“I’m inconsistent, even to myself.”

-Bob Dylan

What constitutes an informal proof of claim?  This simple question may yield a surprising number of possible answers depending upon the applicable jurisdiction.  Here’s the issue.  The Bankruptcy Code and Rules do not expressly address the filing of an informal proof of claim because it is a judicially created doctrine, specifically to “alleviate problems with form over substance; that is, equitably preventing the potentially devastating effect of the failure of a creditor to formally comply with the requirements of the Code in the filing of a Proof of Claim.”  Courts in various jurisdictions have established different requirements to qualify as an effective “informal proof of claim.”  As a result, there can be situations where courts may arrive at different results on similar fact patterns when determining whether there is an informal proof of claim.   

It is in this context that Judge Ridgway of the United States Bankruptcy Court for the District of Minnesota recently rejected a creditor’s argument that the filing of an involuntary petition served as an informal proof of claim in In re Acuity Medical International, Inc.  There, the bankruptcy court held that an involuntary petition “fails to carry an indication of an intent to pursue the claim,” and, thus, the creditor had not submitted an informal proof of claim by the bar date.

Background

On January 16, 2015, the creditor, along with two other parties, filed an involuntary petition against the debtor.  The debtor did not contest the petition, and the bankruptcy court subsequently entered an order for relief.  The court clerk then issued notice of a claims bar date of August 7, 2015.  On August 13, 2015, almost a week after the bar date, the creditor filed a proof of claim.  The creditor objected to the trustee’s final report, which proposed to treat the creditor’s claim as a late filed proof of claim, the consequences of which would be no distribution to the creditor.  The creditor sought to have its otherwise late claim deemed timely under a theory that the involuntary petition served as an informal proof of claim, and that the otherwise late claim acted as an amendment to the informal proof of claim.

The Bankruptcy Court Found that an Involuntary Petition Does Not Qualify As an Effective “Informal Proof of Claim” 

At the outset, the bankruptcy court noted that the Eighth Circuit has not ruled on whether an involuntary petition constitutes an informal proof of claim.  Thus, the bankruptcy court began its inquiry by analyzing the Eighth Circuit BAP opinion in In re Michels, which established the required elements to qualify as an effective “informal proof of claim.”  Specifically, the Eighth Circuit BAP held that an informal proof of claim must “state the nature and amount of the claim as well as indicate the claimant’s intent to hold the debtor liable and pursue the claim.”  The bankruptcy court was cognizant that these requirements may differ from other jurisdictions, and, thus, it would proceed “judiciously in analyzing an issue drenched in uncertainty.”

Applying this controlling precedent to the instant case, the bankruptcy court determined that the involuntary petition satisfied two of the three elements required for an informal proof of claim.  Specifically, the bankruptcy court found that the involuntary petition stated the (i) nature and amount of the claim (i.e., “3 Term Loan Notes” and $22,987.00”) and (ii) the claimant’s intent to hold the debtor liable.  The more difficult issue for the bankruptcy court was the third element: “an articulated indication by [the creditor] that it intends to pursue its claim.”

The bankruptcy court relied upon the Eight Circuit opinion in In re Haugen Constr. Serv., which found that a letter sent by a claimant’s attorney to the United States Trustee served as an amendable informal proof of claim.  In that case, the claimant had stated the amount of its claim and actively participated in the bankruptcy proceedings.  After reviewing the facts in Haugen, the bankruptcy court determined that the filing of an involuntary petition by the creditor in this case failed to demonstrate a similar intention to pursue a claim.

The bankruptcy court also distinguished the facts here from the Eighth Circuit BAP opinion in In re Michels.  The Michels panel found that an informal proof of claim existed based upon the claimant’s documents and numerous objections filed by the claimant prior to the expiration of the bar date.  The bankruptcy court believed that the level of participation in Michels distinguished it from the present case where the creditor relied only upon an involuntary petition to satisfy all the elements of an informal proof of claim.  Ultimately, the bankruptcy court concluded that the involuntary petition was only a “first step” to pursue a claim in bankruptcy, and additional steps must be taken by the creditor to demonstrate its intent to pursue a claim against the debtor.  Thus, the creditor’s objection was overruled.

Conclusion

This case serves as another reminder of the importance of monitoring the case docket and updating the case calendar to avoid missing critical deadlines.  The creditor (and its law firm) could have avoided the whole dispute over the existence of an informal proof of claim if, for example, the bar date was properly incorporated into their case management system which would have triggered the filing of a proof of claim before the bar date expired.  Regrettably, in contrast to our previous post “No Proof of Claim, No Problem” which discussed the Bankruptcy Court for the District of Idaho’s decision that a declaration submitted to the United States Trustee served as an effective informal proof of claim, the outcome for the creditor and its law firm in this case may be “No Proof of Claim, Big Problem!”