Avoidance Actions Against Seller Void Purchased Bankruptcy Claims

Wilmington and Philadelphia partner Andy Kassner, and associate Joe Argentina, co-authored an article for The Legal Intelligencer titled, “Avoidance Actions Against Seller Void Purchased Bankruptcy Claims.”

Andy and Joe, members of the firm's Corporate Restructuring Practice Group, discuss the Delaware Bankruptcy Court’s examination of Section 502(d) of the Bankruptcy Code in the context of the trading of claims in bankruptcy cases.

In In re KB Toys, Inc., the court held that purchasers of claims from claimants that received preferences prior to the bankruptcy filing would have their claims disallowed because the original claimants failed to return the preference payments to the estate.

Andy and Joe note that, “[i]n rendering its decision, the court decided not to adopt a contrary ruling issued in the United States District Court for the Southern District of New York in Enron, which held that section 502(d) only applied to the original claimant, not a subsequent purchaser who buys the claim.”

They say that the KB Toys decision will “likely will affect negotiations and terms of bankruptcy claims sales, including indemnity provisions.”