For an estimated 2,200 vendors, holding approximately $30 million in outstanding pre-petition claims, the bankruptcy filing on August 25, 2010 (Delaware Bankruptcy Case No: 10-12636) of Oriental Trading Company, Inc. and 4 affiliated companies (the “Debtors”), is cause to take a long, deep breath. A critical vendor motion, if granted by Bankruptcy Judge Kevin J. Carey, will offer the possibility of critical vendor payments capped out at $15 million, and the top 27 unsecured trade creditors (see chart below) are owed more than $18 million. Additionally, this bankruptcy fits a classic retailer bankruptcy profile for heightened risk of the case ending in the formation of a litigation trust for pursuit of preference claims.
Chapter 7 Trustee’s Ply-Marts Preference Claims Illustrate Some “Preference Claim Timing Facts Of Life”
On August 16, 2010, the Chapter 7 bankruptcy trustee for Ply-Marts, Inc. (Northern District of Georgia Bankruptcy Case No. 08-72687) sued twenty creditors of the defunct lumber and building materials retailer, which did business as “Ply-Mart” and “PlyMart” (the “Debtor”). The trustee, Tamara Miles Ogier of the Atlanta firm of Ellenberg, Ogier, Rothschild & Rosenfeld, is seeking to avoid and recover preferential transfers made by the Debtor within the 90-day preference period.
Lessons of an Economic Analysis of the 204 Intermet Bankruptcy Preference Adversary Proceedings
Over a 3 day period, August 9th, 10th and 11th, 2010, the trustee of the liquidating trust for Intermet Corporation and its 19 co-debtors (the “Debtors”), filed 204 (almost immediately reduced by 3 to 201[fn1]) bankruptcy preference actions. The adversary proceedings are pending before Judge Kevin Gross. An analysis of the complaints shows:
WCI Communities Files 431 Bankruptcy Preference Actions for Recovery of Transfers by 126 Debtors Sharply Presenting Issue of Antecedent Debt, Transferor Identification
[Updated August 4. 2010] Ocean Ridge Capital Advisors LLC, as Creditor Trustee for the WCI Communities, Inc., Creditor Trust, over a eight day period (July 27, 2010 through August 3, 2010) filed 431 adversary proceeding complaints for the recovery of purportedly preferential transfers under Section 547 of the Bankruptcy Code. The adversary proceedings spring out of the August 4, 2008, Chapter 11 petition filings of WCI Communities, Inc. and one hundred and twenty-six (126) of its affiliates (collectively, the “Debtors”) in the United States Bankruptcy Court for the District of Delaware. The adversary proceedings, as are the WCI Communities bankruptcy cases, are pending before Judge Kevin J. Carey.
SemCrude 356 Bankruptcy Preference Actions Filed Under Stricter Pleading Standard of In Re Charys
On July 22, 2008, SemCrude, L.P. and 26 affiliated debtors (the “Debtors”) filed bankruptcy petitions in Delaware Bankruptcy Court (Lead Case No. 08-11525). On July 21, 2010, one day before the expiration of the 2 year statute of limitations, Bettina M. Whyte as the litigation trustee of the SemGroup Litigation Trust filed 356 adversary proceedings seeking recovery of alleged Section 547 preferential transfers.
Ascendia Brands, Inc. Poised to Launch Mass Bankruptcy Preference Actions
Ascendia Brands, Inc. (Delaware Bankruptcy Lead Case No. 08-11787) is poised to launch a barrage of bankruptcy avoidable, preferential transfer adversary proceedings within the next 2 weeks. Our analysis of the Debtor’s schedules indicates that approximately 140 former suppliers and other trade creditors will be targeted for avoidable transfer recovery under section 547, and there is a maximum theoretical recovery of approximately $21 million.
Sixth Circuit: Enabling Loan Collateralization Remains at Risk as Preferential Transfer Until Lien is “Actually Noted on Kentucky Certificate of Title” Leaves Purchase Money Lenders Subject to the Vagaries of Motor Vehicle Title Administration.
On July 2, 2010, the United States Court of Appeals for the Sixth Circuit ruled that, under Kentucky law, the “immunizing” effect of a purchase money security interest under Section 547(c)(3)[FN 1] was held in abeyance as a preference claim defense until the enabling loan security interest was “actually noted on the certificate of title.” Brock v. Branch Banking and Trust Company (In re Johnson), — F.3d —-, 2010 WL 2629704 (6th Cir. 2010). The holding had the practical effect of exposing the secured lender in that proceeding to the trustee’s claims for lien avoidance and recovery as a preferential transfer.
Ninth and Tenth Circuits Reach Opposite Conclusions in First Half of 2010 – Can Depreciation Provide Basis for Monetary Relief under Section 550(a) for Non-Possessory Lien Holders Who have their Liens Avoided as Bankruptcy Preferences under Section 547?
During the first half of 2010, the United States Court of Appeals for the Ninth Circuit and the United States Court of Appeals for the Tenth Circuit issued decisions addressing the remedies available to a trustee following the avoidance as a Section 547FN1 preferential transfer of a non-possessory security interest. The decisions substantially overlap in their respective holdings, but the area of disagreement is practically significant, and the difference bodes ill for non-possessory secured creditors in the Ninth Circuit.
Crucible Materials Corporation – Unsecured Creditors Committee Gets Court “Go Ahead” to Commence Bankruptcy Preference Actions with Doubtful Benefit to Committee Constituents
On June 18, 2010 the U.S. Bankruptcy Court in Delaware authorized the Official Committee of Unsecured Creditors to commence preference actions against creditors of Crucible Materials Corporation (District of Delaware Case No. 09-11582 (MFW)). The system that allows the Committee to sue its own constituents derives from one of the basic tenets of U.S. bankruptcy law… equal treatment among creditors of the same class. For those who will be targeted by these preference claims, the hope is that at least some of the returned money will find its way back in the form of increased distributions to the unsecured creditors. Unfortunately, in all probability, the Committee is suing its own constituents to recover funds under circumstances where none of the recovery will ever be paid to unsecured creditors.
Monaco Coach Corporation – Mass Preference Claims Still Several Months Away But Coming
On March 5, 2009 (the “Petition Date”), the Monaco Coach Corporation and 12 related entities[FN1] commenced these cases by filing voluntary petitions for relief under chapter 11 the Bankruptcy Code. As of June 4, 2009, the Debtors closed the sales of their luxury motorhome resort and core manufacturing assets. That same day, the Debtors’ authorization to use cash collateral expired. Without a source of cash to fund post-petition administrative expense, the Debtors quickly moved to convert the cases to Chapter 7. The cases were converted on June 30, 2009.