A Liquidating Trustee Alone Has the Authority to Review and Object to Claims

By: Ryan C. Beil

St. John’s University School of Law

American Bankruptcy Institute LawReviewStaff

            In In re Abengoa Bioenergy Biomass of Kansas, LLC,a bankruptcy court in Kansas held that a liquidating trustee alone has the authority to review and object to claims without considering the objections of other creditors.[1]On March 23, 2016, a group of creditors and mechanics’ lien claimants filed an involuntary petition for relief under chapter 7 of title 11 of the United States Code (the “Bankruptcy Code”) against debtor Abengoa Bioenergy Biomass of Kansas (“ABBK”).[2]The chapter 7 petition was not granted as ABBK’s motion to convert the case to chapter 11 was granted on April 8, 2016.[3]Thereafter, ABBK proposed a chapter 11 plan of reorganization (the “Plan”), which was ultimately confirmed by the United States Bankruptcy Court for the District of Kansas.[4]Pursuant to the Plan, a liquidating trust was established and all of the estate’s assets and rights were entrusted to a liquidating trustee (“Kansas Trustee”).[5]On February 16, 2018, before ABBK’s plan was confirmed, the Missouri Liquidating Trustee (“MLT”), the trustee of certain affiliates of ABBK appointed in a separate bankruptcy case, objected to proofs of claim filed by various creditors in ABBK’s bankruptcy case.[6]The Kansas Trustee moved to strike the MLT’s claims and objections, asserting that the Kansas Trustee alone had the authority to pursue claims, objections, settlement, or litigation moving forward.[7]After reviewing the facts, circumstances, and arguments, the bankruptcy court granted the Kansas Trustee’s motion to strike.[8]

            The primacy of the Trustee in the liquidation process is consistent with long-recognized bankruptcy practice. [9]This practice limits the rights of creditors, which typically have the right to object to claims against a debtor, because of the “needs for orderly and expeditious administration.”[10]Here, both the confirmed plan and the liquidating trust provided that the Kansas Trustee succeeded to the debtor in possession’s rights and duties.[11]Those rights and duties are generally the same as a chapter 11 trustee appointed under 11 U.S.C. §1104.[12]The Kansas Trustee was not a chapter 11 trustee because he was not appropriately appointed, however he retains powers to “examine and object to proofs of claim in the manner of a chapter 11 trustee, powers that are identical to those of a chapter 7 trustee to examine and object to proofs of claim ‘if a purpose would be served.’”[13]The confirmed plan and liquidating trust both exclusively reserved the Kansas Trustee with the power to examine, object to, and resolve claims.[14]Therefore, the needs for expeditious case administration demand that the Kansas Trustee should have the sole opportunity to examine, object to, and resolve claims.[15]

            The Kansas bankruptcy court concluded that the Kansas Trustee alone has the authority to review and object to claims without other creditors weighing in.[16]The court emphasized that to hold otherwise would “thwart the Trustee’s business judgment and discretion to liquidate and distribute ABBK’s assets.”[17]The creditors have one “primary spokesman” and allowing for others involvement would run contrary to the needs for expeditious case administration.[18]Therefore, the Kansas bankruptcy court granted the Kansas Trustee’s motion to strike the MLT’s claims objections.[19]The holding of the Kansas bankruptcy court is consistent with long-standing bankruptcy practice.[20]Courts generally hold that once a trustee has been appointed, a general creditor does not have standing to object to a proof of claim.[21]In striking the MLT’s claims objections, the Kansas bankruptcy court followed this general line of authority in furtherance of sound public policy to end litigation through the quick resolution of disputes.[22]