Bankruptcy Mediation Spurs Board Resignations

In a recent blog post, it was reported that LightSquared, Inc., a company undergoing reorganization under Chapter 11, was ordered by the bankruptcy judge presiding in the case to return to mediation. Now it appears that the head of the company, Philip Falcone and four other board members have voluntarily resigned from the board of directors of the company. The development raises the question whether the negotiations that have taken place during the court-ordered mediation forced these board members to resign.

The simple answer to that question is that it is too early to tell. The discussions at such mediation are probably confidential and no public airing of these talks have occurred. But it is not uncommon in Chapter 11 bankruptcy cases for certain board members and/or corporate officers to be pushed out because their continued involvement in the company either poses an impediment to any opportunity to infuse more capital in to the company or a majority of the board members have concluded that their continued involvement in the company is overly detrimental.

In this case, the fact that Mr. Falcone and these other four board members were installed on the board at the behest of Harbinger Capital Partners and affiliates which has provided and is expected to further provide significant capital for the company to pay off debts and continue to operate exhibits that company’s influence. Once a company opts for bankruptcy protection, in order to achieve a reorganization, the creditors can wield significant leverage over the direction the company will take.

While this development most likely proves that the mediation is bearing some success, according to Erik Gordon, a professor at the University of Michigan’s business and law schools, this does not necessarily mean that the critical part of the Chapter 11 bankruptcy case is complete. Judge Stanley Chapman previously ordered the case back to mediation. His approval will be necessary for any mediated plan to ever take effect.

Mr. Giddens and the other attorneys at Giddens & Gatton Law, PC have experience advising New Mexico business owners as to which corporate entity will best serve their company’s needs. Giddens & Gatton Law, PC is located at 10400 Academy Road N.E., Suite 350 in Albuquerque, New Mexico. Call the office at (505) 633-6298 to set up an appointment or visit the firm’s website at giddenslaw.com for more information.