New Bankruptcy Court Ruling on When a Creditor Can File a Late Proof of Claim
A creditor in bankruptcy must normally file a proof of claim by a certain specified time, known as the bar date, or have its claim be barred. Bankruptcy Rule 3002(c)(6)(A) provides a narrow exception to this rule when a creditor files a motion and “the notice was insufficient under the circumstances to give the creditor a reasonable time to file a proof of claim because the debtor failed to timely file the list of creditors’ names and addresses required by Rule 1007(a).” Courts have disagreed about the meaning of this rule when a debtor timely files a list of creditors’ names and addresses (known as a creditor matrix), but improperly omits the creditor in question. Can the creditor then take advantage of this provision, or does it only apply when the creditor matrix is not timely filed at all? On May 25, 2021, the United States Bankruptcy Court for the Southern District of New York ruled in line with the former approach, holding that a known creditor omitted from a creditor matrix can take advantage of Bankruptcy Rule 3002(c)(6)(A) because when the creditor matrix omits a known creditor, it is not “the list of creditors’ names and addresses” that Rule 1007(a) requires.
In January 2020, Helios and Matheson Analytics Inc. (“Helios”) and certain of its affiliates filed petitions for chapter 7 relief. A chapter 7 trustee was appointed (the “Trustee”). Each debtor filed a creditor matrix with its petition, but both the creditor matrices and schedules of creditors omitted KLDiscovery, an electronic discovery company that had provided services to Helios. As such, KLDiscovery did not receive notice of the chapter 7 petition. The Court established June 1, 2020 as the bar date, and the debtors serviced notice of the bar date, but KLDiscovery again was not among the noticed parties. As early as February 2020, certain employees of KLDiscovery received notice of the bankruptcy through their electronic discovery work with Helios, but, KLDiscovery represented, no senior employee with decision-making authority concerning the bankruptcy received such notice until October 2020. KLDiscovery filed a proof of claim in February 2021 and moved for an order deeming its proof of claim timely filed under Bankruptcy Rule 3002(c)(6)(A) because KLDiscovery was not listed on the creditor matrix. The Trustee opposed the request, arguing that Rule 3002(c)(6)(A) did not apply because a creditor matrix had been timely filed, and also arguing that KLDiscovery had actual knowledge of the bankruptcy before the bar date because certain employees knew of the bankruptcy.
The court sided with KLDiscovery. The court reasoned that Bankruptcy Rule 3002(c)(6)(A) makes the availability of relief hinge on whether the debtor has timely filed “the list of creditors’ names and addresses required by Rule 1007(a).” Rule 1007(a) in turn requires that the debtor include on the list the creditors listed “on Schedules D, E/F, G, and H,” and Schedule E/F requires the debtor to list creditors with unsecured claims. This rule implements Bankruptcy Code section 521(a)(1), which requires debtors to include, among other things, a list of creditors. Thus, the court held, the debtor is required to list all known creditors, and a list that does not include all known creditors is not “the list of creditors’ names and addresses required by Rule 1007(a).” Any other reading, the court explained, would fail to give effect to the language “required by Rule 1007(a).” The court also invoked the doctrine of constitutional avoidance, under which courts avoid interpreting statutes in a manner that raises constitutional doubts. Here, foreclosing relief by a creditor who received no notice would likely create a due process problem, supporting KLDiscovery’s reading of the rule.
The court also ruled that KLDiscovery had received notice that was insufficient to give KLDiscovery a reasonable opportunity to file its proof of claim before the bar date. The court explained that an agent’s knowledge is only imputed to a principal when the knowledge is germane to the agent’s duties. While certain employees of KLDiscovery received notice of the bankruptcy before the bar date, the employees of KLDiscovery whose duties encompassed bankruptcy received no notice until well after the bar date had past. Thus, the court ruled that KLDiscovery’s proof of claim was deemed timely filed.