Judge Confirms Lordstown Motors’ Chapter 11 Exit Plan

YOUNGSTOWN, Ohio – “A very controversial beginning,” as Lordstown Motors Corp.’s attorney said. As he said, the failed EV startup’s Chapter 11 bankruptcy ended Tuesday with what an attorney for defrauded shareholders described as “a harrowing moment.”

In fact, even Judge Mary F. Walrath expressed surprise that almost all of the parties in the case “have overcome all obstacles … against all odds and my innermost predictions,” she said.

Walrath made the comments at the conclusion of a 90-minute hearing in U.S. Bankruptcy Court in Delaware where he upheld Lordstown Motors’ third Chapter 11 restructuring plan, finding the company eligible for its debts.

The trial began with attorney David Teretsky calling the deal “a great deal,” the result of “months of hard-fought negotiations.”

On July 27, 2023, when Lordstown Motors filed for Chapter 11 and simultaneously sued Foxconn — its landlord and former investor — alleging fraud in an adversary-related lawsuit, “We faced a lot of issues and loud voices of opposition,” Teretsky said. “It’s amazing that all these parties were able to come together and resolve these issues.”

The series of settlements began with Lordstown Motors agreeing to pay Karma Automotive $40 million to settle its $1 billion trade secret claim. Settlements were later reached in lawsuits brought by shareholders who accused former Lordstown Motors officers and directors of fraud.

On March 1, Lordstown Motors accepted a cease and desist order with the SEC and forfeited $25.5 million to settle the class action lawsuits. On Monday, Lordstown Motors agreed to pay $15.5 million to settle an additional shareholder lawsuit over the company’s merger with DiamondPeak Holdings Corp. in 2020, which debuted publicly.

“This was a very difficult case. … A case that provides this much relief on a collateral claim is unusual,” said the attorney representing the plaintiffs in the Ohio Securities class action lawsuit. Throughout the months of negotiations, he noted, he thought it unlikely there would be ” a bad time like we have right now.”

Even Lordstown Motors and Foxconn were able to negotiate an agreement where Foxconn would retain its proposed equity rights but also provide a $5 million “backstop” to help pay $10 million to the Ohio class action plaintiffs.

Still, Foxconn’s lawyer told Walrath that the Taiwanese company still plans to “fully determine the conduct of the rival.” Filed a motion to dismiss Lordstown Motors’ fraudulent claims. A hearing date has not been set.

Lordstown Motors expects to emerge from Chapter 11 with $78.4 million before making distributions to creditors, who will be paid in full, by shareholders, or reserving for future legal claims.

The reorganization plan also preserves “significant tax benefits,” said Daniel A. Ninivaggi, executive chairman of Lordstown Motors, “which includes approximately $993.2 million in federal and $880.3 million in state and local operating losses as of Dec. 31.”

And the plan preserves, post-bankruptcy, the ability of Lordstown Motors “to conduct business, including suing (former officers and directors), engaging in business that the new board may determine and carrying out transactions that may increase the value of the tax credits and other assets,” Ninivaggi said.

Before approving the confirmation plan, Walrath heard the only remaining objections, one from a shareholder, which he quickly dismissed, and another from the United States Trustee, who objected to the fact that Lordstown Motors would continue to do business after bankruptcy, but not. for making electric trucks.

The judge found no fault in the company’s intention “to proceed with mergers or acquisitions that will allow it to use its NOL (net operating loss).”

“I don’t think we would need asbestos manufacturers to run that kind of business and be discharged (from Chapter 11),” Walrath said.

“The debtor has climbed the mountain and shown that it is possible to achieve what he sets his mind to. I clearly see that this plan is feasible and meets all the criteria for release.

Copyright 2024 The Business Journal, Youngstown, Ohio.