Brent R. McIlwain 

Texas Bar No. 24013140 

Christopher A. Bailey 

Texas Bar No. 24104598 

HOLLAND & KNIGHT LLP 

1722 Routh Street, Suite 1500 

Dallas, Texas 75201 

Telephone: 214.969.1700 

E-Mail: brent.mcilwain@hklaw.com 

 chris.bailey@hklaw.com 

4908-6506-9314v11 5591.0199 

Jeremy M. Downs (pro hac vice pending) 

Illinois Bar No. 6272155 

Steven J. Wickman (pro hac vice pending) 

Illinois Bar No. 6342929 

GOLDBERG KOHN LTD. 

55 East Monroe Street, Suite 3300 

Chicago, IL 60603 

Telephone: 312.201.4000 

Email: jeremy.downs@goldbergkohn.com 

steven.wickman@goldbergkohn.com 

IN THE UNITED STATES BANKRUPTCY COURT 

 FOR THE NORTHERN DISTRICT OF TEXAS

DEMAND FOR ADEQUATE PROTECTION, LIMITED OBJECTION TO 

CASH COLLATERAL MOTION AND RESERVATION OF RIGHTS OF FIFTH THIRD 

BANK, NATIONAL ASSOCIATION, AS SENIOR SECURED LENDER 

Fifth Third Bank, National Association, as senior secured lender (the “Lender”), by its 

undersigned counsel, pursuant to sections 361 and 363(e) of Title 11 of the United States Code 

(the “Bankruptcy Code”), hereby files this demand for adequate protection, initial objection to 

Debtors’ Emergency Motion for Entry of Interim and Final Orders (i) Authorizing the Debtors to 

Use Cash Collateral; (ii) Granting Adequate Protection; (iii) Modifying the Automatic Stay; 

(iv) Scheduling a Final Hearing; and (v) Granting Related Relief (Docket No. 10, the “Cash 

Collateral Motion”)2 and reservation of rights, and respectfully states as follows: 

1

 The Debtors in these Chapter 11 Cases, along with the last four digits of each Debtor’s federal identification number, 

are Stoli Group (USA), LLC (5602) and Kentucky Owl, LLC (3826). The Debtors’ address is 135 East 57th Street, 

9th Floor, New York City, New York. 

2

 Unless otherwise indicated, capitalized terms used as defined terms herein have the meanings given thereto in the 

Cash Collateral Motion. 

In re: 

Stoli Group (USA), LLC, et al.,

1

Debtors. 

§ 

§ 

§ 

§ 

§ 

§ 

§ 

Chapter 11 

Case No.: 24-80146-swe11 

(Joint Administration Requested) 

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PRELIMINARY STATEMENT 

1. Pursuant to its Prepetition Loan Documents with Stoli Group (USA), LLC (“Stoli 

USA”), Kentucky Owl, LLC (“KO” and, together with Stoli USA, the “Debtors”), Lender holds 

first priority security interests in substantially all of the Debtors’ property to secure approximately 

$78 million as of the Petition Date. Lender’s collateral includes, among other things, all of the 

Debtors’ cash collateral, accounts receivable and proceeds thereof. 

2. Generally, Lender does not object to the Debtors using cash collateral to maintain 

their current operations while the parties conduct expedited diligence, discussions and possibly 

discovery. However, Lender believes that Debtors’ proposed cash collateral use—even on an 

interim basis—is likely to consume a material amount of Lender’s collateral. The Budget for the 

proposed interim cash collateral order and related detail shared with Lender since the Petition Date 

indicate that the Debtors are requesting to spend cash collateral and sell inventory without 

sufficient replacement collateral for the foreseeable future. Replacement liens and adequate 

protection claims against Lender’s existing collateral do little to address this; Lender already has 

prepetition liens on substantially all of the Debtors' assets. The Debtors’ Declaration gives the 

impression that they should be allowed to impact the collateral this way because Lender is 

significantly over-secured. The extent of Lender’s equity cushion is speculative at this point, and 

nothing in the Debtors’ pleadings addresses the end to which they are asking to erode it. Absent a 

clear showing of adequate protection of Lender’s interests by the Debtors and alignment around 

an agreeable path forward in these cases (neither of which presently exist), any support from 

Lender to an interim cash collateral order will likely turn into a contested hearing. 

3. Accordingly, Lender hereby (a) makes a demand for adequate protection of its 

interests in all cash collateral and other collateral that Debtors propose to use, (b) makes a limited 

objection to certain unresolved aspects of the Debtors’ proposed interim order, (c) reserves 

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Lender’s right to object to any further interim or final orders approving Debtors’ use of cash 

collateral, and (d) requests that the Court establish discovery deadlines and procedures in 

connection with this ongoing proceeding. 

BASES FOR DEMAND 

4. In accordance with section 363(e) of the Bankruptcy Code, the Lender demands 

adequate protection of its interests in the Prepetition Collateral, including Cash Collateral. 

5. A secured creditor is entitled to adequate protection of its interest in collateral when 

(1) it is prevented from exercising its rights and remedies against its collateral by the automatic 

stay and (2) a debtor or trustee proposes to use its collateral without such creditor’s consent. See 

11 U.S.C. §§ 361, 362(d), 363(e); see also In re Omni Lion’s Run, L.P., 578 B.R. 394, 399 (Bankr. 

W.D. Tex. 2017) (“Secured creditors are entitled to adequate protection of their security interests 

against the depreciation of collateral prior to the confirmation of a plan.”); In re Argubright, 532 

B.R. 888, 894 (Bankr. W.D. Tex. 2015) (“While the automatic stay preserves the status quo, 

secured creditors are also entitled to adequate protection so that they may recover on the value of 

their secured claim.”). “The concept of adequate protection is derived from the fifth amendment 

protection of property interests as enunciated by the Supreme Court.” LNC Invs., Inc. v. First Fid. 

Bank, N.A., 247 B.R. 38, 44 (S.D.N.Y. 2000) (citation omitted); In re Timbers of Inwood Forest 

Assocs., Ltd., 793 F.2d 1380, 1396 (5th Cir. 1986) (“The concept is derived from the fifth 

amendment protection of property interests.”).

6. The purpose of adequate protection is to ensure that the secured party receives the 

value for which it bargained prepetition. See, e.g., In re Geijsel, 480 B.R. 238, 267 (Bankr. N.D. 

Tex. 2012) (citing In re O’Connor, 808 F.2d 1393, 1396 (10th Cir. 1987)); see also Bluebird 

Partners, L.P. v. First Fid. Bank, 896 F. Supp. 152, 154 (S.D.N.Y. 1995) (“Adequate protection 

compensates the secured creditor for the diminution in value of the collateral during the period in 

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which the automatic stay prevents the creditor from repossessing the collateral”); In re Timbers of 

Inwood Forest Assocs., 793 F.2d at 1388 (noting section 361(1) of the Bankruptcy Code provides 

for adequate protection of creditor’s interest to the extent the automatic stay results in decrease in 

the value of such interest); United States v. Whiting Pools, Inc., 462 U.S. 198, 207 (1983) (“The 

Bankruptcy Code provides secured creditors various rights, including the right to adequate 

protection, and these rights replace the protection afforded by possession.”).

7. What constitutes “adequate protection” is a factual determination that is made on a 

case-by-case basis. In re Mathis, 64 B.R. 279, 284 (N.D. Tex. 1986). While adequate protection 

may take many different forms, section 361 of the Bankruptcy Code lists several potential varieties 

of protection, including periodic cash payments, replacement liens, and any other relief that “will 

result in the realization. . . of the indubitable equivalent of [the secured creditor’s] interest in such 

property.” 11 U.S.C. § 361. 

8. The language of section 363(e) is straightforward and non-discretionary, and it 

imposes only the most minimal of burdens on the moving creditor. If a creditor (i) has an “interest 

in property” and (ii) makes a “request” for adequate protection, then the court “shall” prohibit or 

condition the use of such property on the provision of adequate protection. 11 U.S.C. § 363(e); see 

also In re Worldcom, Inc., 304 B.R. 611, 618 (Bankr. S.D.N.Y. 2004) (noting that “section 363(e) 

essentially requires that where a creditor can demonstrate it has a security interest in the property, 

such creditor is entitled to adequate protection of such interest.”); In re Metromedia Fiber Network, 

Inc., 290 B.R. 487, 491 (Bankr. S.D.N.Y. 2003) (“Section 363(e) is not permissive or discretionary 

– it states that the court ‘shall’ grant the relief specified, at any time, on request of the secured 

entity.”). Beyond establishing these two simple prerequisites, nothing more is required of the 

creditor – not even a hearing. See 11 U.S.C. § 363(e) (“...with or without a hearing...”). 

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9. Where a creditor establishes “the validity, priority, or extent of [its] interest,” the 

debtor bears the burden of proof on “the issue of adequate protection.” See 11 U.S.C. § 363(p). 

While a debtor may address the form of adequate protection, a creditor’s right to adequate 

protection is established simply by virtue of the creditor’s request. See In re Torres Dev., L.L.C., 

413 B.R. 687, 695 (Bankr. S.D. Tex. 2009); In re Carbone Cos., Inc., 395 B.R. 631, 635 (Bankr. 

N.D. Ohio 2008).

10. In accordance with the Bankruptcy Code, applicable non-bankruptcy law and the 

Prepetition Loan Documents, the Lender is clearly entitled to adequate protection.

LIMITED OBJECTIONS TO PROPOSED INTERIM CASH COLLATERAL ORDER 

11. Since the Petition Date, Lender has worked quickly to provide feedback to the 

Debtors regarding their proposed interim cash collateral order and related Budget. This is not a 

case where the parties were aligned on a chapter 11 filing, much less the specifics of cash collateral 

consent. The Debtors have accepted a large amount of Lender's comments to the interim order, 

but at least two critical issues remain unresolved. 

12. First, the proposed interim cash collateral order does not contemplate using any 

cash collateral for adequate protection payments to Lender (for principal, interest, fees or 

otherwise), while it seeks to pre-authorize use of cash collateral for payments of Debtors’ 

professional fees and expenses that might be allowed at a later time. To be clear, the Lender has 

not consented and does not consent to a carveout in these cases for the Debtors’ professional fees 

and expenses, and it does not otherwise consent to the use of cash collateral under an interim order 

to pay any such amounts. Lender recognizes that carveouts are a typical feature of complex chapter 

11 cases, but that is because the vast majority of such cases result in consensual cash collateral or 

DIP financing arrangements between debtors and lenders – often driven, in large part, by the need 

for the debtor’s professionals to be assured payment for months’ worth of services. Lender is 

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genuinely hopeful that it reaches such a consensual arrangement in these cases, but the parties are 

not there yet. And, there is literally no legal basis for the Court to impose a carveout on a secured 

lender over its objection. Likewise, nothing in the record remotely supports a pre-determined 

surcharge of Lender or its collateral for the Debtors' professional fees. Most relevant to this 

proceeding, the Debtors' evidence is woefully inadequate at this stage for the Court to find that the 

Lender's interests in its collateral will be adequately protected after the Debtors pay all of their 

critical operating expenses, plus nearly $700,000 of professional fees that are not critical to the 

Debtors' operations pending a Final Hearing. To Lender, this adds insult to injury because any 

cash collateral available beyond the purely critical operating needs of the Debtors should be paid 

to Lender (or at least set aside) to protect Lender’s interests in its collateral as a result of accrued 

and accruing postpetition interest and fees and the apparent lack of sufficient replacement 

collateral. Lender has proposed language to the Debtors for the proposed interim cash collateral 

order to clarify that any allowance of, and use of cash collateral to pay, professional fees and 

expenses are subject to further order of the Court, but Lender understands this is not acceptable to 

the Debtors. 

13. Second, the proposed interim cash collateral order lacks critical reporting 

requirements, which the Debtors likely refuse because they could hurt the Debtors’ future adequate 

protection arguments. The interim order does not require the Debtors to deliver the weekly 

collateral reporting that they have been routinely delivering to Lender for months with their 

borrowing base certificates. This is the reporting under the Prepetition Loan Documents that most 

directly assesses the extent to which Lender’s overall collateral position is improving or worsening 

over time. Such regular assessments are extremely important for the Debtors and Lender. They 

give all parties a systematic view of real-time changes in the Lender’s collateral, in a way that is 

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immediately usable and helps the parties better understand and discuss raw reporting of sales, 

purchases, credits and collections. This crucial point in the Debtors' case is not the time when 

collateral reporting discipline should or needs to be weakened; requiring it to continue on a weekly 

basis should be part of Lender’s adequate protection package in the interim cash collateral order. 

Lender has proposed specific changes to the proposed interim order to address this short-coming 

and related reporting concerns, which Lender understands the Debtors are considering. 

REQUEST FOR DISCOVERY ORDER 

14. Without an agreement with the Debtors concerning cash collateral use or 

postpetition financing on a longer-term basis, Lender will likely be forced to conduct significant 

written and testimonial discovery in preparation for a next hearing on the Cash Collateral Motion. 

15. On this basis, Lender anticipates issuing or conducting some or all of the following 

to the Debtors prior to a Final Hearing: 

(a) at least one set of interrogatories, 

(b) one set of requests for production of documents, 

(c) one set of requests for admission, 

(d) a deposition of the Debtors’ Rule 30(b)(6) witness, 

(e) a deposition of the Debtor’s Global Chief Executive Officer, 

(f) a deposition of the Debtors’ Chief Restructuring Officer, and 

(g) a deposition of each other witness and expert that the Debtors’ intend to call 

at trial. 

16. While such discovery would necessarily be quite expedited, without it neither the 

parties nor the Court will be able to determine if a request for further use of cash collateral by the 

Debtors is appropriate or not. 

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17. Accordingly, Lender requests that the Court enter an order that (a) requires the 

parties to immediately meet and confer, (b) authorizes Lender to conduct such written discovery 

and depositions (including the issuance of subpoenas), and (c) establishes a process for any 

discovery disputes (such as failures by the Debtors to promptly or fully respond to Lender’s 

discovery) to be determined by the Court if necessary. 

RESERVATION OF RIGHTS 

Lender reserves its rights to file additional responses or make additional statements at the 

interim hearing with respect to the Cash Collateral Motion, as well as any further hearings held 

thereon. 

Dated: December 2, 2024 

 Dallas, Texas 

Respectfully Submitted, 

By:/s/ Christopher A. Bailey 

Brent R. McIlwain 

Christopher A. Bailey 

HOLLAND & KNIGHT, LLP 

One Arts Plaza 

1722 Routh Street, Suite 1500 

Dallas, Texas 75201 

(214) 964-9481 

brent.mcilwain@hklaw.com

chris.bailey@hklaw.com

 - and - 

 Jeremy M. Downs 

Steven J. Wickman 

GOLDBERG KOHN LTD. 

55 East Monroe Street, Suite 3300 

Chicago, IL 60603 

(312) 201-4000 

jeremy.downs@goldbergkohn.com

steven.wickman@goldbergkohn.com 

Counsel to Fifth Third Bank, National 

Association

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CERTIFICATE OF SERVICE 

The undersigned certifies that, on December 2, 2024, a true and correct copy of the 

foregoing document was served via the Court’s Electronic Case Filing (ECF) System on all parties 

registered to receive electronic notice in this case. 

/s/ Christopher A. Bailey 

Christopher A. Bailey

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