All items from Delaware Bankruptcy Litigation

On August 1, 2014, the Chapter 7 Trustee of MCG Limited Partnership, et al., filed approximately 38 complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code, and to disallow claims of the defendants pursuant to Section 502(d).
By way of background, MCG Limited Partnership, and various affiliated entities (the “Debtors”) filed petitions for bankruptcy in the District of Delaware on November 7, 2012 under Chapter 11 of the Bankruptcy Code.  On August 5, 2013, the Bankruptcy Court entered an order converting the Debtors’ Chapter 11 cases to cases under Chapter 7 of the Bankruptcy Code.
The law firm of Cooper Levenson, P.A. represents the Trustee in these various preference cases.  The pretrial conference has not been scheduled.  These adversary actions, as well as the Debtors’ bankruptcy proceeding, are before the Honorable Christopher Sontchi.
For preference defendants looking for an analysis of defenses that can be asserted in response to a preference complaint, below are several articles on this topic:
Preference Payments: Brief Analysis of Preference Actions and Common Defenses



Posted 2 weeks 2 days ago

When will your company’s Section 503(b)(9) claim be paid?  Under normal circumstances, Section 503(b)(9) claims are paid when the debtor makes a final distribution to creditors.  However, a Section 503(b)(9) creditor can file a motion to demand immediate payment of its claim.  This article will address the standard employed by the Bankruptcy Court in determining whether to grant immediate payment of a Section 503(b)(9) claim.
Bankruptcy Courts have considered the issue of whether a Section 503(b)(9) claim can be paid immediately, before the distribution to other similarly-situated creditors.  In the case of In re Global Home Prods., LLC, 2006 WL 3791955 (Bankr. D. Del. Dec. 21, 2006), the Court considered  the following three factors in deciding whether to make payment immediately to the creditor:

  1. prejudice to the debtor;
  2. hardship to the claimant; and
  3. potential detriment to other creditors.

The Court in Global Home denied the claimant’s request for immediate payment of the Section 503(b)(9) claim because the creditor could not demonstrate that it would suffer prejudice or hardship if payment is deferred until after confirmation of the plan, while the debtor would suffer substantial hardship.



Posted 3 weeks 1 day ago

In this prior post, we discussed common defenses that can be asserted in defending preference actions under the Bankruptcy Code.  Another defense that may be utilized is the “statutory lien defense” pursuant to Section 547(c)(6) of the Bankruptcy Code.
A statutory lien is a lien that arises by operation of a statute.  Examples of statutory liens are tax, mechanic’s, and materialmen liens because they are established by statute.
Section 101(53) of the Bankruptcy Code defines a statutory lien as “a lien arising solely by force of a statute on specified circumstances or conditions, or lien of distress for rent, whether or not statutory, but does not include security interest or judicial lien, whether or not such interest or lien is provided by or is dependent on a statute and whether or not such interest or lien is made fully effective by statute.” 11 U.S.C. § 101(53).
Statutory liens are the focus of § 547(c)(6):  “The trustee may not avoid under this section a transfer — . . . that is the fixing of a statutory lien that is not avoidable under section 545 of this title.”  Thus, if the statutory lien is not avoidable under § 545, it is not avoidable as a preferential transfer.



Posted 5 weeks 3 days ago

From July 8 – 9, 2014, Charles A. Stanziale, in his capacity as the chapter 7 trustee of Tri-Valley Corporation, et al., filed approximately 23 complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code.  Tri-Valley Corporation, and various affiliated entities (the “Debtors”) filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware on August 7, 2012.
By way of background, on March 25, 2013, the Bankruptcy Court entered an Order converting the Debtors’ cases to Chapter 7 proceedings. On March 26, 2013, Charles A. Stanziale, Jr. was appointed as the Chapter 7 Trustee (the “Trustee”) in the Debtors’ bankruptcy cases.
The law firm of McCarter & English, LLP represents the Trustee in these various preference cases.  The pretrial conference has not been scheduled.  These adversary actions, as well as the Debtors’ bankruptcy proceeding, are before the Honorable Mary Walrath.
For readers looking for more information concerning preference litigation, including an analysis of defenses that can be asserted, below are several articles on this topic:
Preference Payments: Brief Analysis of Preference Actions and Common Defenses



Posted 5 weeks 4 days ago

As discussed in the prior post, creditors may receive administrative-expense priority for “the value of goods received by the debtor within 20 days before” the debtor’s bankruptcy filing “in which the goods have been sold to the debtor in the ordinary course of business.”  11 U.S.C. § 503(b)(9).
The question then becomes what constitutes a “good” under Section 503(b)(9)?
Bankruptcy Courts have consistently held that the Uniform Commercial Code’s (UCC) definition of a good controls for purposes of Section 503(b)(9). Under the UCC, a good is anything that is moveable. As such, to qualify for priority treatment under this section, the good at issue must be something that is moveable.  For example, “services” provided fall outside of the scope of Section 503(b)(9) treatment.
At times, whether a product is a “good” or a “service” may not be readily apparent.  For example, in the case of In re Goody’s Family Clothing, Inc., 401 B.R. 131 (Bankr. D. Del. 2009), the creditor seeking Section 503(b)(9) administrative priority was an intermediate vendor that received textiles from a supplier, would unpack the textiles, inspect them, ticket and repack them before shipping the textiles to the debtor.  The Court found that the creditor in fact provided services but not “goods” to the debtor, and therefore was



Posted 7 weeks 2 days ago

It is your worst nightmare.  You ship goods to a company, only to find out that shortly after shipment, it files for bankruptcy.  Now, instead of receiving payment for those goods, you are simply one of many creditors of the debtor’s estate.  What remedies do you have under the Bankruptcy Code to recover the amount of the shipped goods?
If the goods were shipped within 20 days of the debtor’s filing, then your claim may qualify for “administrative” status under Section 503(b)(9) of the Bankruptcy Code. The Section provides as follows:
(b) After notice and a hearing, there shall be allowed, administrative expenses, other than claims allowed under section 502(f) of this title, including –
(9) 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.
An administrative claim has higher priority, meaning that they get paid out before unsecured claims.   This is significant given that in many instances, a debtor lacks the assets to pay off all of its claims.  It can mean the difference between receiving 100% of your claim, or just pennies on the dollar.
Requirements of a Section 503(b)(9) Claim
To summarize, to be entitled to a 503(b)(9) claim,  a supplier must show four things:
(1) that it sold goods to the bankrupt customer;
(2) that these goods were received by debtor within 20 days prior to its bankruptcy filing;



Posted 8 weeks 2 days ago

In this prior post, the preference actions filed by Jeoffrey L. Burtch, Chapter 7 Trustee of the Capitol Infrastructure, LLC bankruptcy estates, from April 22 through 24th were discussed.  Since the filing of these preference actions, a Pretrial Conference has been set for July 22, 2014 at 2:00 p.m. at US Bankruptcy Court, 824 Market St., 6th Fl., Courtroom #3, Wilmington, Delaware before the Honorable Kevin Gross.
In pretrial conferences held before the United States Bankruptcy Court for the District of Delaware, the Court will enter a scheduling order governing the pending preferences actions.  This order will generally include deadlines to issue discovery, take depositions, file dispositive motions, along with the scheduling of trial and other relevant dates.  A template scheduling order that has been approved by the Court can be found on the Court’s website, or by clicking here.
It is important that preference defendants review a proposed scheduling order with counsel in order to determine whether the plaintiff’s proposed order comports with the standard terms of such orders approved by the Bankruptcy Court in the District of Delaware.



Posted 11 weeks 4 days ago

From April 22 – 24, 2014, Jeoffrey L. Burtch, Chapter 7 Trustee of the Capitol Infrastructure, LLC bankruptcy estates, filed approximately 71 complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code, and to disallow claims of the defendants pursuant to Section 502(d).
Capitol Infrastructure, LLC and various affiliated entities (the “Debtors”) filed petitions for bankruptcy in the United States Bankruptcy Court for the District of Delaware on April 26, 2012. By way of background, on October 15, 2012, the Court entered an Order converting the Debtors’ cases from Chapter 11 proceedings to Chapter 7 proceedings (the “Conversion Order”). One day after the Conversion Order was entered, Jeoffrey L. Burtch was appointed as the Chapter 7 Trustee of the Debtors’ estates.
The law firm of Cooch & Taylor represents the Chapter 7 Trustee in these various preference cases. The pretrial conference has not been scheduled. These adversary actions, as well as the Debtors’ bankruptcy proceeding, are before the Honorable Kevin Gross. To review one of the complaints filed in these actions, click here.
For readers looking for more information concerning preference litigation, including an analysis of defenses that can be asserted, below are several articles on this topic:



Posted 16 weeks 2 days ago

In the AFA Investment Inc. preference litigation, a summons has been issued scheduling the Pretrial Conference for June 30, 2014 at 11:30 a.m.  The hearing will be held before Judge Walrath in courtroom no. 4 on the 5th floor at the Bankruptcy Courthouse for the District of Delaware.  To view one of the summons issued in these preference cases, click here.
In pretrial conferences held before the United States Bankruptcy Court for the District of Delaware, the Court will enter a scheduling order governing the pending preferences actions.  This order will generally include deadlines to issue discovery, take depositions, file dispositive motions, along with the scheduling of trial and other relevant dates.  A template scheduling order that has been approved by the Court can be found on the Court’s website, or by clicking here.
It is important that preference defendants review a proposed scheduling order with counsel in order to determine whether the plaintiff’s proposed order comports with the standard terms of such orders approved by the Court in the District of Delaware.



Posted 18 weeks 3 days ago

On March 28, 2014, AFA Investment Inc. filed approximately 125 complaints seeking to avoid and recover alleged preferential transfers pursuant to Sections 547 and 550 of the Bankruptcy Code, to disallow claims of the defendants pursuant to Section 502(d), and seeking attorneys’ fees.  AFA Investment Inc., and various affiliated entities (the “Debtors”) filed petitions for bankruptcy in the District of Delaware on April 2, 2012.
By way of background, on July 2, 2013, the Court approved an Order approving the formation of an Advisory Committee for the purposes of management of prosecution of avoidance actions.  The Court confirmed the Debtors’ First Amended Joint Chapter 11 Plan of Liquidation on March 7, 2014.
The law firm of ASK LLP represents the Debtors in these various preference cases.  The pretrial conference has not been scheduled.  These adversary actions, as well as the Debtors’ bankruptcy proceeding, are before the Honorable Mary Walrath.  To review one of the complaints filed in these actions, click here.
For readers looking for more information concerning preference litigation, including an analysis of defenses that can be asserted, below are several articles on this topic:



Posted 20 weeks 3 days ago