What You Should Consider What You Should Consider Before Selling Your Before Selling Your Bankruptcy Claim! Bankruptcy Claim! Presented by: Philip P. Philbin CCE Managing Director and Senior Consultant Commercial Credit Management Associates www.commercialcreditmanagementassociates.com
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What You Need To Know Before Selling Your Bankruptcy Claim
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What You Should What You Should Consider Before Selling Consider Before Selling Your Bankruptcy Claim!Your Bankruptcy Claim!
Presented by: Philip P. Philbin CCE
Managing Director and Senior Consultant
Commercial Credit Management Associates
www.commercialcreditmanagementassociates.com
What is “Claims Trading”?What is “Claims Trading”?
Chapter 11 BankruptciesChapter 11 Bankruptcies The buying and selling of claims in The buying and selling of claims in
bankruptciesbankruptcies Unregulated and very lucrative Unregulated and very lucrative
industryindustry Began in the 1990’sBegan in the 1990’s Started by banks, hedge funds, Started by banks, hedge funds,
Creditor’s Claims And Filing A Creditor’s Claims And Filing A Proof Of Claim (POC)Proof Of Claim (POC)
Only “claims” can be discharged Only “claims” can be discharged Only “claimants” with “claims” Only “claimants” with “claims”
can vote on plan of reorganization can vote on plan of reorganization in a Chap 11 casein a Chap 11 case
Secured and Unsecured claimsSecured and Unsecured claims Debtor’s and Creditors Debtor’s and Creditors
responsibilities responsibilities
Claims Sales AgreementsClaims Sales Agreements
The Offer/Expression of Interest The Offer/Expression of Interest
The ConfirmationThe Confirmation
The Assignment of Claim The Assignment of Claim AgreementAgreement
Exactly What Do These “Claims Exactly What Do These “Claims Traders” Traders”
Want From You?Want From You?
What possible reason What possible reason would make you interested would make you interested in “selling” your claim? in “selling” your claim?
Getting at least some of Getting at least some of your money back by your money back by cashing out now at a cashing out now at a fixed price fixed price
Lower the risk of getting Lower the risk of getting nothingnothing
Buyers Of Claims- Who Are Buyers Of Claims- Who Are Those Guys?Those Guys?
Brokers and Traders as Brokers and Traders as MiddlemenMiddlemen
Passive InvestorsPassive Investors
Active InvestorsActive Investors
You Would Think That Speculating You Would Think That Speculating On A Corporate Bankrupt Debtor On A Corporate Bankrupt Debtor
Would Be Risky!Would Be Risky! There is significant There is significant
value to be realized value to be realized in the in the reorganization and reorganization and asset saleasset sale
The reward far The reward far exceeds the price exceeds the price they paid from they paid from creditors who want creditors who want cash nowcash now
You Would Think That Speculating You Would Think That Speculating On A Corporate Bankrupt Debtor On A Corporate Bankrupt Debtor
Would Be Risky!Would Be Risky! Traders look to buy a particular Traders look to buy a particular
specific assetspecific asset Other Buyers are looking to Other Buyers are looking to
becoming the asset owner of the becoming the asset owner of the bankrupt company to put them in bankrupt company to put them in the best position when the the best position when the company emerges from the company emerges from the bankruptcybankruptcy
More purchased claims puts the More purchased claims puts the buyer in a stronger position in the buyer in a stronger position in the unsecured creditors committeeunsecured creditors committee
What is the Federal What is the Federal Bankruptcy Procedures Bankruptcy Procedures
3001(e)3001(e) The Federal Bankruptcy Procedures The Federal Bankruptcy Procedures
3001(e) governs claim trading under the 3001(e) governs claim trading under the US Bankruptcy Code.US Bankruptcy Code.
There are validation requirements under There are validation requirements under Rule 3001(e) that need to be metRule 3001(e) that need to be met
The courts do not generally supervise The courts do not generally supervise the trading of claimsthe trading of claims
Rule 3001(e) treats the claim as a free Rule 3001(e) treats the claim as a free market of private transactions for a market of private transactions for a buyer and a sellerbuyer and a seller
Disclosure and other requirements for Disclosure and other requirements for trading in public securities is not trading in public securities is not requiredrequired
What is the Federal What is the Federal Bankruptcy Procedures Bankruptcy Procedures
3001(e) 3001(e) Under Rule 3001(Under Rule 3001(ee), if a seller did not file a ), if a seller did not file a
proof of claim (POC) in the bankruptcy case proof of claim (POC) in the bankruptcy case prior to selling its claim, neither seller nor prior to selling its claim, neither seller nor buyer has to file notice of the transfer of the buyer has to file notice of the transfer of the claim with the courtclaim with the court
Once the transfer is complete, only the Once the transfer is complete, only the seller can file a POC on the transferred claimseller can file a POC on the transferred claim
The seller’s POC needs to include a copy of The seller’s POC needs to include a copy of the transfer of claim to prove that the seller the transfer of claim to prove that the seller is the valid owner of the claim against the is the valid owner of the claim against the debtor and entitled to the disbursements of debtor and entitled to the disbursements of payments from the claimpayments from the claim
What is the Federal Bankruptcy What is the Federal Bankruptcy Procedure 3001(e)Procedure 3001(e) If a POC was filed by the seller before the If a POC was filed by the seller before the
claim sale, the buyer must provide the claim sale, the buyer must provide the evidence of the claim transfer providing evidence of the claim transfer providing the transfer noticethe transfer notice
When filed, the clerk of the court is When filed, the clerk of the court is required to immediately send the notice required to immediately send the notice to the seller but to notify other parties-in-to the seller but to notify other parties-in-interestinterest
To insure the buyer gets paid, the buyer To insure the buyer gets paid, the buyer will notify the debtor or the debtor’s will notify the debtor or the debtor’s designate for dispensing payments designate for dispensing payments fromfrom the bankruptcy casethe bankruptcy case
Notice must include the buyer’s address Notice must include the buyer’s address and notice to forward payments to the and notice to forward payments to the buyer at their addressbuyer at their address
Filing an ObjectionFiling an Objection
If seller files an If seller files an objection, the court objection, the court will hold a hearing if will hold a hearing if written objection is written objection is filed within 20 days of filed within 20 days of the court’s mailing of the court’s mailing of the noticethe notice
If written objection is If written objection is not filed, the buyer not filed, the buyer unconditionally unconditionally becomes the valid becomes the valid owner of your claim.owner of your claim.
Filing an ObjectionFiling an Objection If written objection is If written objection is
filed, the court clerk filed, the court clerk must mail the hearing must mail the hearing notice, with a copy of notice, with a copy of the objection, to both the objection, to both seller and buyer, 30 seller and buyer, 30 days prior to hearingdays prior to hearing
If the court finds the If the court finds the transfer valid, it will transfer valid, it will enter an order making enter an order making buyer the legitimate buyer the legitimate valid ownervalid owner
Pitfalls Selling Your Claim- Pitfalls Selling Your Claim- Devil Is In The Details!Devil Is In The Details!
First notice is an offer letter with a time sensitive First notice is an offer letter with a time sensitive date to accept or reject date to accept or reject ““subject to acceptable subject to acceptable documentationdocumentation””
If you accept and agree on the price within the time If you accept and agree on the price within the time window, then you will need to agree on the window, then you will need to agree on the documentsdocuments
Claims buyer rushes the “assignment agreement” Claims buyer rushes the “assignment agreement” requiring your signature and quick returnrequiring your signature and quick return
A quick turnaround process benefits the buyer and A quick turnaround process benefits the buyer and eliminates any negotiationeliminates any negotiation
There is no negotiating with the buyers- It’s a Sellers There is no negotiating with the buyers- It’s a Sellers MarketMarket
Pitfalls Selling Your Claim- Pitfalls Selling Your Claim- Devil Is In The Details! Devil Is In The Details!
Have legal counsel review the Have legal counsel review the documentsdocuments
Buyers often slip into their agreement Buyers often slip into their agreement certain standard certain standard representations/warranties;representations/warranties; Enforceability of the claimEnforceability of the claim Absence of any defensesAbsence of any defenses No preference claimsNo preference claims
Pitfalls Selling Your Claim- Pitfalls Selling Your Claim- Devil Is In The Details! Devil Is In The Details! Buyers will require an agreement that they Buyers will require an agreement that they
be reimbursed if their return is less than be reimbursed if their return is less than anticipatedanticipated
Buyers require indemnification for attorney’s Buyers require indemnification for attorney’s fees expensed in defense against an attempt, fees expensed in defense against an attempt, or threatened attempt, by parties to object or or threatened attempt, by parties to object or otherwise reduce value of the claimotherwise reduce value of the claim
If the final value is less that it’s original If the final value is less that it’s original amount, buyers will require that sellers agree amount, buyers will require that sellers agree to repay the entire, or partial, amount of the to repay the entire, or partial, amount of the difference, including interest from the date of difference, including interest from the date of the claim transfer through the transfer datethe claim transfer through the transfer date
How to Get The Most From Your How to Get The Most From Your Claim Sale and Minimize LossClaim Sale and Minimize Loss
Good Signs that your claim is Good Signs that your claim is valid;valid; Your claim is listed on the Your claim is listed on the
debtor’s schedule as debtor’s schedule as UndisputedUndisputed
Check that your balance Check that your balance matches the debtor’s stated matches the debtor’s stated balancebalance
Meet all bar datesMeet all bar dates Review all of your AR payments Review all of your AR payments
for a potential payment for a potential payment preference claimspreference claims
CONCLUSIONSCONCLUSIONS
Can be a profitable ventureCan be a profitable venture Avoiding PitfallsAvoiding Pitfalls Be knowledgeableBe knowledgeable Confer with Legal CounselConfer with Legal Counsel
Thank You!Thank You!
QuestionsQuestions& &
AnswersAnswersPhilip P. Philbin CCEManaging Director & Senior Consultant
Upcoming Series ofUpcoming Series ofEDUCATIONAL WEBINARSEDUCATIONAL WEBINARS
““Preference Claims in Bankruptcies- How to Preference Claims in Bankruptcies- How to Eliminate Preferences”Eliminate Preferences”
““Filing A Lawsuit- Start To Finish”Filing A Lawsuit- Start To Finish” ““Convenience Charges on B2B Credit Card Convenience Charges on B2B Credit Card
Transactions- Yes you Can!”Transactions- Yes you Can!” ““Managing Collection Agencies”Managing Collection Agencies” ““How To Get And Maintain Accountability in Credit How To Get And Maintain Accountability in Credit
Management”Management”
AND MANY MOREAND MANY MORE
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