The lenders of LightSquared asked the U.S. Bankruptcy Court of Manhattan to grant them the right to sue Phil Falcone and Harbinger Capital in connection with the $263.8 million loan provided for the company. They argued that Falcone & his firm controlled the company and benefited from the deal.
The lenders of LightSquared are asking the court to grant them the right to file a lawsuit against Falcone and his hedge fund, Harbinger Capital, in connection with a loan made to the wireless satellite company, according to report from DowJones.
The legal counsel of the lenders argued that his clients were owed more than $1.1 billion dollars, and they deserved the right to file a complaint against Falcone and Harbinger Capital. According to the lenders, Falcone and Harbinger Capital controlled LightSquared, and they benefited from the transaction in July 2011.
Aside from Falcone and Harbinger Capital, the lenders are also seeking to go after U.S. Bancorp (NYSE:USB). The bank served as an agent for the $263.8 million loan. Glenn M. Kurtz, lawyer for the lenders group said, “They improperly characterized equity as debt.”
Both Harbinger and US Bancorp (NYSE:USB) fought against the lenders group. They argued the lenders have no right to file a lawsuit because they are not the creditor, instead “creditors of a creditor.” They also requested the court to delay its decision on whether the lenders have the right to file a suit, since the recoveries that would be given to creditors in the case were not yet determined.
Last Wednesday, Judge Shelley C. Chapman of the U.S. Bankruptcy Court of Manhattan said it would be impossible for her to make an immediate decision regarding the lenders motion. She said, “There are a lot of complicated issues. It is extremely unlikely that I’m going to have a decision by January 31.”
Judge Chapman also asked Kurtz, if they can wait until the confirmation of LightSquared’s bankruptcy plan before suing Falcone and Harbinger Capital. She also asked if appointing a Chapter 11 trustee to replace the management of LightSquared was an option, instead of filing a lawsuit. Kurtz said a Chapter 11 trustee is a possibility.
Furthermore, Judge Chapman ordered all parties to prepare a written argument regarding the necessity of discussing the LightSquared solvency at the time of the July 2011 loan to determine whether the lenders have the right to sue Falcone and Harbinger Capital.
LightSquared filed for Chapter 11 bankruptcy after the Federal Communications Commission (FFC) revoked its wireless license as the agency determined that its network would interfere with GPS systems. The wireless satellite company is equity controlled by Falcone and his firm.