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Judge rejects terms of RCS Capital bankruptcy

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A federal bankruptcy judge rejected the proposed terms of RCS Capital's reorganization last week. The independent broker-dealer parent company has until Tuesday to answer her concerns.

RCS owns Cetera Financial Group, a network of 10 IBDs that collectively oversees the second-largest adviser headcount in the country.

RCS declared bankruptcy on Jan. 31, seeking to reorganize after its stock collapsed following a high-profile IBD acquisition spree by its former executive chairman and cofounder, Nicholas Schorsch.

An accounting scandal in another Schorsch-owned firm also precipitated the drop in RCS’ stock price. It was delisted earlier this year.

Read more: RCS Capital to sever all ties with Schorsch in bankruptcy

The Chapter 11 reorganization aims to sever RCS's ties to Schorsch and allow Cetera advisers to move forward with a transformed BD, Cetera CEO Larry Roth has said.
However, a number of Schorsch-related entities, collectively referred to as the ARC properties, have filed objections to the proposed bankruptcy plan.

"We believe that the majority of these filings do not challenge the fundamentals of our plan, and can be worked out expeditiously," David Orlofsky, RCS's chief restructuring officer, said in an email this week. "We are contesting the ARC parties' objections," he added, "and we're pleased to enjoy the support of a vast majority of our first and second lien lenders."

The IRS also filed objections to the bankruptcy plan, but plans to withdraw them after striking an agreement with the RCS team, according to an insider involved with the restructuring proceedings who asked not to be identified.

Tuesday's hearing before Judge Mary F. Walrath will be held in federal court in the District of Delaware.

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