FlexShopper - Chapter 11 Plan Terms

Plan Terms

Overview

• The first amended combined disclosure statement and plan of liquidation for FlexShopper, Inc. and FlexShopper, LLC pays general unsecured creditors an estimated $1.7 million in cash at or shortly after the effective date. The warehouse agent gets 55% of that amount and all other unsecured creditors share 45%. Later recoveries, which depend mainly on litigation and insurance proceeds, are paid out by a liquidating trust under a negotiated waterfall.
• The plan carries out a mediated Distribution Settlement among four groups: the debtors; the official committee of unsecured creditors; Kasowitz LLP, a creditor of FlexShopper Inc.; and the warehouse parties. The warehouse parties are Powerscourt Investments 50, LP, as administrative agent, and the lenders under the 2024 warehouse facility, and together they are the debtors' largest unsecured creditor. The warehouse agent, the committee and Kasowitz have agreed to support and vote for the plan, and the debtors and the committee recommend that creditors accept it.
• The plan covers only two of the eight debtors: holding company FlexShopper Inc. and its operating subsidiary FlexShopper LLC. Their estates are deemed consolidated solely for voting, claims allowance and distributions.
• The company filed Chapter 11 on Dec. 22, 2025. It had uncovered a borrowing base fraud that the debtors estimate caused its warehouse financing vehicle to overborrow by more than $140 million. It then sold substantially all its assets to ReadySett, LLC, and the sale closed March 3, 2026, bringing $8.56 million in cash into the estates.
• The court conditionally approved the disclosure statement for solicitation on Oct. 13, 2026 (D.I. 616). Classes 4A and 4B vote. Ballots and objections are due Nov. 10, 2026, at 4 p.m. (prevailing Eastern Time), and the combined hearing is set for Nov. 20, 2026, at 10 a.m. (prevailing Eastern Time).

Distribution Settlement

• The Distribution Settlement came out of an Aug. 18, 2026 mediation before former Delaware bankruptcy judge Christopher S. Sontchi. It settles three disputes without litigation:
  • how assets, liabilities and causes of action are split between the two plan debtors
  • the plan debtors' stipulations in favor of the warehouse parties under the final securitization order (D.I. 129)
  • the warehouse parties' claims filed against multiple debtors
• The dispute started with the debtors' initial plan, filed April 30, 2026 (D.I. 400). That plan kept each debtor's assets and liabilities separate, paid each debtor's creditors pro rata, classified the warehouse agent's claims separately and preserved intercompany claims.
  • That structure left the two plan debtors to fight over value. FlexShopper Inc. owned substantially all the intellectual property sold to ReadySett and received approximately $900,000 from a prepetition patent settlement. FlexShopper LLC, the operating business, could assert intercompany claims against FlexShopper Inc., its sole member and manager, and argue for a larger share of the IP value. FlexShopper Inc. had defenses to those claims.
  • The warehouse agent filed proofs of claim of $161,719,713.38 against each debtor (Claim Nos. 10118–24, 10126). The plan debtors disputed the claim against FlexShopper Inc., arguing that it may belong to FlexShopper LLC's estate and that they had seen no evidence the lenders relied on any misrepresentation by FlexShopper Inc.
  • In early June, the warehouse agent and the committee objected to the initial plan (D.I. 472, 478) and sought substantive consolidation of the two plan debtors. Certain FlexShopper Inc. creditors, including Kasowitz, opposed consolidation, and the U.S. Trustee filed its own objection (D.I. 474).
• The settlement deems the two plan debtors' estates consolidated solely for voting, claims allowance and distributions.
  • A creditor asserting the same obligation against both plan debtors holds a single Class 4B claim.
  • All intercompany claims, causes of action, loans and guarantees between the two plan debtors are extinguished without setoff. Intercompany claims involving the six other debtors survive.
  • The liquidating trustee may pursue either plan debtor's third-party claims, including claims against FlexShopper Inc.'s directors, officers and professionals, as if there were no consolidation.
  • Both entities remain legally separate.
• The warehouse parties' general unsecured claim is allowed against the plan debtors at $161,719,713.38, subject to reduction for their recoveries on prepetition customer leases under the final securitization order. The disclosure statement's summary of the mediated term sheet describes allowance at that figure subject only to that reduction, while the plan's definition of the claim adds prepetition accrued and unpaid interest, fees and other securitization-program amounts; the plan's recovery estimates use the $161.7 million figure without those additions.
• Kasowitz receives an allowed Class 4B claim of $632,378.29, in full satisfaction of all its claims against either plan debtor.
• The settlement also:
  • funds the liquidating trust
  • preserves all estate claims, including claims against Russell Heiser, Grant Thornton LLP and current and former directors and officers who are not released
  • provides for exculpation or releases of certain parties, including the CRO and CFO, the debtors' and committee's restructuring professionals, and the debtors, committee and warehouse agent limited to their conduct in negotiating the plan
  • lets the committee's challenge deadline lapse on the effective date
• The plan debtors give a comparison to show what the settlement changes.
  • The warehouse claim exceeds $161 million, against about $21.3 million of other unsecured claims.
  • Without the settlement, the warehouse parties could hold an allowed claim against both plan debtors and would take about 85% of any trust recoveries, leaving 15% for other unsecured creditors.
  • Under the settlement, the warehouse agent accepts less than pro rata treatment. The plan debtors say this shifts more of the litigation risk to the agent and gives other unsecured creditors more certainty about the minimum amount and the timing of their recoveries.

Initial Distribution and Waterfall

• Initial distribution: an estimated $1.7 million. The liquidating trustee calculates it as estate cash less the $750,000 initial trust funding and estimated administrative, priority, tax and other secured claims. It is split between:
  • Warehouse agent (Class 4A): 55%, or about $935,000, paid on the effective date, an estimated 0.58% recovery
  • Other unsecured creditors (Class 4B): 45%, or about $765,000, shared pro rata and paid as soon as reasonably practicable after the effective date, an estimated 3.6% recovery, subject to claims reconciliation
• All later distributions on Class 4A and 4B claims run through a four-step waterfall, paid in order. These distributions are expected to come mainly from litigation, including insurance proceeds, plus any tax refunds.
  • First, $2.5 million to the warehouse agent. The plan debtors say this lifts its cumulative recovery to about 2.1%, still below the 3.6% paid to other unsecured creditors.
  • Second, 75% to the warehouse agent and 25% to Class 4B, until Class 4B holders have received, counting their initial share, 30% of their allowed claims.
  • Third, 100% to the warehouse agent until its total recovery reaches 30%.
  • Fourth, pro rata between the warehouse agent and Class 4B until both are paid in full.
• If Classes 4A and 4B are paid in full with interest, remaining trust assets go first to subordinated claims and then to FlexShopper Inc. equity holders.
• The plan includes an illustrative chart of how the waterfall plays out.
  • About $22.5 million of second-tier distributions ($16.9 million to the warehouse agent and $5.6 million to Class 4B) brings Class 4B to 30% ($6.4 million) and the warehouse agent to 12.57% ($20.3 million).
  • About $28.1 million of catch-up distributions then brings the warehouse agent to 30% ($48.5 million).
  • The plan debtors say the warehouse agent can never do better than pro rata, and does worse than pro rata unless recoveries exceed about $50 million.

Treatment of Claims and Interests

• Class 1, priority claims (unimpaired, deemed to accept): paid in full in cash by the liquidating trustee, but not from proceeds of retained causes of action. Estimated at $90,000, with a projected 100% recovery.
• Class 2, other secured claims (unimpaired, deemed to accept): at the plan debtors' option, cash equal to the allowed claim, return of collateral or other treatment that leaves the claim unimpaired. Estimated at $0.
• Class 3, warehouse secured claim (unimpaired, deemed to accept): allowed. On the effective date the warehouse agent receives, free and clear, FlexShopper LLC's membership interests in non-debtor FlexShopper 1, LLC, on which the agent already holds a first-priority lien. The plan assigns no value to those interests because FlexShopper 1 is insolvent.
• Class 4A, warehouse general unsecured claim (impaired, entitled to vote): a single claim held by the warehouse agent, allowed at $161.7 million as described above. It receives 55% of the initial distribution plus waterfall distributions, for a projected recovery of 0.58% to unknown.
• Class 4B, other general unsecured claims (impaired, entitled to vote): estimated at $21.3 million, subject to claims reconciliation, including Kasowitz's allowed claim described above. Holders share pro rata in 45% of the initial distribution plus waterfall distributions, for a projected recovery of 3.6% to unknown. The final recovery depends mainly on what the trust collects from retained causes of action, including insurance.
• Class 5, subordinated claims (impaired, deemed to reject): no distribution unless Classes 4A and 4B are paid in full, which the plan debtors consider highly unlikely. Estimated at $0.
• Class 6, equity interests (impaired, deemed to reject): cancelled on the effective date. FlexShopper Inc. equity holders receive nothing unless Classes 4A, 4B and 5 are paid in full.
• Because Classes 5 and 6 are deemed to reject, the debtors will seek confirmation under the section 1129(b) cramdown standard.
• Administrative and priority tax claims, which are not classified, are paid in full in cash.
• Professional fees are paid from an escrow account created under the final DIP order. The account is funded by the effective date based on professionals' estimates and is held in trust for them outside the estates. Any surplus goes to the liquidating trust once all fee claims are resolved.

Liquidation Analysis

• The liquidation analysis, dated as of Oct. 6, 2026, projects effective-date cash of $2.56 million: $1.64 million at FlexShopper LLC and $915,731 at FlexShopper Inc. It lists future litigation recoveries as unknown.
• Under the plan, $750,000 of professional fees to pursue litigation and $104,065 of administrative and priority claims come out first. That leaves $1.7 million for $183.1 million of general unsecured claims, a figure net of $174 million of claims filed against both entities, which produces the 0.58% Class 4A and 3.6% Class 4B recoveries.
• In a Chapter 7 liquidation, each entity would bear:
  • the same $750,000 of litigation fees
  • $225,000 of extra legal fees for litigation over intercompany claims and how value is split
  • 3% trustee fees: $49,290 at FlexShopper LLC and $27,472 at FlexShopper Inc.
• On that basis, Chapter 7 would leave:
  • $601,570 for FlexShopper LLC's $177.3 million of unsecured claims, a 0.34% recovery
  • a $173,666 deficit, and no recovery, for FlexShopper Inc.'s $179.8 million of unsecured claims

Liquidating Trust and Oversight

• Initial funding: $750,000 of estate cash for trust administration. Trust expenses are paid or reserved before any distribution to creditors.
• The trust is established on the effective date and receives:
  • the plan debtors' remaining unsold assets, including FlexShopper Inc.'s equity in the six other debtors and rights to insurance policies and proceeds
  • all effective-date cash, including remaining sale proceeds but excluding the professional fee escrow
  • the retained causes of action and any tax refunds
  • the Alvarez & Marsal investigation materials and Rule 2004 work product held by the plan debtors, the committee or Kasowitz
  • the plan debtors' and committee's privileges, and access to all discovery the committee and the plan debtors obtained in the cases, including under Rule 2004
• Term: five years, which the trustee may extend. Ending the trust early requires the oversight committee's consent.
• The committee selects the liquidating trustee, with the warehouse agent's consent, which cannot be unreasonably withheld. The trustee will be named in the plan supplement.
  • The trustee may have no prior engagement by, or material relationship with, the debtors, their current or former directors and officers, or their professionals.
  • The trustee succeeds the plan debtors and the committee as estate representative.
  • The trustee is liable only for gross negligence, actual fraud or willful misconduct and is indemnified from trust assets.
  • The trustee may be removed for cause or replaced only by court order, on motion of the U.S. Trustee, the oversight committee or any creditor.
• A three-member oversight committee serves as fiduciary for all holders of allowed claims. The warehouse agent and the committee each designate one member, and they jointly select an independent third.
  • The oversight committee must consent, including the affirmative consent of the warehouse agent's designee, to the trustee's annual budget, the hiring of trust professionals, any settlement of a claim asserted at more than $250,000 and any interim distribution. The trustee may ask the court to resolve disputes.
  • Court approval is required for any settlement above $2 million and for any removal or replacement of the trustee.
• On the effective date, the plan debtors are deemed dissolved, their directors and officers are discharged, and the committee dissolves.

Retained Causes of Action and Insurance

• The trust receives all estate causes of action not released under the plan. These expressly include:
  • avoidance actions
  • claims against Grant Thornton LLP, the company's auditor, and its related parties
  • claims for breach of fiduciary duty, fraud, gross negligence and similar wrongs against current and former directors, officers, shareholders and other insiders who are not released, including such claims held by FlexShopper LLC
  • claims against Russell Heiser, which the settlement term sheet specifically preserves
• The trust does not receive:
  • causes of action sold to ReadySett under the sale order
  • intercompany claims between the plan debtors
  • claims belonging to anyone other than a plan debtor
  • any claim against a warehouse party
• The warehouse parties and other creditors keep their own direct claims against non-debtors, which do not go to the trust. The trust can still bring the plan debtors' derivative claims and avoidance actions, and the trustee and those creditors are to coordinate where claims overlap.
• The D&O policies, including runoff and tail coverage, remain in force and may not be terminated or reduced.
  • Proceeds of the D&O and other liability policies are preserved for the estates and the trust to the fullest extent the law allows.
  • The trustee may ask the court to protect those proceeds: to preserve them, to limit how much is spent on defense costs, settlements or judgments not payable to the trust, and to set conditions on advancing defense costs.
• Indemnification owed to officers and employees who served on or after the petition date survives only for claims arising between the petition date and the effective date.

Warehouse Challenge and Pending Matters

• In the final securitization order, FlexShopper LLC granted the warehouse agent an allowed claim of $161,719,713.38 in principal, plus prepetition interest, fees and other amounts. That stipulation, FlexShopper LLC's liability under the validity guaranty and the order's other stipulations remain open to challenge by the committee or another party in interest until the challenge deadline.
• The challenge deadline has not yet run because of the committee's pending motion to extend it (D.I. 296).
  • The committee filed the motion on March 31, 2026, seeking to extend the deadline to 30 days after discovery is substantially complete.
  • Under the settlement, the motion is deemed withdrawn and the deadline deemed passed on the effective date.
  • The committee's investigation included formal and informal discovery and a review of thousands of documents. The debtors understand the committee found no basis to oppose the stipulations or to bring estate claims against the warehouse parties, and the committee believes letting the deadline lapse is in the estates' best interests.
• Russell Heiser disputes the debtors' account of his termination and has two matters pending.
  • He filed a $2.1 million general unsecured claim against FlexShopper Inc. under his employment agreement (Claim No. 10156, as amended).
  • He also moved to compel arbitration to determine liability and fix the amount of that claim (D.I. 350), without seeking to collect outside the plan's claims process. The debtors and the committee have objected.
  • The motion will be heard at the first available omnibus hearing no more than 60 days after the effective date, and no later than March 31, 2027, subject to the court's availability, unless the parties agree or the court orders otherwise.
  • The plan makes no finding on his termination or his claim.

Releases and Exculpation

• The released parties are:
  • Matthew A. Doheny, the debtors' CRO, and Michael Shenk, their CFO, each only if he reasonably cooperates with and supports the liquidating trust, including in investigating and prosecuting retained causes of action
  • GlassRatner Advisory & Capital Group, LLC, Shenk's firm
  • debtors' counsel Morris, Nichols, Arsht & Tunnell LLP
  • investment banker Two Roads Advisors LLC
  • litigation counsel Williams Simons & Landis PC
  • committee counsel Potter Anderson & Corroon LLP
  • committee financial advisor Sonoran Capital Advisors, LLC
  Each firm's related parties are also released. No other current or former director, member, officer or employee of any debtor is released.
• The plan debtors and their estates, including the trust as successor, release the released parties from all claims relating to the debtors. That covers the Chapter 11 cases, the ReadySett DIP facility, the securitization program, the sale and the plan. The release does not cover fraud, willful misconduct, bad faith or gross negligence found by final order, or obligations after the effective date.
• Third parties also release the released parties, with the same exceptions, on a broader scope that also covers the pre- and postpetition marketing and sale process and the purchase, sale or ownership of the debtors' securities. The releasing parties are claim and interest holders who receive a ballot or non-voting opt-out form and do not opt out or object, together with the released parties and their related parties. The warehouse parties are expressly not releasing parties.
• The plan debtors, the committee and its members, and the warehouse parties release one another and their related parties, other than any debtor director. This release covers only conduct in negotiating and preparing the plan, plan supplement and plan documents, with the same exceptions.
• Exculpation covers conduct from the petition date through the effective date by:
  • the plan debtors and their directors and officers who served during that period
  • Doheny, Shenk and GlassRatner
  • Morris Nichols, Two Roads, Williams Simons & Landis, and claims agent Epiq Corporate Restructuring, LLC
  • Potter Anderson, Sonoran, and the committee and its members
  • the related parties of these professionals and of the committee, to the extent they are estate fiduciaries
  Exculpation does not cover gross negligence, fraud, bad faith or willful misconduct found by final order.
• Confirmation does not discharge the plan debtors, under section 1141(d)(3). Holders may recover only as the plan provides and are barred from pursuing the plan debtors, the released parties, the trustee or the trust on claims the plan treats or releases.

Conditions, Consents and Amendments

• The committee and the warehouse agent share consent rights with the plan debtors throughout the process.
  • To confirm the plan, the final disclosure statement order, the confirmation order, the plan supplement documents and any changes made in the confirmation order must satisfy all three.
  • For the plan to take effect, the confirmation order, the plan and the exhibits must be acceptable to all three and signed.
• The effective date also requires that the confirmation order become final, that all implementing steps and documents be completed, and that the debtors file a notice of effective date. Conditions may be waived in writing. If the effective date does not occur in time, the debtors, the committee or any party in interest may ask the court to vacate the confirmation order.
• The plan debtors may change the plan before or after confirmation only with the consent of the committee and the warehouse agent.
  • Changes after confirmation also need court approval.
  • Changes that materially and adversely affect a class must be accepted by at least two-thirds in amount and more than half in number of the claims voting in each affected class.
• Classes 4A and 4B each accept the plan if holders of at least two-thirds in amount and more than half in number of the allowed claims voting in the class vote to accept; a voting class in which no eligible holder votes is deemed to accept, and at least one voting class, excluding insider votes, must accept.

Key Dates

• Dec. 22, 2025: Petition date
• Aug. 18, 2026: Mediation that produced the Distribution Settlement term sheet
• Oct. 13, 2026: Solicitation order entered (D.I. 616), conditionally approving the disclosure statement
• Nov. 10, 2026, 4 p.m. (prevailing Eastern Time): Voting deadline and deadline to object to the disclosure statement and confirmation
• Nov. 20, 2026, 10 a.m. (prevailing Eastern Time): Combined hearing on final disclosure statement approval and confirmation
• Deadlines after the effective date:
  • Claims from contracts and leases rejected under the plan (all those not assumed, except insurance policies) are due 30 days after notice of the effective date.
  • Requests for payment of administrative claims arising from March 17, 2026 through the effective date are due by the first business day 30 days after the effective date.
  • Professional fee applications are due 45 days after the effective date.
  • The Heiser arbitration motion is to be heard no later than March 31, 2027.

Case Background

• FlexShopper was a financial technology company that offered lease-to-own payment options and consumer loans for brand-name electronics, appliances, furniture and other durable goods.
  • It sold through its online marketplace, merchant partners' online checkouts and physical retailers, using proprietary technology that set payment terms and spending limits and approved leases online within minutes.
  • In late 2022 it bought the assets of Revolution Financial, Inc., which created a direct lending business in 11 states run by debtor FlexRevolution, LLC.
  • Holding company FlexShopper Inc., whose shares traded on Nasdaq until they were delisted on Oct. 23, 2025, ran its lease-to-own business through FlexShopper LLC. FlexShopper LLC owns non-debtor FlexShopper 1, LLC, which in turn owns non-debtor FlexShopper 2, LLC, the bankruptcy-remote borrower under the warehouse facility.
• The SPV borrower entered into the 2024 warehouse facility on March 27, 2024 with the warehouse agent and lenders. The facility financed the SPV's purchases of consumer leases from FlexShopper LLC.
  • The commitment was increased from $150 million to $155 million on April 9, 2025, and to $200 million on April 30, 2025. Commitments terminated April 1, 2026.
  • The warehouse agent holds first-priority liens on substantially all of the SPV's assets and on FlexShopper LLC's equity in FlexShopper 1. The transferred receivables are also subject to precautionary first-priority liens in case the sales are recharacterized as financings.
  • FlexShopper LLC guaranteed part of the facility on an unsecured basis. Under a separate validity guaranty, it agreed to cover the lenders' losses from fraud, or from materially misleading or concealed information provided with intent to deceive.
• FlexShopper LLC also owed about $9 million under subordinated notes held by NRNS Capital Holdings LLC, whose manager is the chairman of FlexShopper's board. The notes are contractually subordinated to the warehouse facility and were purportedly secured, but the liens were never perfected; they matured on July 1, 2025 and remained outstanding at filing.
• The debtors estimate about $25 million of unpaid trade and other unsecured obligations at filing, before first-day payments and claims reconciliation. A separate FlexRevolution facility with BP Fundco, LLC was paid off before filing after BP Fundco's agent sold the pledged FlexRevolution portfolio in an Oct. 31, 2025 UCC foreclosure sale; in March and April 2026 the debtors transferred about $600,000 held in the sold FlexRevolution bank accounts, leaving no remaining obligations to BP Fundco.
• On May 27, 2025, a finance employee told the audit committee that FlexShopper had fabricated loan documents for its auditor, Grant Thornton LLP, and overstated the warehouse borrowing base. The employee identified Russell Heiser, then CEO and CFO, as directing the conduct.
  • On June 7, the board hired Alvarez & Marsal to run a forensic investigation.
  • On July 8, after preliminary findings, the board suspended Heiser.
  • On July 30, the board said in an 8-K that prior financial statements should no longer be relied on.
  • On Aug. 6, the board fired Heiser for cause. The investigation had confirmed that he helped provide forged documents to the auditor, pledged nonexistent or ineligible collateral in borrowing base certifications and deleted files.
  • The debtors estimate that, as a result, the SPV borrower overborrowed by more than $140 million.
• The fraud was disclosed on July 21, 2025, and starting in August the warehouse parties granted a series of forbearances.
  • The forbearances let the SPV keep borrowing to buy new leases and funded overadvances for operating expenses and some professional fees.
  • In those agreements, FlexShopper LLC acknowledged that the fraud triggered the validity guaranty, making it fully liable for the SPV's warehouse obligations.
  • The company stayed substantially current on operating costs, so unsecured claims other than the warehouse claim relate mainly to non-operating expenses such as professional fees.
  • From early August to mid-September 2025, the company and the warehouse agent negotiated to restructure the facility with the lenders staying in. The talks produced a non-binding term sheet but no final agreement.
• Raymond James, the warehouse agent's investment banker, meanwhile ran a targeted sale process.
  • Two parties submitted term sheets. One was Snap U.S. Holdings, LLC, whose affiliate ReadySett, LLC became the stalking horse and purchaser. The other, an unnamed financial industry participant, withdrew on Oct. 28, 2025.
  • FlexShopper then returned to ReadySett. On Nov. 14, 2025, it signed a non-binding term sheet with ReadySett and the warehouse parties for a sale combined with DIP financing from ReadySett.
• The court raised concerns at the first-day hearing, and the debtors renegotiated the deal; the debtors say the revisions together added about $10 million of value to the estates.
  • The purchase agreement originally provided $15.5 million of consideration: a credit bid of up to $8 million of ReadySett's DIP facility, plus $7.5 million of cash paid directly to the warehouse agent. It was revised to send that cash to the estates instead.
  • The warehouse agent agreed to fund a 5% annual servicing fee to FlexShopper LLC and a 15% premium on FlexShopper LLC's purchase of customer leases, and dropped its adequate protection and fee provisions.
  • The committee was appointed on Jan. 6, 2026, and negotiated further changes. The credit bid was capped at the amount actually drawn under the DIP, sale milestones were extended, the debtors' indemnities under the purchase agreement were removed, and the committee's challenge rights were strengthened.
  • The final DIP order was entered on Jan. 21, 2026.
• The sale to ReadySett closed March 3, 2026, bringing $8.56 million in cash into the estates.
  • Two Roads Advisors contacted 129 potential bidders. Eleven signed NDAs and seven entered the data room, but no competing bid arrived by the Feb. 6, 2026 deadline.
  • The debtors cancelled the auction, and the court entered the sale order on Feb. 12, 2026 (D.I. 231).
  • ReadySett bought some of the plan debtors' causes of action, but the assets it purchased do not include claims against the warehouse agent.