Highland Capital Management LP co-founder James Dondero will part ways with the bankrupt hedge fund he helped found under the terms of a recently proposed deal with a committee of unsecured creditors.
The company requested that the Dallas U.S. Bankruptcy Court approve a proposed corporate restructuring that would create an independent board of directors at the hedge fund’s controlling general partner, Strand Advisors Inc. The restructuring also says co-founder James Dondero “will no longer be a director, officer, managing member or employee,” according to the filing.
Highland Capital filed for bankruptcy protection in October as investors and former employees sought hundreds of millions from the hedge fund. The firm has been in litigation with investors since the 2008 recession when it saw heavy losses.
The independent board of advisers laid out in the proposed restructure would be “actively involved and intimately familiar with all material aspects” of Highland Capital. It would also seek to prevent Dondero from any “negative influence” over the company and its employees.
Creditors have blamed Dondero for the bankruptcy, with one saying he is “not worthy of placing the trust of the state of 70 employees and hundreds of millions of dollars of creditor claims in his hands to do as he wishes.”
The filing proposes James Seery, John Dubel and a third director “to be selected by or otherwise acceptable to” the committee of creditors as members of the advisory board. Seery and Dubel have agreed to participate on the board of advisers at Strand Advisors Inc. and, under the proposal, would be compensated by Highland Capital.
James Seery is a high yield and distressed investing professional who recently was senior managing director and co-head of Credit at Guggenheim Securities LLC, according to a court filing. Dubel has a professional background spanning telecommunications, manufacturing and finance, according to a court filing. He’s currently serving on the independent boards of companies including Purdue Pharma Inc.
Dondero and co-founder Mark Okada created the the Dallas hedge fund in 1993 and grew it to oversee $40 billion at one point. Okada announced in September that he was leaving the company, delegating his duties to Dondero and remaining in an advisory position through the end of the year. Okada said in September that he would retain his ownership stake in the hedge fund in retirement.