spanish corporation Abengoa, S.A. ABBK’s principal asset was an ethanol-and-cogeneration plant that ABBK built in Hugoton, Kansas. ABBK received over $100 million from the United States Department of Energy for the plant. After that money ran out, ABBK obtained funding from Abengoa and ABBK’s affiliates through intercompany transactions. In February 2016, several of ABBK’s affiliates filed voluntary chapter 11 bankruptcy cases in Missouri. The companies’ combined reorganization plan was confirmed in that action. In March 2016, several of ABBK’s creditors filed an involuntary chapter 7 petition against ABBK in Kansas. ABBK converted the case to a chapter 11 case and subsequently sold its plant for $48.5 million. In April 2017, ABBK filed its reorganization plan in the bankruptcy proceeding. The plan classified claims from ABBK’s general unsecured third-party creditors as Class 2 and provided that those claims would be paid pro rata. However, the plan classified the unsecured intercompany claims from the other Abengoa entities as Class 3 and provided that those claims would not be paid. The trustee (creditor) for the ABBK-affiliated debtors in the Missouri action, which held four of the Class 3 intercompany claims, objected to ABBK’s reorganization plan. The trustee asserted that the classification of the intercompany claims was improper. The trustee further argued that the ABBK affiliates’ claims would have been paid pro rata in a chapter 7 action and asserted that because ABBK’s reorganization plan did not provide for the affiliates to receive at least that much, the plan was not in the affiliates’ best interests under 11 U.S.C. § 1129(a)(7)(A)(ii). ABBK’s executive vice president testified that ABBK and its affiliates were integrated entities, and the affiliates knew that ABBK was completely dependent on Abengoa and the affiliates for funding. The affiliates also knew that ABBK’s plant would not be profitable, and none of the affiliates expected to be repaid. The executive vice president also gave undisputed testimony that the subordination and nonpayment of intercompany debts was part of the bioenergy group’s shared management strategy.