The Official Committee of Unsecured Creditors appointed in the Crucible Materials Corporation bankruptcy (District of Delaware Case No. 09-11582 (MFW)) filed a motion on June 3, 2010 seeking intermediate derivative standing to pursue avoidance actions aka bankruptcy preference recovery. The Committee acknowledges that avoidance actions are supposed to be handled by a Litigation Trustee
A simple statement of the April 28, 2010 holding in TI Acquisition, LLC, v. Southern Polymer, Inc. 2010 WL 1993848 (Bankr.N.D.Ga.), may paint the decision as adverse to creditor interests. Certainly, Judge Mary Grace Diehl held that “new value” paid as a 503(b)(9) administrative expense is unavailable in a “subsequent new value” defense to a bankruptcy preference claim. However, this holding is overshadowed
For businesses confronting of a bankruptcy avoidable transfer claim under Section 547 of the Bankruptcy Code, answering three questions provides a bridge between esoteric descriptions of bankruptcy preference law and real world bankruptcy preference defense. A new article on this website entitled “A Three Question, Preliminary Self Assessment of a Bankruptcy Preference Claim” (click link to read) strives to give a bankruptcy preference defendant an look at the preference claim after it is filtered through three questions that each hit at core bankruptcy preference principles.
The caption of an adversary proceeding complaint provides essential information for the defendant in the process of resolving an adversary proceeding complaint for the recovery of bankruptcy preferences and other avoidable transfers. Part 2 of our five part series on the elements of a bankruptcy preference complaint addresses the caption.
The service of an adversary proceeding complaint often may provide the first notice to a business that it has been identified as a recipient of bankruptcy preferences. Without the warning of a demand letter, the complaint may seem like a missive from hell – laced with demands to avoid and recover preferential transfers and statutory citations to Sections 547(b), 550 and 502(d), the words have as much meaning to the uninitiated as hieroglyphics.
The HomeBanc Mortgage Corporation bankruptcy was filed on August 9, 2007, well over 2 years and 5 months ago. This week 386 bankruptcy preference adversary proceeding complaints were filed by the HomeBanc Mortgage Chapter 7 trustee. For those who have been lulled into ignorant bliss by the often quoted 2 year statute of limitations for bankruptcy preference actions, the case illustrates that the conversion of a Chapter 11 bankruptcy to Chapter 7 can result in up to a 1 year extension of the statute of limitations – i.e. up to a theoretical maximum of 3 years.
Does a supplier have to choose between asserting a subsequent new value bankruptcy preference defense and making a Section 503(b)(9) administrative expense request? Judge Marian F. Harrison of the Bankruptcy Court for the Middle District of Tennessee held on January 7, 2010 that a supplier does not have to choose. In the memorandum decision In re Commissary Operations, Inc. — B.R. —-, 2010 WL 99036 (Bkrtcy.M.D.Tenn.), Judge Harrison ruled that deliveries entitled to Section 503(b)(9) claim status are not disqualified from constituting new value for purposes of the subsequent new value defense to a bankruptcy preference claim.
In adding Section 503(b)(9) in the 2005 amendments to the Bankruptcy Code, did Congress intend that the supplier beneficiaries of the new section would wear a sign saying “BANKRUPTCY PREFERENCE TARGET – HIT ME”? This article challenges the growing use of bankruptcy preference actions under Section 547 to defeat and delay the allowance of Section 503(b)(9) administrative expense requests. As discussed below, the ploy subverts Congressional intent in adopting Section 503(b)(9). More fundamentally, the ploy ignores a basic tenet of the Bankruptcy Code that also is embodied in the prima facie requirements for bringing a bankruptcy preference action – “First Determine Priority.”
The other shoe in the Fluid Routing Solutions (now know as Carolina Fluid Handling Intermediate Holding Corp.) bankruptcy has finally dropped. On September 14, 2009, slightly more than 5 months from the 363 sale of most it operations, the Debtors filed a motion for an order converting the Debtors’ chapter 11 cases to cases under chapter 7 of the Bankruptcy Code. The motion was granted on September 28, 2009 and the trustee was appointed on October 2, 2008. We have provided a DocSheet for the period after the conversion of the Fluid Routing Chapter 11 to Chapter 7.
For suppliers, this is not the worst of the bad news. The really bad news for suppliers – the only hope of the Debtors’ trustee to avoid administrative insolvency is recovery of $2.5 million in preference claims.
Increasing instances of administrative insolvency, especially in the automotive sector, have caused many suppliers to question the value of 503(b)(9) claims. Even when administrative expense claims are impaired, however, 503(b)(9) claims can be worth substantially more than their face amounts in settlements of bankruptcy preference claims. Seldom do you see in one case, much less in one settlement order, the absolute worst and among the best examples of using this strategy. A recent settlement order in the Cadence Innovation bankruptcy provides this rare opportunity.