Auctioneers and Claims Administrators Using Technology to Lead the Way

Auctioneers and Claims Administrators Using Technology to Lead the Way

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Large, complex bankruptcies can be extremely expensive for a debtor to administer. Such cases can have hundreds of thousands of creditors who are required to receive various notices that their rights may be affected. Asset sales are among the numerous activities in a bankruptcy case that will require notice to all creditors. It is not unusual for a mailing, in what has been deemed a "mega-case," to exceed several hundred thousand dollars in postage alone.

Terrific cost-saving ideas have been utilized in numerous cases across the country, but we still see a tremendous waste of estate assets in cases where counsel and the court have not been exposed to these cost-effective measures. Often, counsel is unsure of the willingness of the courts or the U.S. Trustees' offices to support the use of these new technologies. Further, counsel is often unaware of the technology that is available to address the needs of the case in more cost-effective ways. This article will address a number of cost-saving techniques used primarily by auctioneers and claim administrators in recent cases filed across the country.

Utilize the Internet

The Internet has saved hundreds of thousands of dollars for companies in the midst of chapter 11 reorganization. A debtor company can use its current web site, set up a new one geared only toward its reorganization or utilize its claims administrator's web site. Any of these options will save the company time, money and manpower. It is currently estimated that more than 60 percent of Americans use the Internet, and that number increases greatly when referring solely to American businesses. A debtor company is able to communicate with the majority of its creditor base through the Internet.

What should be included on the web site? The answer to that question is easy: anything and everything that helps the creditors answer their own questions. Downloadable copies of important documents, a calendar with important deadlines, a hearing calendar, names of all the professional firms involved in the case, a list of related entities—the list goes on. In a recent case filed in the Southern District of New York, In re Solutia Inc. et al., Case No. 03-17949 (PCB), the court requested that the docket and all documents filed in the case be made available on the web site, not just through PACER.1 This information, available to everyone via the Internet, reduces the number of creditor calls that are received by the court, claims administrator, the debtor company and professionals. Solutia includes reorganization information on its web site as well as a link to the claims administrator's site where the court docket can be found. Within the ambit of sale of assets, liquidators and counsel have used the Internet to increase the potential market of buyers and reduce the cost of due diligence to prospective buyers and the estate. A recent example of where the Internet was used to give rise to more buyers and drastically reduce the cost of due diligence is In re Enron Corp., Case No. 01-16034, filed in the Southern District of New York, where all the data related to various subsidiaries was posted on a secured site. With respect to liquidations, one only needs to look at the Internet sites of auctioneers such as Michael Fox International and DoveBid to experience the ease of use and efficiency provided by this mode of information. This approach also allows both entities to hold numerous live webcast auctions.

Utilize CD-ROMs When Documents Are Voluminous

Many courts permit the debtor to burn voluminous documents onto CD-ROMs to avoid the enormous cost of printing and postage. Use of CD-ROMs has been accepted for due diligence, discovery and solicitation purposes. The cost reduction per package is substantial and can especially be seen in the postage bill. Given the weight of the documents and the requirement for first-class postage, we have seen postage cost as much as $4 per package. Multiply that times a case with 100,000 creditors, and you have just greatly reduced the potential distribution to those creditors. Factor in the costs of printing and binding a large disclosure statement, and that distribution diminishes even further. The costs to burn those documents onto a CD and then ship that to creditors will normally be less than the postage discussed above. To cover all of your bases, provide the creditors with a web site to download a copy of the document as well as a toll-free number to request a hard copy for those that don't have computer access. The number of creditors that actually call for a hard copy will be limited, and the costs to copy a few booklets will be substantially less than printing and binding thousands of booklets.

This doesn't just apply to disclosure statements and plans; in a newly filed Southern District of New York chapter 11 case, In re Quigley Co. Inc., Case No. 04-15739 (PCB), the court permitted the debtor to mail exhibits of a complaint requesting injunctive relief on a CD-ROM to thousands of parties. The advantages of putting the hundreds of pages of exhibits on a CD-ROM were not only the huge savings in print and postage charges, but the recipients obtained a searchable PDF version of the exhibits.

If you are in a jurisdiction where the court is hesitant about the use of a CD-ROM, ask the court if you can limit the volume of what is being sent. Most courts will allow you to send a full copy of the disclosure and plan documents to certain creditor groups while others receive a condensed version of the documents. Again, always include a web site and/or telephone number where the creditor can get a full copy of the documents.

Utilize E-mail

Auctioneers have led the way by developing large e-mail databanks of prospective purchasers to provide them with appropriate information of interest. More than ever, assets are now marketed and sold to a global audience. The cost efficiencies added by this tool provide significant competitive advantages with certain asset types. With respect to the administration of the rest of a large case, e-mail communication is just starting to become more prevalent. The time and money saved by using e-mail shouldn't even have to be addressed anymore, but there are still some people who are hesitant to use it. The court in the Southern District of Florida stated in the notice, case management and administrative procedures order in In re Atlas Air, Case No. 04-10792, that "because electronic mail service provides the fastest and most economical method of service, the debtors request that all parties with regular access to e-mail consent to service by e-mail. Any party that includes its e-mail address in its 2002 notice request shall be deemed to have consented to service by e-mail." E-mail notice was also fairly standard and created great savings in the Enron matter. It won't be long before the courts take this one step further by saying that "anyone that includes their e-mail address on their proof-of-claim form shall be deemed to have consented to service by e-mail." This move would save the debtor company hundreds of thousands of dollars.

The Commission also announced that it is seeking public comments relating to its mandate to develop a national strategy for financial literacy. This request for comments is published in the Federal Register at 69 Fed. Reg. 52538 (Aug. 26, 2004). The deadline for comments is Oct. 31. Specifically, the Commission seeks comments on these three questions: "(1) What are the three most important issues that the national strategy should address, and why? (2) What existing resources may be used to address those issues, and how could they be employed? and (3) What are the best ways to improve financial literacy and financial education in the United States?" I'm confident that as bankruptcy practitioners, we have well-grounded and valuable opinions on these issues.

The Internet and e-mail have greatly increased the efficiency and flexibility of auctioneers who are now able to provide live webcast auctions and online bidding to a global audience. Web-based auction services can also allow companies to monitor their assets, which can be highly valuable to the debtor estate. The value of an estate's assets is of great concern to the debtor and its creditors. Technology-based approaches such as the utilization of the Internet, CD-ROMs and e-mail are common in mega-bankruptcy cases and becoming increasingly common in smaller matters. These methods protect and preserve a debtor's assets and are often the most highly effective and cost-efficient means of disseminating information required by the courts.


1 PACER is an acronym for Public Access to Court Electronic Records, a web site that allows electronic public access to obtain case information off of a court docket. Return to article

Journal Date: 
Monday, November 1, 2004