Another court ruling on a missed bar date highlights the importance of ensuring your rights are protected. Failure to comply with a deadline to file a claim can have catastrophic consequences.
Such a situation arose recently in the Southern District of New York in the case, In re Dana Corp. The Bankruptcy Court was presented with a reclamation claim, pursuant to Bankruptcy Code § 503(b)(9), filed six months after the claims bar date by a creditor who had timely filed a general unsecured claim three months before the bar date. The creditor asked the Court to enlarge the time to file the reclamation claim; the Debtors and Creditors' Committee opposed the relief. The relief should be granted, the creditor argued, because the notice of bar date was never received, the delay should be excused because of the new provisions for such claims under the revised Bankruptcy Code, and the creditor was awaiting instructions from the Debtors.
In rejecting the arguments, the Court found this sophisticated creditor made a business decision not to file the reclamation claim and that decision was made even more apparent because the creditor had filed the general unsecured claim timely. Further, Judge Lifland found it “incredulous” that the creditor failed to receive even one of the 21 notices sent to it at the correct address, none of which was returned by the postal service. Finally, permitting such a substantial claim to be late-filed would prejudice the Debtors and would set an untenable precedent. The creditor lost the ability to pursue a claim in excess of $1.5 million as a result.
The ruling was also significant because the Court would not allow the late claim – even though no plan had been filed. Frequently, courts have applied a “no harm, no foul” rule and permitted late claims because the debtor had not filed or even formulated a plan. Here, the Court observed that the plan formulation process was underway in light of the revised Bankruptcy Code's strict time requirements. To allow this claim, according to the Court, would frustrate the “equitable and orderly intake of claims” needed to advance the reorganization.
The case underscores the importance of protecting your rights. In chapter 11 cases, as in other bankruptcies, creditors must be sure to file claims in advance of the bar date. The corollary to that guidance: Understand the consequences of a decision not to file a claim.