In a December 9, 2016 ruling, in In re Motors Liquidation Co.,2 the United States Bankruptcy Court for the Southern District of New York denied the motion of a group of creditor private funds and registered funds (the “Funds”) seeking to redact or seal the names of parties holding 10 percent or more of the Funds’ equity interests from their corporate ownership statements and required them to disclose the ownership information in a public filing without redactions.
Federal Bankruptcy Rule 7007.1 requires non-debtor corporate parties in adversary proceedings to file a corporate ownership statement that identifies any parties who directly or indirectly hold 10 percent or more of the corporate parties’ equity. Under local bankruptcy rules in New York, partnerships and joint ventures, along with corporations, must file corporate ownership statements when they are parties to an adversary proceeding. The Funds argued that a public filing including the identities of their investors would reveal information about the commercial operations of their business and should be treated as confidential commercial information under section 107(b) of the Bankruptcy Code, which protects such information from disclosure.
In denying the Funds’ motion, the court noted that the court must protect confidential commercial information under section 107(b) and that this requires a determination whether movants in a particular case have shown that the information they seek to protect is properly classified as confidential commercial information. Judge Glenn, citing his own opinion in an earlier case, held that for otherwise sensitive information to be considered confidential commercial information, it must be “so critical to the operations of the entity seeking the protective order that its disclosure will unfairly benefit the entity’s competitors.” A moving party, the court noted, must show an “extraordinary circumstance or compelling need” for the court to grant an exception to the public’s right of open access and instead protect the confidentiality of the information required to be disclosed. Without ruling on whether the identities of the owners of 10 percent or more of the equity interests of a party in an adversary proceeding can ever be considered confidential commercial information, the court found that the Funds had not met their burden of proof.
The Motors Liquidation court stated its belief that the local bankruptcy rule applicable in the Southern District of New York that requires disclosure from partnerships and joint ventures “clarifies” Bankruptcy Rule 7007.1, which only expressly requires disclosure from corporations. However, courts in districts lacking local rules that expressly require disclosure from partnerships may not require disclosure from investment funds organized as partnerships, and bankruptcy judges may not all share Judge Glenn’s very narrow view of the scope of “confidential commercial information” entitled to protection. Nevertheless, private funds commencing or responding to adversary proceedings in bankruptcy court should be prepared for the possibility that they may be required to make public disclosure of their principal investors.