The long anticipated avoidable transfer recovery proceedings against former clients of Bernard L. Madoff commenced being filed on November 26, 2010 and by December 4, 2010, the total number of complaints filed reached 887 (update April 05, 2011 – a total of 1057 avoidance actions were filed after November 26, 2010). The complaints were filed by Irving H. Picard, as trustee (the “Trustee”) in the substantively consolidated proceeding brought under the Securities Investor Protection Act (“SIPA”) for the liquidation of the business of Bernard L. Madoff Investment Securities LLC and the bankruptcy estate of Bernard L. Madoff , individually (collectively “Madoff”). The statutory grounds for the avoidance actions include Sections 547- Preferences and 548 – Fraudulent Transfers – under the Bankruptcy Code. This note provides a cursory overview of the avoidance actions.
Mass Bankruptcy Preference, Avoidance Actions, Adversary Proceedings
Recent bankruptcy preference actions and adversary proceedings illustrating treatment of most aspects of bankruptcy preference assessment, negotiation and defense, including issues of timing and strategy.
Tribune Company Creditors Committee Brings Mass “Insider” Preferential Transfer Recovery Actions
On October 3rd and 4th, 2010, the Official Committee of Unsecured Creditors of Tribune Company (the “Committee”, on behalf of Tribune Company, et al. (the “Debtors”) brought 209 adversary proceedings for the recovery of preferential transfers. Of these 209 complaints, all appeared to name individuals as the defendants. The primary theory of recovery is avoidance of preferential transfers to an “insider”, which designation under Section 547 of the Bankruptcy Code allows the Committee to seek avoidance of transfers made during a 1 year period prior to the bankruptcy petition filing. The amount and basis for each transfer is identified on Exhibit A to each complaint. The identified transfer bases include: “Restricted Stock Units”, “Executive Transition”, “Deferred Bonus”, “Excise Tax Gross Up” and “Phantom Equity”.
Circuit City Stores Bankruptcy – Liquidation Trustee Files 565 Bankruptcy Preference Actions
Alfred H. Siegel, as Trustee of the Circuit City Stores, Inc. Liquidating Trust filed 565 adversary proceedings for the recovery of bankruptcy preferences between November 5 and November 10, 2010 in the Bankruptcy Court for the Eastern District of Virginia. The complaints are unremarkable with one notable exception. The complaints include the following:
Plaintiff acknowledges that some of the Preferential Transfers might be subject to defenses under Bankruptcy Code section 547(c), for which the Defendant bears the burden of proof under Section 547(g). Plaintiff will work with Defendant to exchange applicable information in an effort to resolve any and all factual issues with respect to potential defenses.
Below is a summary of the adversary proceedings. An adversary proceeding report (APScan) of the adversary proceedings can be reviewed by clicking this link.
Iowa Corn Farmers Turn Back VeraSun Energy Corporation’s Threatened Bankruptcy Preference Actions
With the passage on October 31, 2010 of the 2 year statute of limitations, Iowa’s corn farmers have definitively rebuffed a threatened onslaught of preferential transfer avoidance actions by VeraSun Energy Corporation. The 198 defendants who were named in the VeraSun preference actions only can envy the result of the tenacity and resourcefulness of these Iowa farmers. And more than a few small business owners should eat an extra helping of corn at Thanksgiving in thanks for the corn farmers undoubted influence on VeraSun’s decision to set a $20,000 floor for bringing preference actions. The story behind the success of the Iowa Corn Farmers has an important lesson.
Crucible Materials Corporation Litigation Trustee Starts Bankruptcy Preference Actions
On November 9, 2010, Richard D. Caruso, as Litigation Trustee of the Crucible Materials Corporation Creditors Litigation Trust, started the recovery of preferential transfers under Section 547 of the Bankruptcy Code. The adversary proceeding report on the Crucible Materials Corporation preference actions can be viewed by clicking this link. The following is a summary of the proceedings.
DBSI Inc. Bankruptcy Trustee Launches 853 Avoidance Actions Against Investors, Trade Creditors
From November 1, 2010 through November 10, 2010, the Chapter 11 Trustee in the DBSI Inc. bankruptcy has launched 853 avoidance actions against investors and trade creditors. The avoidance actions are unique for several reasons.
Consolidated Bedding, Inc. Chapter 7 Trustee Files 83 Bankruptcy Preference Actions
Alfred T. Giuliano, Chapter 7 Trustee for the Bankruptcy Estates of Consolidated Bedding, Inc., et al. has filed 83 actions for the recovery of preferential transfers under Section 547 of the Bankruptcy Code. The initial adversary proceeding report on these preference actions can be viewed by clicking this link. The following is a summary of the proceedings.
Nortel Networks Starts Bankruptcy Preference Recovery Adversary Proceedings
Nortel Networks (CALA) Inc. and certain of its affiliated debtors, as debtors in possession, have commenced filing of adversary proceeding complaints for recovery of preferential transfers under section 547 of the Bankruptcy Code (bankruptcy preferences). On October 4, 2010, the initial round of 23 complaints were filed. A summary of the bankruptcy preference recovery actions is provided below.
Quebecor World Litigation Trust Requests Entry of Defaults in 269 (15%) of the Bankruptcy Preference Actions
On September 13, 2010, Eugene I. Davis, as Litigation Trustee for the Quebecor World Litigation Trust, filed affidavits and requests for entry of defaults in 269 bankruptcy preference actions. According to the affidavits, the defendants in these adversary proceedings simply failed to answer. This note briefly discusses the number of defaulting defendants, the size of the defaulted claim amounts and the impact of Section 502(d), which will preclude distributions on the prepetition unsecured claims of each of the defaulting defendant until the judgment is paid.
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?
On July 22, 2010, Southern District of New York Bankruptcy Judge Robert Drain gave counsel for the Delphi reorganized debtors (the “Debtors”) an ultimatum – convince him that the debtors should be allowed to amend 130 preference-action complaints or those complaints will be dismissed on Rule 12(b)(6) grounds. The ”new” complaints, offered up on September 7, 2010, rely on factually threadbare conclusory statements of Delphi’s insolvency during the preference period. The Debtors’ collective prayer for relief can be paraphrased as: “Please let the Section 547(f) presumption of insolvency suffice for pleading factual grounds for insolvency!”