The U.S. Trustee on Friday asked U.S. Bankruptcy Judge Sean Lane to reject the disclosure statement for the American Airlines and AMR plan of reorganization, and the severance package for AMR/AA chairman and CEO Tom Horton was a major reason.

In its filing, the trustee’s office said the statement “cannot be approved because it is based on a Plan that cannot meet the requirements of section 1129(a)(1) and as such, cannot be confirmed.”

“Specifically, the Plan requires impermissible payments to be made for the reimbursement of legal expenses of certain key creditors and to the Debtors’ Chief Executive Officer, which payments are either expressly prohibited by the Bankruptcy Code or permitted only if the requirements of section 503(b) and/or 503(c) have been met. Unless these provisions are removed from the Plan, the Plan is not confirmable and neither the Plan nor the Disclosure Statement may be approved,” it stated.

Judge Lane had previously disallowed Horton’s nearly $20 million exit package when he approved the rest of the proposed merger between AMR and US Airways.

The court holds a hearing June 4 on the disclosure, with Friday as the deadline for registering objections. Lane’s approval of the disclosure statement is needed before AMR/AA can begin soliciting approvals from stakeholders for the bankruptcy exit plan.

U.S. Trustee objects to plan of reorganization for AMR and American Airlines
By Terry Maxon
[email protected]
1:10 pm on May 24, 2013 | Permalink

The U.S. Trustee on Friday asked U.S. Bankruptcy Judge Sean Lane to reject the disclosure statement for the American Airlines and AMR plan of reorganization, and the severance package for AMR/AA chairman and CEO Tom Horton was a major reason.

In its filing, the trustee’s office said the statement “cannot be approved because it is based on a Plan that cannot meet the requirements of section 1129(a)(1) and as such, cannot be confirmed.”

“Specifically, the Plan requires impermissible payments to be made for the reimbursement of legal expenses of certain key creditors and to the Debtors’ Chief Executive Officer, which payments are either expressly prohibited by the Bankruptcy Code or permitted only if the requirements of section 503(b) and/or 503(c) have been met. Unless these provisions are removed from the Plan, the Plan is not confirmable and neither the Plan nor the Disclosure Statement may be approved,” it stated.

Judge Lane had previously disallowed Horton’s nearly $20 million exit package when he approved the rest of the proposed merger between AMR and US Airways.

The court holds a hearing June 4 on the disclosure, with Friday as the deadline for registering objections. Lane’s approval of the disclosure statement is needed before AMR/AA can begin soliciting approvals from stakeholders for the bankruptcy exit plan.

UPDATE, 2:45 p.m.: American will respond with a formal filing before the June 4 hearing.

“We do not expect any delay in the approval of the disclosure statement or voting on the plan of reorganization which has the full support of the unsecured creditors committee,” American spokesman Sean Collins said.

“Consistent with what American indicated previously, the company expects that Mr. Horton’s compensation arrangement will be addressed at the plan confirmation hearing,” Collins said.

Under the merger agreement approved by both airlines’ boards of directors Feb. 13, Horton will remain as non-executive chairman of the board of directors of the successor company, American Airlines Group Inc. However, he will no longer be an employee.

The agreement provides that he will relinquish his title as chairman on one of the these three dates: the first anniversary of the merger; the day before the first annual meeting, but not before May 1, 2014; or upon a vote of 75 percent of the directors of the new board, with one vote having to come from a director that had been nominated by pre-merger AMR.