New York business solutions, governance, restructuring & bankruptcy attorney Martin Bienenstock of Proskauer Rose discusses how he helped Texaco.
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Texaco had an extraordinary issue arise. Everyone knows about why it had to go into Chapter 11, which was that Pennzoil Company obtained from a Houston court an $11 billion judgment against Texaco. And when the Supreme Court ruled that Texaco had to post a bond like anyone else, Texaco had to file and commence its Chapter 11 case. The problem was that after Texaco reached a settlement with Pennzoil to settle the $11 billion judgment for approximately $3 billion a person known at that time as a corporate raider came by and asked the bankruptcy court if he could propose a competing Chapter 11 plan. Under his plan, Pennzoil would receive the same $3 billion as under the Texaco plan, all the other creditors would be paid in full, and shareholders would retain their shares. But his plan went one step further and it would eliminate all of the poison pills in Texaco’s corporate charter, which would make it susceptible to being purchased on the market and then sold off in parts for a quick profit.
And the way we convinced the bankruptcy court to disallow that competing plan was to show that once the debtor or creditor problem was solved by the $3 billion deal with Pennzoil, the changing of the corporate governance was outside the bankruptcy power of the court. It could only do things necessary for reorganization it could not use its process to change corporate governance to eliminate poison pills, which in Delaware would have required a vote of 80 percent of the outstanding shares. The corporate raider was attempting to use the bankruptcy codes more lenient voting rules to change the corporate charter. So we convinced the court this was outside its power and it rejected the competing Chapter 11 plan.