Recovering Preference Payments In Complex Corporate Bankruptcies
Togut, Segal & Segal LLP has unique and extensive experience with the identification, valuation, litigation, and settlement of preference actions across a wide range of situations in complex Chapter 9 and Chapter 11 cases. Our team has prosecuted the preference actions brought by the city of Detroit; James River Coal Co.; SemCrude LP’s SemGroup Litigation Trust; Collins & Aikman; Saint Vincent’s Catholic Medical Centers; Grubb & Ellis; Enron; Tower Automotive; and Jacom Computer Services, and we have defended preference actions in many other cases. We believe that we have handled more preference actions than any other firm in the United States.
Togut Firm has developed its own proprietary software for the efficient collection, maintenance, and analysis of preferential payment data. This allows us to evaluate and pursue preferences in a highly cost-effective manner. Our lawyers can pursue and liquidate preference claims on behalf of the debtor-in-possession (DIP), on behalf of a court-appointed trustee, as conflicts counsel, or on behalf of a trustee or plan administrator appointed after the confirmation of a Chapter 11 liquidating plan.
Preferences are payments made by the debtor to its creditors on the eve of bankruptcy that are subject to recovery during the bankruptcy case. Preferential payments are often made without any improper motive, but they nonetheless are recoverable because they favor one creditor over another. The law of preferences seeks to ensure that similarly situated creditors share equally in the debtor’s assets and that all of them receive a pro rata distribution.
The 2005 amendments to the Bankruptcy Code added extra protection for the recipients of preferences. Nevertheless, it is not at all unusual for our attorneys to recover millions for the benefit of creditors through the careful review of potentially preferential payments. In just three cases – Enron, Collins & Aikman, and Tower Automotive – we recovered more than $175 million in cash.
At the Togut Firm, our experience and skill with preference litigation represent only part of the value that we offer our clients. We also take pride in our ability to minimize the administrative expenses involved in the review and recovery of preferences. Moreover, our independence in any bankruptcy case means that we can pursue the estate’s rights against recipients of preferences vigorously.
Here is a representative list of preference actions that we have undertaken:
Co-counsel to the Enron debtors and the Enron post-confirmation fiduciary. Commenced more than 1,000 adversary proceedings that sought the avoidance and recovery of preferential transfers, fraudulent conveyances, commercial paper and equity transfers, and other avoidable transfers made by the Enron debtors. Among other notable results, the Togut Firm:
- Prosecuted an adversary proceeding and summary judgment motion against Bank of America (BofA) seeking recovery of approximately $120 million that BofA had seized from Enron bank accounts on the eve of its Chapter 11 filing. Prior to the court issuing its ruling on Enron’s summary judgment motion, the parties reached a settlement whereby BofA paid Enron $80 million in cash and waived claims against Enron’s estate exceeding $100 million.
- Developed and actively participated in the prosecution of the so-called “MegaComplaint” asserting claims against a number of financial institutions (including Citigroup, JPMorgan Chase, Royal Bank of Canada, Royal Bank of Scotland, Toronto Dominion, Canadian Imperial Bank of Commerce, Barclays, Merrill Lynch, and Deutsche Bank), and seeking to recover $10 billion in transfers from these financial institutions as preferential transfers and constructive and/or intentional fraudulent conveyances and to equitably subordinate billions more in claims. Ultimately, settlement recoveries on account of the MegaComplaint totaled more than $2 billion.
- Identified potential preferences in the amount of $1.2 billion relating to the early redemption of Enron’s commercial paper within 90 days of the bankruptcy filing and litigated actions against approximately 180 defendants (including JPMorgan and Mass Mutual), while ultimately obtaining $200 million in cash recoveries and over $100 million in claim waivers for the Enron estate on account of this litigation.
- Identified and actively participated in the prosecution of preferential and/or fraudulent transfers seeking the recovery of approximately $886 million relating to stock and equity transactions. Lead counsel in the Bear Stearns action, and co-counsel in the other actions, opposing motions for summary judgment and motions to dismiss based primarily on the safe harbor defenses set forth in sections 546(e) and (g) of the Bankruptcy Code. Cash settlements totaling $248 million were ultimately reached, resolving all the actions.
Collins & Aikman
Counsel to Alan Miller, the liquidating trustee. Investigated and commenced more than 1,100 preference actions that resulted in cash recoveries (plus claim waivers and claim reductions) of more than $60 million that included one preference action that required a weeklong trial that culminated in a $20 million judgment that we collected.
Anthracite Capital, Inc.
Counsel to attorney Albert Togut in his capacity as the Chapter 7 trustee. The Togut Firm developed and commenced litigation against Anthracite Capital, Inc.’s management and secured lenders – four of the largest financial institutions in the world – alleging, among other things, preferential and fraudulent transfers and breaches of fiduciary duty and contract. These adversary proceedings resulted in cash recoveries aggregating approximately $54 million and waivers of over $100 million in deficiency claims.
S.W. Bach & Company
Counsel to Mr. Togut in his capacity as the Chapter 7 trustee. Prosecuted 18-count, the multimillion-dollar case against nationally known broker-dealer (and others) alleging constructive fraud, breach of fiduciary duty, and breach of contract. The case resulted in numerous published opinions, one of which was widely publicized in bankruptcy and securities trade publications. See 435 B.R. 866 (Bankr. S.D.N.Y. 2010) (granting plaintiff partial summary judgment on the issue of liability).
Counsel to the post-confirmation litigation trustee. Commenced 350 preference actions and recovered $8 million.
James River Coal Company
Counsel to the debtors. Commenced 285 adversary proceedings to avoid and recover preferences. Resolved 99% of those actions within 12 months and obtained settlements in excess of $6.8 million, including the elimination of substantial administrative priority vendor claims.
Saint Vincent’s Catholic Medical Centers
Counsel to the liquidating trustee. The Togut Firm prosecuted 250 actions and recovered more than $5.8 million.
Ames Department Stores
Co-counsel to the debtors. The Togut Firm recovered approximately $2.5 million in cash and administrative claim waivers in connection with 145 preference adversary proceedings.
The Togut Firm realized $12 million from 129 preference actions, which were all resolved consensually.