February 24, 2014 / 8:16 PM / 4 years ago

Ergen cannot stop LightSquared advancing bankruptcy exit plan -judge

NEW YORK, Feb 24 (Reuters) - Bankrupt wireless venture LightSquared can move forward with a restructuring proposal over the objections of its biggest creditor, Dish Network Corp Chairman Charles Ergen, a judge said on Monday.

Judge Shelley Chapman approved the framework of a plan at a hearing in the U.S. bankruptcy court in Manhattan, which means LightSquared can lobby creditors to support its plan before a hearing on final confirmation next month. But the company’s restructuring is still a long way from over.

Ergen contends the plan would treat his claims unfairly, while LightSquared has argued in a separate lawsuit that Ergen built up his debt position illegally and that it should be reduced or wiped out.

Chapman ruled the debate should be left until the confirmation stage. A final confirmation hearing is due to begin on March 17. Closing arguments in the lawsuit against Ergen are set for March 12.

LightSquared filed for bankruptcy protection in 2012 after the Federal Communications Commission revoked its wireless license amid concerns that its plan for a broadband network would interfere with GPS communications.

Ergen, through an investment vehicle, bought a controlling stake of LightSquared’s senior loan debt for his personal account.

LightSquared claims the purchases were really made on Dish’s behalf, contravening a ban on competitors like Dish from owning LightSquared debt. A Dish unit made a $2.2 billion bid for LightSquared last year but dropped the bid in January.

Earlier this month, LightSquared filed its restructuring plan, offering to drop the lawsuit if Ergen would agree to be repaid with a note that would mature in seven years.

In court on Monday, a lawyer for Ergen likened the offer to trying “to bind us in duct tape, throw us in the trunk of the car and take us on a seven-year ride.”

The lawyer, Rachel Strickland, argued that LightSquared would have to score a complete win in its lawsuit for its bankruptcy plan to work. “You’re not allowed to propose a plan that says, ‘When I find that pot of gold at the end of the rainbow, it’s all going to be fine,'” she said.

Chapman said determining the fairness of the proposal required discovery and hearings. “I‘m not going to say ‘Lights Out’ on this company today,” she said. “I‘m simply not.”

LightSquared’s bankruptcy loan lasts through April 15. A ruling on the lawsuit against Ergen would not come until mid-to-late March.

If the court determined that Ergen’s claim was valid, LightSquared would have to finance a new restructuring plan that would repay Ergen in cash, or face liquidation.

Strickland said Ergen’s investment vehicle was willing to provide the company with more financing to fund future negotiations, but she said LightSquared and its other stakeholders had no incentive to negotiate while the current deal was on the table.

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