Cadence Innovation LLC (the “Debtor”) is continuing to try and settle potential bankruptcy preference claims against vendors who received payments from the Debtor during the ninety (90) day period prior to the petition pate (the “Transfers). On August 28, 2009, the Debtor filed a motion for approval of its second round of bankruptcy avoidance action settlements. This round, like the first round discussed in an earlier post, demonstrates that the Debtor continues to attribute value to the 503(b)(9) administrative expense claims as well as the general unsecured claims. However, unlike the first round, several vendors in this round of settlements are making payments to the Debtors to settle the avoidance claims. Some of these payments are substantial.
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.
In another blow to maintaining administrative solvency (much less any hope of recovery by the unsecured creditors on prepetition claims), on March 23, 2009, Cadence Innovation settled its $4,914,075 claim against GM for $2,830,000 ($2,000,000 cash and $830,000 GM loan reduction). For Cadence Innovation this result certainly represents a disappointment. The $4,914,075 certainly would have been viewed as “in the bank.”
Looking at the Cadence Innovation November 30, 2008 balance sheet, you would see total assets of $88 million. The December 31, 2008 balance sheet shows total assets of only $6.5 million. What happened?
Cadence Innovation has agreed to the sale of its interests in a Czech corporation “Cadence Bohemia” to Magna Presstec AG. Unfortunately, no dollars from this sale will find there way to Cadence Innovation.
Feb. 20, 2009 – On February 12, 2009, another volley was fired in the onging Cadence Innovation LLC (“Cadence”) battle with GM. This time Cadence fired the volley. In an adversarial “Complaint to recover Money and to Enforce Accomodation Agreement and Stipulation and Consent Order”, Cadence alleges that GM is refusing to pay Cadence more than $4,914,075, including amounts due for equipment and raw material that GM purchased from Cadence. The purchase price was to be determined as a post-sale matter by an agreed appraiser. The designated appraiser firm was Hilco Appraisal Services, LLC. (“Hilco”).
The story is not the latest GM/Cadence fight. The story is the results of the appraisal, which was released on January 13, 2009 and attached to the February 12, 2009 Cadence complaint. This appraisal shows that the orderly liquidation value is $.10 on the dollar of fair market value.
11 USC Section 503(b)(9) provides that a supplier shall be entitled to an “administrative expense claim” for “the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.”
Clearly motivated by Cadence’s announcement that it is liquidating, suppliers are making sure that they are in line for allowance of administrative expense claims pursuant to
Original Post 12/28/2008; See Updates At End of this Post
For a supplier confronted with a customer bankruptcy, nothing changes bad to worse like the failure of the customer to successfully reorganize. This means that a filing under Chapter 11, which creates the possibility that the customer will continue operations, now becomes a liquidation under Chapter 7. Worse still, the supplier who has received payments on open account during the bankruptcy preference period will likely face a bankruptcy preference claim and faces the real prospect of receiving a demand for repayment of those amounts.