There are known knowns; there are things we know that we know. There are known unknowns; that is to say, there are things that we know we don't know. But there are also unknown unknowns – there are things we don't know we don't know.
-United States Secretary of Defense, Donald Rumsfeld, February 12, 2002
Though perhaps not on Secretary Rumsfeld's mind at the time, in bankruptcy too there can be known creditors and unknown creditors. Unknown creditors are creditors whose identity or claim is not reasonably known or ascertainable, and to whom the debtor cannot directly provide key information such as the claims bar date.
In a bankruptcy, in order to effectively reorganize or liquidate, a debtor must be able to prevent creditors from asserting prepetition claims after a specified bar date (save excusable neglect). To do so in a manner that protects creditors' due process rights, a debtor must provide notice of the claims bar date. If the creditor is known, the debtor must provide actual notice, whereas if the creditor is unknown, notice by publication is sufficient. Thus, a key issue for a debtor with unknown creditors is what constitutes adequate publication notice.
Publication notice satisfies due process concerns when it is "reasonably calculated to reach all interested parties, reasonably conveys all the required information, and permits a reasonable time for response." Chemetron Corp. v. Jones, 72 F.3d 341, 346 (3d Cir. 1995). As this language suggests, a determination of the constitutional sufficiency of published notice depends on the specific context and facts of a case. Recently, in the case of In re New Century TRS Holdings, Inc., United States Bankruptcy Court Judge Kevin J. Carney (D. Delaware) upheld the constitutional sufficiency of the debtors' bar date publication notice to unknown creditors.
In New Century the court established a bar date of August 31, 2007. The debtors mailed a copy of the bar date notice to all known creditors, and, on July 23, 2007, published the bar date notice in the Wall Street Journal and the Orange County Register. Over the next several years a chapter 11 liquidation plan was confirmed and implemented and a liquidating trustee was appointed to administer the estate. In July 2011, an individual filed a proof of claim, which the trustee sought to disallow and expunge as late-filed. After several motions and rulings on the matter, in April 2012 the trustee moved for an order confirming that New Century had adequately noticed all unknown creditors.
Late-filed claimants objected to the trustee's motion on the grounds that the bar date publication was a "mere gesture" not reasonably calculated to inform potential claimants of the bar date, and—given the potential for a large number of claims by unknown creditors—in fact was designed to ensure that potential claimants would not receive adequate notice. These claimants argued that the debtors (1) did not consider readership profiles of the newspaper used for national notice, (2) did not spend enough money on publishing notice given the size and complexity of the case, (3) did not provide sufficient time for claimants to file claims, and (4) did not ensure that the font size and placement of the notice was adequate.
The court rejected each of these arguments. First, the court found the debtors' publication in the Wall Street Journal to be reasonably calculated to notify potential claimants of the bar date, noting that this specific publication was selected in an effort to reach all types of unknown creditors nationwide.
Second, the court was sensitive to the cost of publication on a liquidating estate with limited resources, and held that the notice was constitutionally sufficient. Citing the Fourth Circuit's decision in Vancouver Women's Health Collective Soc. V. A.H. Robins Co., the court highlighted the need to balance the needs of notification of potential claimants with the interests of existing creditors. 820 F.2d 1359, 1364 (4th Cir. 1987). The court reasoned that while additional publication notice may have been desirable, there was no proof that it would have been availing, and in any event the debtors' notice was constitutionally sufficient.
Third, the court found that publishing notice 39 days before the bar date was sufficient, noting that the bar date order had only required notice no less than 30 days prior to the bar date. Finally, the court found the font size and placement of the publication notice to have been sufficient.
For these reasons, the court held that the debtors' publication notice "passe[d] constitutional muster," and granted the trustee's motion. The court stressed the "overriding principle" in bankruptcy of finality, and stated that applying the bar date order here to all unknown creditors furthered this principle.
In re New Century TRS Holdings, Inc., et al., No. 07-10416, 2013 WL 4671734 (Bankr. D. Del. Aug. 30, 2013).
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
