Concluding that the recent opinion of the Court of Appeals for the Second Circuit in In re Enron Creditors Recovery Corp. v. Alfa, S.A.B. de C.V., __F. 3d __, 2011 WL 2536101 (2d Cir. June 28, 2011) (“Enron“) left him no choice, Southern District of New York United States Bankruptcy Judge James M. Peck grants summary judgment to the defendant noteholders against a claim recovery of approximately $376 million received from Quebecor World (USA) Inc. during the preference period. As interpreted in Enron, Judge Beck found that the “settlement payment” protection from avoidance in Bankruptcy Code Section 546(e) protected the transfer of cash made to complete a repurchase and subsequent cancellation of privately-placed notes. Judge Peck makes clear that he did not agree with this result: “Purely from an equitable perspective, the disparity in relative recoveries between the Noteholders and Quebecor’s other creditors almost cries out for a remedy unless the payments fall within an appropriately more favored category of transfers that logically fits the definition of settlement payments under the Code.”
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.