On December 29, 2010, with only 2 weeks left before expiration of the statute of limitations for bringing preference actions, the Creditors Committee in the Checker Motors Corporation bankruptcy (Bankruptcy Court for the Western District of Michigan Case No.: 09-00358) moved for authority to file preferential transfer recovery actions (the “Standing Motion”) in anticipation of the approval of the proposed Plan of Liquidation. The Plan of Liquidation contemplates that all remaining assets of the Debtor, including avoidance actions under Chapter 5 of the Bankruptcy Code, will be assigned to a Liquidating Trust. With no filed opposition to the creditors committee’s motion, there is no reason to expect that the requested authority will not be granted.
The Standing Motion provides a hint that the avoidance actions might not all be directed against trade creditors. The Creditors Committee states:
Because it appears that many of the potential Avoidance Actions identified by the Committee would involve claims against insiders of the Debtor, and because the Plan of Liquidation contemplates that the Committee will elect and monitor the Liquidating Trustee in connection with the Plan of Liquidation, it would be in the best interest of the bankruptcy estate, and necessary and beneficial to the fair and efficient resolution for the bankruptcy proceedings, for the Committee to be granted standing to pursue such claims prior to the expiration of the 2-year period from the Petition Date and pending possible assignment of those claims to the Liquidating Trust.
The Debtor’s statement of financial affairs identifies 6 insiders who received approximately $1 million in payments in the 1 year prior to the bankruptcy filing. The Debtor’s statement of payments made to non-insiders also identifies approximately 30 trade creditors who might be potential preference claim targets.
The Creditors Committee is apparently prepared to take on the task of potentially being forced to establish the Debtor’s insolvency during the preference period. The Debtor’s Schedules of Assets and Liabilities filed on February 12, 2009, listed assets valued at $18,945,524 and liabilities of only $3,880,563. For the trade creditor defendants, the issue will be whether these post-filing schedules will be sufficient to overcome the presumption of insolvency and shift the burden of proof of insolvency back to the plaintiff. For the insider defendants, during the period between 1 year prior to the filing and 91 days prior to the filing, the plaintiff will not have the luxury of the presumption of insolvency.
The issue of whether the presumption of insolvency trumps the necessity of pleading facts is currently pending in the Delphi preference actions in the Bankruptcy Court for the Southern District of New York. Indeed, the Checker and Delphi cases have a substantial amount of similarity on the insolvency issue and the motions to dismiss in Delphi and the accompanying briefing might be especially helpful to the Checker Motors’ bankruptcy preference defendants. See prior post DPH Holdings Corp. (fka Delphi Corporation) Moves to Amend 130 Bankruptcy Preference Actions – Does the Presumption of Insolvency Trump Ashcroft v. Iqbal’s Mandate for Pleading Facts from which Insolvency Can be Found? Does Delphi Have the Insolvency Facts to Plead?