On January 24, 2011, a hearing will be held in the Contech U.S., LLC (“Contech”) bankruptcy (Eastern District of Michigan, Southern Division ) on the Chapter 7 Trustee’s Motion for an Order Establishing Uniform Procedures and Deadlines for Certain Adversary Proceedings (the “Procedures Motion”). The Chapter 7 Trustee, Gene R. Kohut, has advised the Bankruptcy Court that the he will be filing as many as 200 bankruptcy preference complaints on or before January 30, 2011. The time frames set out in the procedure motions convey the clear message that a substantial effort will be made to settle as many of the preference actions as quickly and as efficiently as possible.
Overview of the Contech Bankruptcy
Contech and its two associated debtors (the “Debtors”) were tier 1 and tier 2 automotive parts suppliers. Its major customers included Delphi, Ford, BMW and Linamar. Their primary manufacturing operations included light metals die casting and machining and the manufacturing of tubing, forging and protective paint coatings.
Contech was on the front end of the wave of automotive supplier bankruptcies in 2009. The Debtors commenced their chapter 11 cases on January 30, 2009. Substantially all of the operating assets sold pursuant to orders entered April 7, 2009, June 3, 2009, June 15, 2009, and June 23, 2009. Pursuant to Debtors’ motion, on July 13, 2009, the cases were converted from Chapter 11 to Chapter 7.
The Procedures Motion
To deal with the administrative burdens of mass bankruptcy preference litigation, it is fairly common for the plaintiff in the actions to seek entry of a procedural order, often called a “streamlined procedures order”. In the instance of the Contech Procedures Motion, the Trustee is seeking to divide the preference actions into two “Tracks”.
Track I adversary proceedings are those where the defendant is subject to service in the United States and the claim amount is $50,000 or less. Track II adversary proceedings include United States based defendants subject to recovery claims in excess of $50,000. The key distinction between the two Tracks is the amount of time given for completion of various filings and steps in the proceedings.
As is frequently found in these types of streamlining motions, the Trustee is seeking to limit the timing for hearing of motions – e.g. motions to dismiss, motions for summary judgment, etc. The proposed order provides that all motions and other matters “will be heard only at omnibus hearings in this chapter 7 case to be established by the Court.”
Finally, the proposed order provides for a subsequent motion by the Trustee for mandatory mediation.
The overall direction clearly indicated by the Procedures Motion is to provide sufficient time to and encourage the parties to resolve the preference claims as quickly and as efficiently as possible.