March 6,2020, Southern District of New York – Recently, William K. Harrington, the United States Trustee for the Barney’s New York estate (“Debtors”) filed an objection to the request made by a liquidator of the Debtors’ assets regarding its standing to clawback payments made by the bankrupt retail chain. The Barneys estate, its unsecured creditors committee and the U. S. Trustee asserted that the standing was not a part of the purchase deal for the assets. The Debtors had entered into an asset purchase agreement with B. Riley and ABG-Barneys, LLC (“ABG”) (collectively, the “Purchasers”), an agency agreement, appointing Great American as the exclusive agent to liquidate inventory, and related agreements (collectively, the “Asset Purchase Agreement”) last year.
In its objection to the Purchasers’ motion, the US Trustee alleged that the parties that purchased substantially all of the Debtors’ assets, including causes of action, were not entitled to derivative standing to pursue avoidance actions that they acquired from the Debtors under an asset purchase agreement, approved by the Court on November 1, 2019.
The US Trustee cited three reasons – Firstly, the Second Circuit Court of Appeals and other courts have held that creditors’ committees in chapter 11 cases, not parties in interest or third parties, have an implied but qualified right to pursue claims on behalf of the bankruptcy estate. Second, the purchasers are not entitled to derivative standing under standard articulated in In re Commodore Int’l Ltd. v. Gould (In re Commodore Int’l Ltd.), 262 F.2d 96 (2d Cir. 2001) because they did not show that the Debtors consented to derivative standing and granting derivative standing would not be in the best interest of the bankruptcy estate or necessary and beneficial to the fair and efficient resolution of the Debtors’ cases. Finally, the purchasers did not show that they are entitled to derivative standing under the test set forth in Unsecured Creditors Committee of Debtor STN Enterprises, Inc. v. Noyes (In re STN Enterprises), 779 F.2d 901 (2d Cir. 1985) because they did not meet their burden of proving that the avoidance actions were colorable, that pursuing the avoidance actions will benefit the estate, or that the Debtors unjustifiably failed to pursue them. Accordingly, the US Trustee argued that the purchasers are not entitled to derivative standing and the Court should deny the liquidator’s motion.
By way of background, on August 6, 2019, the Debtors filed voluntary petitions for relief under Chapter 11 of the United States Bankruptcy Code. On August 7, 2019, the Court entered an order approving joint administration of the cases. On February 5, 2020, the Court entered the order confirming the joint Chapter 11 Plan of the Debtors. The Debtors’ bankruptcy cases are jointly administered under case no. 19-36300 and are pending before the Honorable Judge Cecelia G. Morris in the U.S. Bankruptcy Court for the Southern District of New York