IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF ...

[Pages:21]Case 18-10182-KG Doc 18 Filed 01/30/18 Page 1 of 11

IN THE UNITED STATES BANKRUPTCY COURT FOR THE DISTRICT OF DELAWARE

In re: ENSEQUENCE, INC.,1

Debtor.

Chapter 11 Case No. 18-10182 (KG)

MOTION OF DEBTOR FOR ENTRY OF AN ORDER AUTHORIZING RETENTION AND PAYMENT OF PROFESSIONALS UTILIZED BY DEBTOR IN ORDINARY COURSE OF BUSINESS

The above-captioned debtor and debtor-in-possession (the "Debtor") hereby moves (the "Motion") for an order, substantially in the form attached hereto as Exhibit A, authorizing the retention and payment of professionals utilized by the Debtor in the ordinary course of business. In support of the Motion, the Debtor relies upon the Declaration of Michael Wyse in Support of Chapter 11 Petition and First Day Pleadings, filed with the Court concurrently herewith (the "First Day Declaration"). In further support of the Motion, the Debtor, by and through its undersigned counsel, respectfully represents:

JURISDICTION AND VENUE 1. This Court has jurisdiction over this matter pursuant to 28 U.S.C. ?? 157 and 1334 and the Amended Standing Order of Reference from the United States District Court for the District of Delaware, date February 29, 2012. This is a core proceeding within the meaning of 28 U.S.C. ? 157(b)(2). The Debtor confirms its consent, pursuant to Rule 9013-1(f) of the Local Rules for the United States Bankruptcy Court for the District of Delaware (the "Local Rules"), to the entry of a final order to the extent that it is later determined that the Court, absent the

1 The Debtor's last four digits of its U.S. federal tax identification number are 6904. The address for the Debtor's headquarters is 420 Lexington Ave., Suite 408, New York, NY 10170.

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consent of the parties, cannot enter final orders or judgments consistent with Article III of the United States Constitution.

2. Venue of this case is proper in this District pursuant to 28 U.S.C. ? 1408. 3. The statutory predicates for the relief requested herein are sections 105(a), 327, 328, 330, and 331 of title 11 of the United States Code (the "Bankruptcy Code"), Rules 2014 and 2016 of the Federal Rules of Bankruptcy Procedure (the "Bankruptcy Rules"), and Local Rules 2014-1.

BACKGROUND 5. On January 30, 2018 (the "Petition Date"), the Debtor filed a voluntary petition in this Court commencing a case for relief under chapter 11 of the Bankruptcy Code (the "Chapter 11 Case"). 6. The Debtor continues to manage and operate its business as a debtor in possession pursuant to Bankruptcy Code sections 1107 and 1108. 7. No trustee, examiner or committee has been requested in this Chapter 11 Case. 8. The factual background regarding the Debtor, including its business operations, its capital and debt structures, and the events leading to the filing of this Chapter 11 Case, is set forth in detail in the First Day Declaration.

RELIEF REQUESTED 9. The Debtor customarily retains the services of various attorneys, accountants, and other professionals to represent its interests in matters arising in the ordinary course of its business, unrelated to this Chapter 11 Case (the "Ordinary Course Professionals"). A list of the Debtor's current Ordinary Course Professionals is attached as Exhibit 1 to the proposed order submitted herewith.

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10. The work of the Ordinary Course Professionals is directly related to the preservation of the value of the Debtor's estate. Even though the amount of fees and expenses incurred by the Ordinary Course Professionals represents only a small fraction of the value of its estate, the Debtor cannot continue to operate as a debtor-in-possession unless it has access to these professionals.

11. Given the necessity of these services, the delay associated with the application procedures applicable to bankruptcy professionals would hinder the Debtor's ongoing business operations. Further, some Ordinary Course Professionals may not be able to abide by such procedures, which would leave the Debtor looking for replacements. This would impose a cost that the Debtor cannot currently absorb, as it would require new professionals to take additional time to get acquainted with the specifics of the Debtor's business, and may result in the Debtor paying these new professionals higher rates for the same work.

12. The relief sought in this Motion may result in avoiding the additional cost of preparing retention and fee applications. This cost would be significant, and would be borne by the Debtor's estate. Moreover, individual applications by each of these Ordinary Course Professionals would unnecessarily burden the Clerk's office, this Court, and the United States Trustee (the "U.S. Trustee").

13. By contrast, granting this Motion will benefit the Debtor, its estate, and creditors by providing cost-effective access to professionals who have an existing relationship with, and understanding of, the Debtor and its operations. Accordingly, because it is in the best interest of all of the parties and the creditors, to avoid any disruption in the professional services rendered by the Ordinary Course Professionals in the day-to-day operations of the Debtor's business, this Motion should be granted.

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14. By this Motion, the Debtor seeks authorization to: (a) retain the Ordinary Course Professionals under Bankruptcy Code section 327 without the necessity of a separate, formal retention application approved by this Court for each Ordinary Course Professional; and (b) pay the Ordinary Course Professionals under Bankruptcy Code sections 330 and 331 for services rendered and expenses incurred after the Petition Date, subject to certain limits set forth below, without the necessity of additional Court approval.

15. In contrast, the Debtor has filed individual retention applications for any professionals that the Debtor seeks to employ in connection with the conduct of this Chapter 11 Case (the "Chapter 11 Professionals").2 The Chapter 11 Professionals will be compensated and reimbursed only in accordance with applicable provisions of the Bankruptcy Code, the Bankruptcy Rules, the Local Rules, the United States Trustee Fee Guidelines, and any orders entered in the Chapter 11 Case governing professional compensation and reimbursement for services rendered and charges and disbursements incurred.

16. Although the Debtor believes that some of the Ordinary Course Professionals may not be "professional persons" as contemplated by Bankruptcy Code section 327 and, thus, that no retention or payment authorization is necessary, out of an abundance of caution the Debtor seeks an order authorizing the retention and payment of all Ordinary Course Professionals under Bankruptcy Code section 327.

17. Although certain of the Ordinary Course Professionals may hold unsecured claims against the Debtor, the Debtor does not believe that any of the Ordinary Course Professionals have an interest materially adverse to the Debtor, its estate, creditors, or shareholders.

2 As of the filing of this Motion, the proposed Chapter 11 Professionals in the Case consist of Polsinelli PC, Wyse Advisors LLC, and Rust Consulting/Omni Bankruptcy.

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BASIS FOR RELIEF 18. The Debtor desires to continue to employ and retain the Ordinary Course Professionals to render services to its estate that are similar to those rendered prior to the Petition Date. Although the automatic stay and other issues in the Chapter 11 Case may decrease the Debtor's need for certain Ordinary Course Professionals' services, the Debtor cannot now quantify or qualify that need. 19. Accordingly, the Debtor requests that it be permitted to employ and retain the Ordinary Course Professionals on terms substantially similar to those in effect prior to the Petition Date, but subject to the terms described below. A. Payment of Fees and Expenses 20. The Debtor proposes that it be permitted to pay 100% of the interim fees and disbursements to each of the Ordinary Course Professionals upon the submission to the Debtor of an appropriate invoice setting forth in reasonable detail the nature of the services rendered after the Petition Date, provided, however, that if the amount due any Ordinary Course Professional exceeds $10,000 in any one month or $25,000 for the entire Chapter 11 Case (collectively, the "Ordinary Course Professional Cap"), then such Ordinary Course Professional shall submit copies of its monthly invoices summarizing in reasonable detail the services rendered and expenses incurred in connection therewith (the "Monthly Invoices") by hand, overnight delivery, or email on: (i) Ensequence, Inc., 420 Lexington Ave., Suite 408, New York, NY 10170 (Attn: Michael Wyse); (ii) Polsinelli PC, 222 Delaware Avenue, Suite 1101, Wilmington, DE 19801 (Attn: Christopher A. Ward and Stephen J. Astringer) and Polsinelli PC, 600 3rd Avenue, 42nd Floor, New York, NY 10016 (Attn: Jeremy R. Johnson); (iii) counsel to the Debtor's prepetition lender, McDermott Will & Emery LLP, 340 Madison Avenue, New York, NY 10173-1922 (Attn: Darren Azman); (iv) the United States Trustee for the District of

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Delaware, 844 King Street, Suite 2207, Lockbox 35, Wilmington, DE 19801 (Attn: David Buchbinder); and (v) counsel to any statutory committee(s) appointed in this Chapter 11 Case (individually, a "Notice Party" and collectively, the "Notice Parties").

21. Any Notice Party may object to the payment of fees and expenses above the Ordinary Course Professional Cap by serving a written objection upon the Ordinary Course Professional, the Debtor, and the other Notice Parties within ten (10) days of receiving the Monthly Invoices. The objection shall state the nature of the objection and identify the amount of the fees or costs to which the objection is made. In the absence of any timely objection, the Debtor would be authorized to pay 100% of the fees and expenses above the Ordinary Course Professional Cap. All objections not resolved by the parties would be preserved and presented to the Court by the objecting party at the next scheduled omnibus hearing. B. Submission of Rule 2014 Affidavits

22. By this Motion, the Debtor requests that all Ordinary Course Professionals be excused from submitting separate applications for their proposed retention. The Debtor recognizes, however, the importance of providing the Court and the U.S. Trustee information about each Ordinary Course Professional who is an attorney.

23. The Debtor thus proposes that while it be permitted to continue to employ, retain, and compensate all Ordinary Course Professionals identified on Exhibit 1 to the proposed order, each Ordinary Course Professional be required to file with the Court and serve upon the Notice Parties an "Affidavit of Proposed Professional" within fifteen (15) days of the date of service of an order granting this Motion.3

3 A form of "Affidavit of Proposed Professional" is attached as Exhibit 2 to the proposed Order. 6

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24. The Debtor further requests that the U.S. Trustee, the Debtor's prepetition lender, and any official creditors' committee appointed in the Chapter 11 Case be given ten (10) days from the date of service of an Ordinary Course Professional's Affidavit to object to the retention of such Ordinary Course Professional (the "Objection Deadline"). Objections, if any, shall be served upon the Notice Parties. If any such objection cannot be resolved within five (5) days of service, the matter will be set for hearing before the Court on a date scheduled by the Court and agreeable to the Ordinary Course Professional, the Debtor, and the objecting party. If no objection is submitted on or before the Objection Deadline, or if any objection submitted is timely resolved as set forth above, the Debtor requests that, without further order of the Court, the employment, retention, and compensation of the Ordinary Course Professional be deemed approved. C. Additional Ordinary Course Professionals

25. The Debtor also requests that it be authorized to employ and retain additional Ordinary Course Professionals as necessary, in the ordinary course of its business ("Additional Ordinary Course Professionals"), (a) without the need to file individual retention applications and (b) without the need for any further hearing or notice to any other party, by filing with the Court a supplement (the "Supplement") to Exhibit 1 to the proposed Order.4

26. The Debtor proposes that the U.S. Trustee, the Debtor's prepetition lender, and any official creditors' committee appointed in this Chapter 11 Case be given ten (10) days after service of each Additional Ordinary Course Professional's affidavit to object to the retention of such Additional Ordinary Course Professional. If no objection is submitted pursuant to the

4 For purposes of complying with the Rule 2014 Affidavit procedures set forth above, the timing requirements for Additional Ordinary Course Professionals to file and serve an "Affidavit of Proposed Professional" will run from the Debtor's filing of the Supplement.

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objection procedures described above, the Debtor shall be authorized to retain the Additional Ordinary Course Professional as a final matter.

27. The Debtor submits that the retention of the Ordinary Course Professionals and the payment of interim compensation on the basis set forth herein is in the best interests of the Debtor's estate. Although generally the Ordinary Course Professionals with whom the Debtor has previously dealt wish to provide services to the Debtor on an ongoing basis, some might be unwilling to do so if they can be paid on a regular basis only through a cumbersome, formal application process. If the Debtor loses the expertise, experience, and institutional knowledge of these Ordinary Course Professionals, the estate undoubtedly will incur significant and unnecessary expenses, as the Debtor will be forced to retain other professionals without similar background and expertise. Therefore, it is in the best interests of the Debtor's estate to avoid any disruption in the professional services required in the day-to-day operation of the Debtor's business.

28. Because the Ordinary Course Professionals' employment relates only indirectly to the Debtor's work, because the Ordinary Course Professionals are afforded only marginal discretion in performing their work, and because the Ordinary Course Professionals will not be involved in administering the Chapter 11 Case, the Debtor does not believe that the Ordinary Course Professionals are "professionals" within the meaning of Bankruptcy Code section 327 , whose retention must be approved by the Court. See In re First Merchants Acceptance Corp., No. 97-1500, 1997 Bankr. LEXIS 2245, at *8-9 (Bankr. D. Del. Dec. 15, 1997).

29. Courts in this District and other districts consider the following factors in determining whether an entity is a "professional" within the meaning of Bankruptcy Code section 327 and, therefore, must be retained by express approval of the court:

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