The judge overseeing Highland Capital Management LP’s chapter 11 case rejected a government bankruptcy watchdog’s bid for a chapter 11 trustee, satisfied that a recent governance reform would protect the interests of creditors, WSJ Pro Bankruptcy reported. Bankruptcy Judge Stacey G.C. Jernigan emphasized her view during a court hearing yesterday that a negotiated governance overhaul, which she approved earlier this month, was in the best interests of creditors. An official creditors committee, largely composed of investors who have spent years locked in court battles with Highland, supported the governance reform and urged the judge not to hand over control to a chapter 11 trustee. The governance deal creates an independent board of directors at Highland’s general partner, Strand Advisors Inc., that will assume managerial control from Highland co-founder James Dondero. However, the Office of the U.S. Trustee, a Justice Department bankruptcy monitor, had argued the arrangement was flawed and didn’t go far enough, in part because Dondero is the sole shareholder of Strand. Under the deal, the board assumed control of Highland’s management functions and Highland agreed that independent directors can’t be removed without permission from the creditor committee or the bankruptcy court, according to court papers.
