A panel representing WeWork's unsecured creditors wants bankruptcy court approval to sue the flexible office space provider's majority shareholder, SoftBank, and related parties to help recover hundreds of millions of dollars for landlords and its other unsecured creditors.
In a 160-page court document, the committee laid out perhaps the sharpest rebukes so far in WeWork’s Chapter 11 case against Japan-based investment holding company SoftBank and its CEO Masayoshi Son, among others, claiming they breached fiduciary duties because SoftBank sat "on both sides" in some deals that only sought to benefit Softbank and related parties' interests while sacrificing those of unsecured creditors.
The move sets up more legal wrangling for WeWork, the high-profile company that helped popularize coworking in the decade after its founding in 2010. WeWork paid too much for too many office leases as it grew rapidly, leading to the scrapping its first attempt at an IPO in 2019 and subsequent years of cost-cutting efforts and moves to renegotiate leases.
Just months before WeWork’s bankruptcy filing in November, SoftBank and an “ad hoc” group of unsecured noteholders representing 62% of WeWork’s unsecured notes outstanding at the time in March 2023 “engineered the creation of over $2 billion dollars in new purportedly secured claims, which offered [WeWork] insufficient value in return,” the filing said.
That led to WeWork’s general unsecured creditors, including landlords and holders of approximately $180 million in unsecured notes, becoming subordinate to some $2.4 billion in newly created secured debt, the committee argued.
Since 2016, nearly all of WeWork’s important business decisions were influenced or controlled by SoftBank, the committee said. WeWork’s co-founder Adam Neumann met Son in 2016, and SoftBank ended up becoming an investor to the company, as WeWork raised $4.4 billion from SoftBank at a valuation of about $20 billion in 2017, the committee said. It added that SoftBank executives took some WeWork board seats. After its initial investment, SoftBank continued to invest money in WeWork, ultimately investing over $16 billion, the committee said.
As of WeWork’s bankruptcy filing, SoftBank owned approximately 72% of WeWork’s common stock, with warrants to purchase even more, the committee said.
Complaints Against SoftBank
The committee is arguing that "with SoftBank sitting on both sides of the transaction, WeWork entered into a series of transactions … that exchanged the unsecured notes held by SoftBank and the Ad Hoc Group for a combination of secured notes and equity and provided the company with marginal additional capital to dress up the transactions, which only funded [WeWork’s] operations for a few months.”
WeWork at the time also redeemed $300 million of “purportedly” secured notes held by SoftBank, in advance of maturity, at par, among other deals inked at the time, according to the committee.
It added even though that transaction involved “a new money component,” it was “a clear attempt to improve SoftBank’s and the Ad Hoc Group’s chances of recovery at the expense of unsecured creditors ... and elevate their position in the company’s capital structure.”
“Through a series of events that highlighted the gross mismanagement of WeWork by all controlling persons, WeWork’s once-promising legacy ended in catastrophic failure,” the committee said. “This failure should not benefit the implicated bad actors simply because they orchestrated a scheme to mitigate their losses on the eve of bankruptcy. ... [WeWork] had no ability to service the newly created secured notes nor the rent due on hundreds of leases. SoftBank and the Ad Hoc Group knew these transactions were only a ‘band aid.’”
The March 2023 transactions should be "unwound as fraudulent transfers," the committee said.
Lease Talks
A WeWork spokesperson declined to comment on the court filing beyond the following statement: "Since the start of our Chapter 11 cases, we have prioritized transparency and full cooperation with our key stakeholders,” the WeWork spokesperson told CoStar News in an email. “We remain focused on our lease renegotiations and the Chapter 11 process overall and are continuing to make significant progress. Our goal of protecting the value of the company and emerging from this process financially strong and profitable remains steadfast."
SoftBank and lawyers for the unsecured creditors’ committee didn’t immediately respond to CoStar News’ separate requests seeking comment.
It’s not surprising “that unsecured creditors want to go after some of the big pockets,” Isaac Marcushamer, an attorney at Miami-based law firm DGIM, said in an interview. “They are looking to undo those transactions and get some combination of money and other relief. … Whatever recovery they receive will benefit all of the unsecured creditors. … Almost all of these cases in my experiences settle. It’s for the benefit of the whole estate.”
The committee’s move also comes as it said WeWork has failed to act and bring any cases or complaints against SoftBank: WeWork remains “beholden to SoftBank and the Ad Hoc Group via SoftBank’s board representation and majority shareholder status, as well as through the binding restructuring support agreement that [WeWork] entered into with SoftBank and the Ad Hoc Group that requires [WeWork] to pursue a chapter 11 plan of reorganization that respects the secured claims of SoftBank and the Ad Hoc Group and delivers them the reorganized company upon exit.”
SoftBank and Son, among others, “breached their fiduciary duty of care by driving WeWork’s uncontrolled and irresponsible expansion at a time when WeWork was insolvent, to the detriment of its creditors and shareholders,” according to the court document. They “inappropriately treated WeWork like the technology company it was not.”