Between March 31 and April 2, 2010 (one day before the expiration of the statute of limitations), the Plan Administrator in the OTC International, LTD. nka IBP Corp. bankruptcy (Southern District of New York – Petition 08-11181) filed 78 adversary proceedings seeking recovery of alleged preferential transfers totaling more than $8.5 million.   No less than 34 avoidable transfer recoveries are being sought from foreign suppliers – 24 located in Italy and 10 spread among Hong Kong, India, Germany, Thailand and Tunisia. Adversary proceedings to recover avoidable preferences against foreign suppliers are not unusual.  However, these preference actions are worthy of note because of concentration of overseas defendants, both in terms of number of defendants and the relative size of the preference claims against them. To see an APScan of the 78 adversary proceedings, click this link.

For over 30 years, the Debtor was engaged in business as an importer and wholesaler of jewelry goods — selling gold, silver, diamond, cameo and colored stone jewelry to a variety of retail jewelry chains, major department stores, electronic retailers, discount chains and specialty stores.  For the fiscal year ending February 28, 2007, the Debtor generated gross revenues of approximately $97.5 million and generated net income of approximately $566,000.  For the fiscal year ending February 28, 2008, the Debtor generated gross revenues of approximately $85,000,000 and incurred net operating losses of approximately $15,000,000.

Under the terms of a Plan of Liquidation confirmed on January 29, 2010, Marianne T. O’Toole, Esq. was appointed the Plan Administrator, responsible for winding down the Debtor’s affairs, liquidating remaining assets, making the distributions required under the Plan and filing and prosecuting certain lawsuits including avoidance actions. The Disclosure Statement accompanying the Plan of Liquidation explained that the filing was “primarily precipitated by a liquidity crisis that prevented the Debtor from paying its debts as they came due.” The catch phrases “liquidity crisis” and inability to pay “debts as they came due” are flags that substantial preference claims are likely.

In mass bankruptcy preference actions, usually only a small percentage of the defendants are foreign defendants.   In this case, the Plan Administrator is looking heavily to recoveries from foreign preference defendants.  The successful prosecution – i.e. from service to collection –  of avoidance actions against foreign defendants always is a challenge.

For those countries who are participants in “Hague Convention of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters”  (the “Hague Service Convention”) , the Plan Administrator is seeking to accomplish service under Federal Rule of Civil Procedure 4(f)(1) FN[1] .  For defendants residing in countries not parties to the Hague Service Convention, the Plan Administrator will be seeking service under Federal Rule of Civil Procedure 4(f)(2).

Italy is a participant in the Hague Service Convention.  However, Italy requires the translation of all documents served into Italian.  Based on advice from the Italian Central authority, the Plan Administrator anticipates that the time for execution of a service request in Italy will be from 1 to 3 months.  India, where 5 defendants reside, and Hong Kong, where 2 defendants reside, do not require translation of the summons and complaint.  The Plan Administrator has not indicated how long service will take in India but believes that service in Hong Kong will take “about two months”.

The Plan Administrator has filed a motion seeking an enlargement of the time for service of process on the foreign defendants to October 29, 2010.  Federal Rule of Civil Procedure 4(m) requires service within 120 days of the filing of the complaint, unless otherwise extended by order of the court.  The Plan Administrator also has requested that the Bankruptcy Court enter an order giving the foreign defendants 30 days after service to file an answer.

In many mass preference recovery efforts, the vigor with which foreign defendants are pursued is diminished by the numbers of and size of the potential recoveries from the domestic defendants.  In OTC International, the importance of successful prosecution of avoidance actions against the domestic and the foreign defendants is about equal.  The Plan Administrator simply does not have the practical luxury of neglecting preference recovery prosecution against the the foreign defendants.  In the months to come, it will be of interest to review the Plan Administrator’s efforts, the success of those efforts and the responses of the foreign defendants.


FN[1] Federal Rule of Civil Procedure 4(f) provides:

(f) Serving an Individual in a Foreign Country.

Unless federal law provides otherwise, an individual – other than a minor, an incompetent person, or a person whose waiver has been filed – may be served at a place not within any judicial district of the United States:

(1) by any internationally agreed means of service that is reasonably calculated to give notice, such as those authorized by the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents;

(2) if there is no internationally agreed means, or if an international agreement allows but does not specify other means, by a method that is reasonably calculated to give notice:

(A) as prescribed by the foreign country’s law for service in that country in an action in its courts of general jurisdiction;

(B) as the foreign authority directs in response to a letter rogatory or letter of request; or

(C) unless prohibited by the foreign country’s law, by:

(i) delivering a copy of the summons and of the complaint to the individual personally; or

(ii) using any form of mail that the clerk addresses and sends to the individual and that requires a signed receipt; or

(3) by other means not prohibited by international agreement, as the court orders.