On the day that the debtors in the SunEdison Chapter 11 case (Case No. 16-10992) (the debtors) filed for bankruptcy, they also moved to appoint an examiner. The debtors made this request because of, among other things, problems with the debtors' prepetition internal controls over financial reporting. Indeed, only several months prior to filing for Chapter 11 protection, the debtors reported equity value in the billions of dollars. Ultimately, however, the debtors withdrew their examiner motion and the attendant investigative responsibilities were largely deferred to the Official Committee of Unsecured Creditors (the Committee). Notably, the Committee never filed an official report on the debtors' value.

During the debtors' Chapter 11 case, the debtors continued to publicly report substantial equity value. Notwithstanding these figures, the court twice declined to appoint an equity committee and ultimately overruled shareholder objections to confirmation of the debtors' plan, which argued that the debtors were improperly funneling value that belonged to shareholders (who received nothing under the plan) to creditors, in violation of the absolute priority rule. In making these determinations, the court ruled that the debtors were “hopelessly insolvent,” basing that conclusion on the unreliability of the debtors' publicly-reported figures and on evidence that the debtors' debts far exceeded the debtors' market value.

The SunEdison case serves as an important reminder to investors that a company's publicly-reported equity value may not be indicative of the company's true value. But this case also raises questions as to whether the process employed was the best way to arrive at the ultimate result. Among other questions—given that the Committee took on a role that preempted an examiner, should the Committee have been required to provide a report on its conclusions regarding the debtors' value? And, if the Committee had filed such report, how much easier would it have been for the court to deal with frustrated equityholders? It will be interesting to see how such issues are handled as similar cases are filed in the future.

Background

The SunEdison debtors filed for Chapter 11 on April 21, 2016 (the petition date). Prior to the petition date, between 2013 and 2015, in order to fund their primary business (developing renewable-energy projects), the debtors raised approximately $24 billion in debt and equity. In the debtors' unaudited Form 10-Q for the quarterly period ended September 30, 2015 (issued in November 2015), the debtors reported approximately $2.4 billion in cash and $4.5 billion in shareholder equity. In other words, just several months before filing for bankruptcy, the debtors publicly reported that they were substantially solvent.