In Re Allegheny International, Inc.

MEMORANDUM OPINION

The matter presently before the court is the debtor’s 1 motion to confirm its plan of reorganization and the objections of various parties to confirmation. The court confirms the plan of reorganization, subject to the conditions and limitations set forth below. Intertwined with the motion to confirm is the Debtor’s Motion Under Bankruptcy Code Section 1126(e) to Designate and Disqualify Votes of Claims and Interests Directed by Japónica Partners and Others Acting in Concert (the “debtor’s motion to designate”). Also pending are Japonica’s Motion Under Bankruptcy Code Section 1126(e) to Designate and Disqualify Votes of Claims and Interests Not Solicited or Procured in Good Faith (“Japonica’s motion to designate”) and the Motion of the Official Committee of Equity Security Holders of Allegheny International, Inc. to Disqualify All Votes on the Debtor’s Stock Plan Pursuant to Bankruptcy Code Section 1126(e) (the “Equity Committee’s motion to designate”).

In addition, the group of 16 banks who were prepetition secured lenders to the debtor have brought an adversary action at Adversary No. 90-260 seeking equitable relief against Japónica Partners, L.P. (“Ja-pónica”) and its affiliates.

The debtor’s motion to designate is granted; the votes of which are the subject of that motion are disqualified. Japonica’s motion to designate and the Equity Committee’s motion to designate are denied, but based on those facts certain limitations, discussed below, are imposed on certain of the secured lenders and the debtor's insiders, as well as Donaldson, Lufkin and Jen-rette (“DU”) and its affiliates. With respect to the action against Japónica by the bank group, Japónica and its affiliates are enjoined, as set forth below.

The instant matters are core proceedings, involving confirmation of a plan of reorganization, 28 U.S.C. § 157(b)(2)(L), and “other proceedings affecting ... the adjustment of the debtor-creditor or the equity security holder relationship....” 28 U.S.C. § 157(b)(2)(0). This court has jurisdiction over the parties and subject matter pursuant to 28 U.S.C. § 1334.

This opinion shall constitute findings of fact and conclusions of law, pursuant to Bankruptcy Rule 7052.

I. THE MOTIONS TO DESIGNATE

In preparation for trial on the instant matters, intense discovery occurred. The discovery took the form of multitudinous depositions, including multiple depositions of the same person — compressed into a short time. The discovery activity included allegedly “cloak and dagger” activities to serve deposition notices on certain parties and equally clever methods to avoid depositions. Especially of note for reasons we will discuss infra, Japónica was unable to serve a deposition notice on Daniel Lufkin, the secured lenders’ designated member of the board of directors of the reorganized debtor.

Unless it is necessary to repeat certain facts in the interest of clarity, the court will not burden readers with the history of *286 the first 22 months of this case. The parties to these matters are painfully aware of those facts. For the uninitiated, those facts are available in numerous memorandum opinions by this court, both published and unpublished. For the motions to designate, we take up the saga, beginning on December 29, 1989, when the debtor filed the instant plan of reorganization. The court conducted several days of hearings on the disclosure statement in January 1990. 2 The court approved the debtor’s disclosure statement on February 5, 1990, setting the last day to ballot on the debt- or’s plan as March 30, 1990, at 5:00 P.M.

However, on January 24, 1990, near the conclusion of the hearings on the debtor’s disclosure statement, Japónica filed its plan of reorganization (the “Japónica plan”) and disclosure statement which mirrored and utilized in large part the debtor’s material and organization. The court was urged by Japónica not to approve the debtor’s disclosure statement until Japonica’s disclosure statement could be approved and a joint ballot distributed. Japónica requested an extraordinary reduction in the time the rules provided for confirmation. The court feared additional delay and denied the request. The court set separate schedules for confirmation of the plans and promised Japónica an opportunity for creditors to vote on the Japónica plan before any order of confirmation would be issued.

The Japónica plan offered cash equivalent to $6.42 per share with holdbacks, as compared to the debtor’s proposed stock plan which offered $7.00 per share. Under the Japónica plan, Japónica would acquire control of the debtor. Deposition of Michael G. Lederman, Esq., 4/20/90, 290; 5/3/90, 66. Although Japónica had indicated its interest in acquiring control of the debtor as early as July 1989, Japónica held no interest as a creditor or equity holder of the debtor until immediately prior to the filing of its proposed plan and disclosure statement. To qualify as a party in interest authorized to file a plan, Japónica purchased public subordinated debentures of the debtor with a face value of $10,000 for $2,712. At that time, the court was unaware that the purchase of claims would be the tactic used by Japónica to gain control.

A. Acquisition of Claims by Japónica

On February 23, 1990, Japónica began purchasing claims of the secured bank lenders, Class 2.AI.2. This occurred after the debtor’s disclosure statement was approved and the debtor’s plan balloting had commenced. This was also after Japónica had proposed a plan and disclosure statement and had become a proponent of a plan. The purchase of the following claims gave Japónica control of approximately 27% of the claims in Class 2.AI.2:

DATE NAME OF BANK SOLD FACE AMOUNT PRICE PAID % OF FACE AMOUNT

Canadian Imperial 2/23/90 $12,614,800 $10,121,543.25 80.24%

Bank of Commerce (“CIBC”) Israel Discount 2/23/90 2,803,289 2,247,005.25 80.16%

Bank of New York The Northern 2/26/90 5,606,578 4,498,462.50 80.24%

Trust Company Harris Trust and 2/26/90 11,213,154 8,966,925.00 79.97%

Savings Bank NCNB National 3/13/90 8,409,868 6,747,237.00 80.23%

Bank of North Carolina First National 3/23/90 Bank of Boston 9,811,511 8,339,784.35 85%

*287 Debtor’s Exhibit D-l. On or about March 26, 1990, Japónica purchased the claim of Continental Bank, N.A. (“Continental”), with a face amount of $12,614,800, for $11,-984,060, or 95% of the face amount. Following the purchase of the claim of Continental, Japónica held 33.87% of the claims in Class 2.AI.2, enabling Japónica to block an affirmative vote by that class on the debtor’s plan of reorganization. 11 U.S.C. § 1126(c). 3 After achieving its blocking position, Japónica purchased the claim of Bank of Hawaii, with a face amount of $2,242,630, for $1,838,956.60, or 82% of the face amount. Under the terms of the assignments by the aforementioned banks, Japónica caused the votes of the claims it purchased to be voted against the debtor’s plan. 4

In addition to purchasing the claims for cash, Japónica agreed to indemnify the assigning banks for all expenses and liability arising from certain lawsuits against the members of Class 2.AI.2. At least some of the assigning banks would not sell their claims unless Japónica agreed to assume such liability. For example, CIBC would not have sold its claim at any price unless Japónica agreed to assume the expenses and liability arising from those lawsuits. The most notable of those lawsuits is an adversary action in this court, at Adversary No. 88-186, in which the Official Committee of Unsecured Creditors of Allegheny International, Inc. (the “Creditors’ Committee”) 5 has sued the secured bank lenders under theories of preference, fraudulent conveyance, equitable subordination, and lender liability. 6

Japónica also purchased claims from senior unsecured creditors in Class 4.AI.2. Ja-ponica purchased the claims .of Swiss Volksbank and certain other holders of Swiss Franc notes, with a face amount of $21,793,590, for $14,383,769.40, or 66% of the face amount. Japónica caused the votes of these claims to be voted against the debtor’s plan. Although Japónica purchased less than lh of the claims in Class 4.AI.2, its negative votes were sufficient to defeat the debtor’s plan in that class because of the large number of claims in Class 4.AI.2 that did not vote. It should be noted that Swiss Volksbank was a member of the Creditors’ Committee and the Creditors’ Committee had recommended a favorable vote on the debtor’s plan. It should also be noted that the Creditors’ Committee, on behalf of all these unsecured creditors, is a plaintiff in the bank litigation. Unsecured creditors, such as the holders of the Swiss Franc notes, have interests adverse to the interests of the secured bank lenders and would benefit from a favorable result in the litigation. Therefore, Japóni-ca has purchased claims which constitute a blocking position in two classes whose interests are diametrically opposed in the bank litigation.

(c) A class of claims has accepted a plan if such plan has been accepted hy creditors, other than any entity designated under subsection (e) of this section, that hold at least two-thirds in amount and more than one-half in number of the allowed claims of such class held by creditors, other than any entity designated under subsection (e) of this section, that have accepted or rejected such plan.

B. The Debtor’s Motion to Designate

Section 1126(e) of the Bankruptcy Code, 11 U.S.C. § 1126(e), empowers the court to “designate” (i.e., disqualify) the ballot of “any entity whose acceptance or rejection ... was not in good faith or was not solicited or procured in good faith_” However, the Bankruptcy Code does not define “good faith.” There are few precedents, none controlling, concerning 11 U.S.C. § 1126(e); therefore, we look to the plain language of the section and section 203 of *288 the Bankruptcy Act, the precursor of section 1126(e), as well as the cases interpreting section 203 of the Act.

Section 203 of the Bankruptcy Act provided that “[i]f the acceptance or failure to accept a [Chapter X] plan by the holder of any claim or stock is not in good faith, in light of or irrespective of the time of acquisition thereof, the judge may ... direct that such claim or stock be disqualified for the purpose of determining the requisite majority for the acceptance.” In Young v. Higbee Co., 324 U.S. 204, 211, 65 S.Ct. 594, 598, 89 L.Ed. 890 (1945), the Supreme Court declared that “the history of [section 203] makes clear that it was intended to apply to those stockholders whose selfish purpose was to obstruct a fair and feasible reorganization....” The history of section 203, which the court discussed in a footnote, remains relevant:

A year before the House Committee on the Judiciary held its extensive hearings on the Chandler Act a Circuit Court of Appeals held that a creditor could not be denied the privilege of voting on a reorganization plan under Sec. 77B, although he bought the votes for the purpose of preventing confirmation unless certain demands of his should be met. Texas Hotel Corporation v. Waco Development Co., 5 Cir., 87 F.2d 395. The hearings make clear the purpose of the Committee to pass legislation which would bar creditors from a vote who were prompted by such a purpose. To this end they adopted the 'good faith' provisions of Sec. 203. Its purpose was to prevent creditors from participating who ‘by the use of obstructive tactics and hold-up techniques exact for themselves undue advantages from the other stockholders who are cooperating.’ Bad faith was to be attributed to claimants who opposed a plan for a time until they were ‘bought off; those who ‘refused to vote in favor of a plan unless ... given some particular preferential advantage.' Hearings on Revision of the Bankruptcy Act before the Committee on the Judiciary of the House of Representatives, 75th Cong., 1st Sess. on H.R. 6439, Serial 9, pp. 180-182.

Id. at 211 n. 10, 65 S.Ct. at 598 n. 10.

From the preceding paragraph, it is clear that section 203 of the Bankruptcy Act was enacted, inter alia, in response to Texas Hotel Securities Corp. v. Waco Development Co., 87 F.2d 395 (5th Cir.1936), cert. denied sub nom., Waco Development Co. v. Rupe., 300 U.S. 679, 57 S.Ct. 671, 81 L.Ed. 883 (1937); see also S. Neely, Claims Assignments, Southeastern Bankruptcy Law Institute Program Material, K-19 (1990). That case is strongly analogous to the case at bar. Because of the strong similarity, and because section 203 is the precursor of section 1126(e), it is appropriate to examine that decision.

In 1928, Waco Development Company (“Waco”) deeded a vacant lot to Texas Hotel Securities Corporation (“THSC”), an entity run by Conrad Hilton. THSC built and furnished a hotel on the lot with money raised from the issuance of mortgage notes. The hotel, but not the furniture, was then deeded back to Waco which assumed the mortgage notes. THSC then leased the hotel and made further improve-' ments to the hotel not required by the lease. THSC ultimately defaulted on the lease. In a Texas state court proceeding, the lease was canceled and the furnishings and the value of the improvements were forfeited to Waco.

Waco subsequently sought to reorganize under section 77B of the Bankruptcy Act. THSC acquired claims against Waco for the avowed purpose of controlling the plan of reorganization so that THSC could ostensibly recover losses associated with the cancellation and forfeiture and regain management of the hotel. In this connection, Hilton voted against the plan of reorganization, which had provided that the hotel would be leased to another entity.

The Court of Appeals for the Fifth Circuit held that Hilton’s negative vote, which resulted in failure to confirm, was not improper or unlawful. However, William O. Douglas, who was then a commissioner of the Securities and Exchange Commission, saw Hilton’s actions as “extort[ing] tribute *289 from other creditors and stockholders as the price of their assent to a plan.” Securities and Exchange Commission, Report on the Study and Investigation of the Work, Activities, Personnel and Functions of Protective Reorganization Committees, Part VIII at 121 (1940); see Young v. Higbee, 324 U.S. at 211 n. 10, 65 S.Ct. at 598 n. 10.

In the case at bar, Japónica, by acquiring a blocking position, has defeated the debt- or’s plan and can defeat any other plan and thereby obstruct a “fair and feasible reorganization.” Id. at 211, 65 S.Ct. at 598. Japónica, like Hilton in the Waco case, bought a blocking position after the debtor proposed its plan of reorganization. In Waco, Hilton’s objective was to force Waco to reestablish Hilton’s interest in the hotel. In the instant case, Japonica’s interest is to take over and control the debtor. Section 1126(e) and its predecessor were intended to enable the court to disqualify the votes of parties who engage in such conduct.

In a subsequent case interpreting section 203 of the Bankruptcy Act, the Circuit Court of Appeals for the Second Circuit held that the purchase of claims for the purpose of securing approval or rejection of a plan of reorganization is not per se bad faith:

The mere fact that a purchase of creditors’ interests is for ... securing the approval or rejection of a plan does not of itself amount to ‘bad faith.’ When that purchase is in aid of an interest other than an interest as a creditor, such purchases may amount to ‘bad faith’ under section 203 of the Bankruptcy Act.

In re P-R Holding Corp., 147 F.2d 895, 897 (2d Cir.1945). Bankruptcy courts interpreting section 1126(e) have quoted this language with approval. In re Gilbert, 104 B.R. 206 (Bankr.W.D.Mo.1989); In re MacLeod Co., Inc., 63 B.R. 654 (Bankr.S.D. Ohio 1986). Although Lederman testified that he voted against the plan for economic reasons, the court does not find the economic reasons offered by Japónica creditable. We find that Japónica acted “in aid of an interest other than an interest as a creditor_” In re P-R Holding, 147 F.2d at 897. The overriding fact that causes this court to reach this conclusion is that Japónica chose to buy claims which gave it unique control over the debtor and the process. With one minor exception, Japónica purchased its claims — and became a creditor — after the debtor’s disclosure statement was approved. Japónica knew what it was getting into when it purchased its claims. Japónica is a voluntary claimant. If Japónica was unsatisfied by the proposed distribution, it had the option of not becoming a creditor. Japónica could have proposed its plan without buying these claims.

1. The Court Finds that Japónica Acted in Bad Faith

Japonica’s actions with respect to the purchase of claims were in bad faith. Notwithstanding Japonica’s allegedly longstanding interest in the debtor, Japónica filed its plan of reorganization at the eleventh hour. 7 Notwithstanding Japonica’s allegedly longstanding interest in the debtor, Japónica did not purchase significant claims until the voting period on the debt- or’s plan. Japónica was also at this time a proponent of a plan. The particular claims that Japónica purchased, and the manner in which they were purchased, can be used to determine their intent. Japónica purchased a clear blocking position in Class 2.AI.2, the secured bank lenders. Because that class was the most senior class, a negative vote in that class made confirmation extremely difficult, if not impossible. Japóni-ca paid approximately 80% of the face amount for the first five claims in Class 2.AI.2. As Japónica approached ownership of 33% in amount of this class, it paid 85% of the face amount for the next claim, that of First National Bank of Boston. It then purchased the claim of Continental Bank for 95% of the face amount. This gave Japónica 33.87% of the amount of Class *290 2.AI.2 claims. Thereafter, Japónica purchased one more bank claim, but only for 82% of the face amount. If Japónica purchased bank claims solely for economic purposes, it would not have paid 95% of the face amount and then returned to an 82% purchase. Instead, it purchased almost exactly the amount required to block the plan of reorganization.

Lederman was a bankruptcy lawyer who clearly understood the significance of 33V3% of a class. The court finds from these facts Japonica’s purpose was control and was in bad faith. Japónica recited to the court that it wanted to provide cash to creditors. Japonica’s plan proposes to pay cash to creditors, but with a portion held back pending resolution of unresolved claims. Because the court believed this recitation, the court granted additional time to Japónica for its plan. However, the court was misled. Japonica’s purpose was control and so we find.

Similarly, Japónica purchased only enough claims in Class 4.AI.2 to block an affirmative vote by that class. That class follows Class 2.AI.2 in priority. Thus, Ja-pónica purchased a blocking position in the two highest classes which were impaired, ensuring that the debtor could not confirm its plan of reorganization. Again, we note that the two classes in which Japónica purchased claims have directly opposite interests with respect to the bank litigation. The court is hard pressed to characterize Japonica’s actions as merely furthering their own economic interests.

Votes must be designated when the court determines that the “creditor has cast his vote with an ‘ulterior purpose’ aimed at gaining some advantage to which he would not otherwise be entitled in his position.” In re Gilbert, 104 B.R. at 216; see also Insinger Machine Co. v. Federal Support Co. (In re Federal Support Co.), 859 F.2d 17 (4th Cir.1988).

In In re MacLeod, 63 B.R. at 656, the bankruptcy court designated the votes of dissenting creditors who were competitors because the court concluded that those votes were cast for the “ulterior purpose of destroying or injuring debtor in its business so that the interests of the competing business ... could be furthered.” Although the debtor and Japónica are not engaged in competing businesses, the court finds In re MacLeod analogous to the case sub judice. Japónica and the debtor were proponents of competing plans of reorganization. Japonica’s stated purpose was to take over the debtor. To do so, it was necessary for Japónica to block confirmation of the debtor’s plan of reorganization. Thus, the court concludes that Japonica’s actions were for an ulterior motive.

Under chapter 11, creditors and interest holders vote for or against a plan of reorganization, after adequate disclosure, if such vote is in their best economic interests. If, as in the instant case, an outsider to the process can purchase a blocking position, those creditors and interest holders are disenfranchised. If competing plans of reorganization are pending, the court must consider the preferences of the creditors and interest holders. If a plan proponent, such as Japónica, can purchase a blocking position, the votes of the other creditors and interest holders are rendered meaningless. . Moreover, Japónica, who chose to become a creditor, should not have veto control over the reorganization process. The court does not believe that such • a result was intended by Congress. Therefore, for all of the reasons stated above, the court designates the votes of Japónica pursuant to 11 U.S.C. § 1126(e) in Class 2.AI.2 and Class 4.AI.2.

C. The Alleged Milligan Conspiracy

Prior to voting on the debtor’s plan of reorganization, various creditors expressed concern about the liquidity and stability of the stock they would receive under the debtor’s plan. Those creditors, particularly the secured lenders, emphasized the need for an orderly sale mechanism for creditors who did not wish to hold the stock long-term. They feared that large blocks of stock would be sold soon after the plan was consummated and as a result of these big sales, the market would be flooded and the price of the stock would be depressed. The unsecured creditors also feared the banks *291 could cause a control transaction to occur, defeating the purpose of the reorganization plan and making the warrants worthless.

From depositions it appears that in late January 1990, Charles O’Hanlon, a representative of Mellon Bank, N.A., the agent for the consortium of 26 banks that comprised the secured lenders, met in Florida with representatives of the debtor, including James D. Milligan, the chief executive officer of Sunbeam and the chairman, chief executive officer, and chief executive officer-designate of the reorganized AI, to discuss, inter alia, the concerns of the secured lenders about the liquidity of the stock and request a mechanism for sale of the stock by those banks that would want to sell. At that meeting, O’Hanlon asked Milligan and Samuel H. Iapalucci, the vice president and chief financial officer, to help locate prospective purchasers of the reorganization stock. O’Hanlon and Milligan both agreed that neither Milligan nor the debtor should actually be involved in the sale or purchase of the stock. However, an officer of Standard Chartered Bank testified that John Elwood, the director of reorganization for the debtor, advised him of the possibility of a buyer of the when-issued shares. Deposition of David W. Robie, 22-25. An officer of National Westminster Bank testified about a similar conversation with Anthony Munson, the treasurer of the debtor. Deposition of Michael E. Mahoney, 23-24.

Although the exact chronology is unclear from the record, Milligan had discussions with various potential investors familiar to him, including Melvyn Klein, Daniel Luf-kin, 8 and the Belzberg Brothers of Canada, concerning purchase of the reorganization securities. O’Hanlon and Gerald Shapiro, chairperson of the Creditors’ Committee, had agreed that “DU” would be acceptable. 9 At some time, Milligan advised Lawrence M. v. D. Schloss of DU that he had spoken with representatives of GKH Partners, who had indicated interest in purchasing the reorganization securities upon their issuance.

On March 7, 1990, at a meeting in Luf-kin’s office in New York City, Milligan told Lufkin that the aforementioned investors, and others, had “a desire to own equity in whatever company I ran, and that creditors had expressed a desire to sell equity, and they had selected or intended to indicate that DU could act as an agent on behalf of would-be purchasers_” Milligan Deposition, 121-22. Iapalucci was also present at that meeting; he explained the plan, including the “poison pill” or change of control provision. That provision provides that no entity or entities acting in concert could acquire more than 30% of the when-issued stock without the offer being made to all shareholders. Id. at 128-32. The next day, Milligan, Iapalucci, representatives of DU, and representatives of GKH met at DU’s offices. Shortly after that meeting, as part of their due diligence, representatives of DU and GKH toured *292 various facilities of the debtor. Milligan participated in those tours.

On or about March 16,1990, DU advised those secured lenders who had not sold their claims that a “group of investors has proposed buying when-issued stock from the individual AI Secured Banks. The proposed purchase price is $6.25 per share.” Thereafter, Schloss advised the bank group’s financial advisor, Houlihan Lokey Howard & Zukin (“Houlihan Lokey”) of the outline of the plan to purchase the when-issued stock. Houlihan Lokey then notified all of the banks, and provided DU with the names and addresses of the contact people for each of the members of the bank group.

DU acted as the agent for those investors. Deposition of Frank E. Krepp (Pittsburgh National Bank), 26; Mahoney Deposition, 30. The identities of those investors were undisclosed at the time of the offer. Deposition of Charles F. O’Hanlon, III, 87; Deposition of Harvey L. Peckins (Bank of New York), 88; Robie Deposition, 32. The DU offer was made to every member of Class 2.AI.2 who had not assigned its claim to Japónica. DU, acting on behalf of its investors, negotiated individually with each bank that was interested in selling its when-issued shares, ultimately entering into Stock Purchase Agreements with the following banks: Bank of America National Trust and Savings Association; Bank of New York; Commerzbank Aktiengesells-chaft; Citizens and Southern National Bank; M & I Marshall & Illsley Bank; Bank One; Manufacturers Hanover Trust Company; Barclays Bank PLC; Bayerische Vereinsbank AG; The Bank of Tokyo Trust Company Moia Group Ltd.; Pittsburgh National Bank; and First American Bank. Neither Milligan nor any other representative of the debtor were involved in the negotiations. O’Hanlon Deposition, 131, 183-84; Deposition of Samuel H. Iapalucci (4/12/90, p.m.), 51, 83, 130; Krepp Deposition, 23, 26, 77, 107; Milligan Deposition, 63, 85; Robie Deposition; Deposition of Lawrence M. v. D. Schloss, 62-63.

The stock purchase agreements did not require the banks to vote in favor of the debtor’s plan. Deposition of Eren Hussein (Barclay’s Bank), 32; Krepp Deposition, 22-23; Mahoney Deposition, 47; Peckins Deposition, 80-82; Robie Deposition, 32. In fact, some of the banks required a specific provision to that effect in their stock purchase agreements. Krepp Deposition, 22-23, 69-70, 78-79, 97-98, 100; Mahoney Deposition, 47. However, the stock purchase agreements required the banks to use their “best efforts” to effectuate such agreements. Three banks which did not enter into stock purchase agreements voted in favor of the debtor’s plan. 10

Prior to March 16, 1990, the debtor had arranged a meeting with Swiss Volksbank. That meeting was requested by Swiss Volksbank, Milligan Deposition, 157, and was intended as a discussion of the company and the plan of reorganization. On the morning of March 19, 1990, the following people met with representatives of Swiss Volksbank: Oliver Travers, the chairman and chief executive officer of the debtor; Munson; Robert Martin of Smith Barney Harris & Upham, the debtor’s financial ad-visor; and M. Weston Chapman of DU. 11 At that meeting, counsel for Swiss Volksbank indicated to Chapman that the Swiss noteholders were interested in selling their stock; they did not want to hold stock in a reorganized company. Deposition of Mark Weston Chapman, 21-22, 25-26. None of those parties offered to purchase any of the reorganization stock of the Swiss noteholders, although Chapman raised that possibility at another meeting later that day. Swiss Volksbank stated that they had received an offer from Japó-nica, so that time was of the essence. Id. at 26-27; Travers Deposition, 68. DU and the Swiss Volksbank did not enter into a stock purchase agreement, but it appears that they began the process. As stated *293 above, Japónica ultimately purchased a significant portion of the Swiss Franc notes.

As of March 30, 1990, when the voting on the debtor’s plan concluded, the court had not approved Japonica’s disclosure statement. Therefore, creditors and interest holders could only vote for, or against, the debtor’s plan. The court approved the Ja-pónica disclosure statement on May 3, 1990.

1. Votes in Favor of the Plan Will Not Be Designated

The motions to designate which Japónica and the Equity committee have filed seek to designate all votes filed in favor of the debtor’s plan. Japónica and the Equity Committee assert that the transactions involving DU, Milligan, and the secured lenders were not disclosed, in violation of 11 U.S.C. § 1125. Japónica and the Equity Committee contend that the other creditors would not have voted for the debtor’s plan if they had known about the alleged “Milli-gan conspiracy.” They assert that the purpose of the transaction was to take control of the debtor and entrench Milligan and certain debtor executives as the management. Japónica and the Equity Committee further assert that such control of the debtor was to be obtained without paying a premium to other creditors. Japónica and the Equity Committee also assert that the debtor has discriminated against certain creditors and the equity holders as a result of the attempted transaction with DU. Ja-pónica and the Equity Committee further assert that the debtor’s plan was proposed in bad faith, in contravention of 11 U.S.C. § 1123. In this connection, the parties agree that many of the issues raised in these two motions overlap with objections to confirmation.

Although the court will not designate all votes on the debtor’s plan of reorganization, as requested by Japónica and the Equity Committee, certain activities and matters which the court finds objectionable will be dealt with in the context of confirmation. Section 1126(e) provides that the court may designate the votes of “any entity whose acceptance or rejection ... was not in good faith, or was not solicited or procured in good faith....” Even if the court should hold that the attempted transaction between DU and the banks was not in good faith, the court cannot disqualify the votes of the other remaining claimants who knew nothing about the transaction. The remedy under 11 U.S.C. § 1126(e) is to disqualify acceptances or rejections that have been improperly solicited. Trans World Airlines, Inc. v. Texaco, Inc. (In re Texaco, Inc.), 81 B.R. 813 (Bankr.S.D.N.Y.1988). Simply stated, the court should designate the votes of only those creditors or interest holders who were engaged in wrongdoing. There is no authority for designating the votes of innocent creditors or interest holders. 12

Nor do we find sufficient grounds for designating the votes of the banks that accepted the various offers. Although we are concerned by the conduct of DU and the secured banks, we cannot conclude that the banks voted “in aid of an interest other than an interest as a creditor....” In re P-R Holding, 147 F.2d at 897. Unlike Japónica, the banks have been parties to this case since that fateful Saturday afternoon in February 1988. Similarly, we cannot conclude that the banks acted for an improper or ulterior motive. In re Pine Hill Collieries Co., 46 F.Supp. 669 (E.D.Pa.1942). The banks voted for the debtor’s plan because they thought it to be in their best interest. The banks favored the debt- or’s plan even without the possibility of selling their shares. Mahoney Deposition, 47; Hussein Deposition, 32; Krepp Deposition, 21-22; Deposition of Gev F. Nentin (Manufacturers Hanover Trust Company), 102-103; Deposition of Craig Wolf (Citizens and Southern Bank), 26-28. Notwithstanding their concerns about the liquidity of the reorganization shares, the banks intended to vote for the debtor’s plan of reorganization. Hussein Deposition, 39-40; Deposition of Robert TenHave (Commerz- *294 bank) 20; Krepp Deposition, 42-43; O’Han-lon Deposition, 43-46. Although some of the aforementioned testimony may have been self-serving, it is consistent with the representations made in court over the last several months. An earlier, similar, permutation of the present plan of reorganization was a joint submission of the debtor and the bank group, although the plan of reorganization sub judice was not filed jointly with the bank group. 13 The court finds that the attempted transaction between DU and the banks did not cause the banks to change their intended votes for the debtor's plan. Moreover, three banks that did not enter into agreements with DU voted in favor of the debtor’s plan and their votes would be sufficient to carry the class.

It must also be emphasized that the contemplated purchase, price for the when-issued shares, $6.25, was not a premium. It fell within the range of estimates that previously had been made of the value of the when-issued shares, and is consistent with the court’s determination of value, discussed below. It should be noted that Ja-pónica later purchased the claims of Class 4.AI.2 at a price equivalent to $7 per share.

However, because it appears to the court that the transactions with DU may have permitted DU or others to take control of the debtor, the court treats these matters as objections to confirmation. The court does not view those events as a “Milligan conspiracy,” although it finds the process inept and ill-timed and lacking disclosure.

All of the parties know that this reorganization has been a fragile process. Consensus has been virtually unattainable. The court questions the thought given to these activities which could upset the delicate process. The third involvement of DU is incredible, in light of this court’s oft-stated disgust with their earlier failed efforts.

Nevertheless, the court denies the motions of Japónica and the Equity Committee to designate all other votes in favor of the debtor’s plan. Later in the context of confirmation, the court will resolve the matters it finds inequitable.

II. THE COMPLAINT OF THE BANKS FOR EQUITABLE RELIEF AND TO RESTRAIN JAPONICA AND ITS AFFILIATES

On April 14, 1989 Japónica announced a tender offer for all claims in Class 7.AI.1, the subordinated debt, and for certain of the claims in Class 5.CH.1, Chemetron general unsecured claims. This tender offer was held open until May 16, 1990. Through the tender offer, Japónica acquired approximately 62% of the claims in Class 7.AI.1 and 36% of the debentures in Class 5.CH.1.

On May 3, 1990 the court approved Japo-nica’s disclosure statement. The court notes that on that date Japonica’s tender offer was still outstanding. Therefore, from the approval of its disclosure statement on May 3,1990, until the expiration of the tender offer, May 16, 1990, Japónica was soliciting claims outside its plan while it was a proponent both before and after it had an approved disclosure statement.

The court further notes that on June 7, 1990 Japónica purchased the claims of several insurance companies in Class 4.AI.2, senior unsecured claims. Those creditors had voted against Japonica’s plan. Thereafter, on June 8, 1990, the final day for voting on Japonica’s plan, those insurance companies moved for leave to change their vote. Japónica purchased those claims for $7.00 per share — more than the $6.42 per share which was offered by the Japónica plan.

The results of the balloting on Japonica’s plan were filed with the court on June 21, 1990. Three classes of creditors and one class of interest holders did not accept the Japónica plan. The Japónica plan voting results appear as follows:

*295 Class % of the Voters °/q of the Dollars

2.AI.2 36 38

4.AI.2 87 17

5.AI 84 80

5.CH.1 92 66

7.AI.1 88 95

8.AI.1 92 N/A

8.AI.2 74 N/A

9.AI.1 47 N/A

It should be noted again at this point that Japonica’s plan was allowed to go forward for voting by creditors because it promised a cash payout to the creditors. Although the court believed the debtor’s plan could be confirmed, creditors had consistently expressed strong interest in receiving cash rather than stock. Therefore, the court indulged Japónica and allowed it to go forward with its plan. The Japónica cash plan failed to win the approval of three classes of creditors and cannot be confirmed.

While the above balloting transpired, Ja-pónica was permitted to perform due diligence of the debtor pursuant to an order of court dated March 15, 1990, which Japó-nica requested. Although there was an early dispute prior to the order regarding the debtor’s cooperation with Japónica, on the whole it appears that the debtor more than complied with this court’s order. In fact, the debtor provided Japónica with office space and use of other facilities at their general office in Pittsburgh. On June 11, 1990, M. Bruce McCullough, Esq., the debtor’s chief bankruptcy counsel, informed Japónica that their due diligence process was terminated and that they would have to leave the debtor’s general office at the end of that business day.

On June 12, 1990, a group of 16 banks commenced an adversary action, at Adversary No. 90-260, against Japónica and its affiliates. That action seeks, inter alia, the following equitable relief: enjoining Japóni-ca from interfering with the management or exercising control over the business or property of the debtor; requiring that all distributions to Japónica be held as security for the performance of certain obligations under the certificate of reorganization of the reorganized debtor and enjoining Japónica from exercising control over the reorganized debtor; prohibiting Japóni-ca from designating directors of the reorganized debtor; limiting the distribution to Japónica to the lesser of the amount they paid to purchase the claims or the distribution provided in their plan; or, equitably subordinating the claims purchased by Ja-pónica to all other claims.

The defendants have answered and raised counterclaims and third party claims. The court separated the trial of issues arising under the adversary complaint from the counterclaims and third party complaint and limited the hearing to matters that were related to the confirmation of the debtor’s plan of reorganization. Japónica demanded a jury trial; the court denied that request.

In a factually related matter, the debt- or’s motion to designate, the court found that Japónica entered upon a course of conduct designed to gain control of the debtor. The facts in this proceeding reinforce the court’s finding of bad faith conduct of Japónica to further manipulate the bankruptcy process by the strategic purchase of claims. The court intends to issue an injunction related to the issues of control and governance.

A. Public Tender Offer of the Subordinated Debentures While Japónica Was a Proponent of a Plan

Japónica, a proponent of a plan, chose an “end run” around the bankruptcy process by purchasing through its public tender offer approximately 62% of a class. Before the Japónica disclosure statement was approved, Japónica launched a public tender offer for all claims in Class 7.AI.1 and for certain of the claims in Class 5.CH.1. The tender offer expired during the voting period for the Japónica plan. Pursuant to its tender offer, Japónica acquired approximately 62% of Class 7.AI.1 and 36% of the debentures in Class 5.CH.1.

Japónica did not receive this court’s approval for its tender offer. As a plan proponent, Japónica could not have solicited acceptances until a disclosure statement had been approved. 11 U.S.C. § 1125(b). Japonica’s action caused discriminatory treatment among members of the same class, in violation of 11 U.S.C. § 1123(a)(4). *296 Those who accepted the Japónica tender offer received immediate cash. Those creditors who did not would receive their distribution at a later undetermined date, pursuant to the “official” Japónica plan. Those creditors would receive potentially more cash, but subject to an undesired holdback.

During this period, Japónica had incompatible and inconsistent roles. Japónica made an offer to purchase the claims of Class 7.AI.1. Japónica was also a plan proponent with an offer to tha