Courts may Override 1111(a) and Require Proofs of Interest to be Filed

 By: Brett Joseph

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

In In re Greenwich Sentry, L.P.,[1] the Bankruptcy Court for the Southern District of New York held that section 1111(a) of the Bankruptcy Code did not prevent the court from requiring all interest holders to file proofs of interest.[2] In 2010, Greenwich Sentry Partners, L.P. (“the Debtor”) filed a petition for Chapter 11 relief.[3] The Debtor also filed its schedules and a statement of financial affairs,[4] which listed Christopher McLoughlin Keough, Quantum Hedge Strategies Fund, LP, and SIM Hedged Strategies Trust (the “Purported Limited Partners”) as interest holders. The Purported Limited Partner’s interests were listed on the Debtor’s schedules, but were not listed as disputed, contingent, or unliquidated.[5] The court issued an amended bar date order requiring all interest holders to file proofs of interest, even if their interests were not listed as disputed, contingent, or unliquidated.[6] Despite receiving a copy of the amended bar date order, the Purported Limited Partners did not file proofs of interest by the bar date. Nevertheless, the Purported Limited Partners sought a declaration from the court that they were holders of allowed limited partner interests, entitled to distribution.[7] The court denied the motion, holding that the Purported Limited Partners were required to submit proofs of interest in accordance with the amended bar date order and that they had failed to do so.[8]

This case involves a tension between section 1111(a) and the amended bar date order. Section 1111(a) provides that a proof of interest is deemed filed for any interest that appears in a debtor’s schedule, except for an “interest that is scheduled as disputed, contingent, or unliquidated.”[9] The amended bar date order required the interest holders to file a proof of interest, despite being listed in the Debtor’s schedules, and not being listed as contingent, disputed, or unliquidated. The Purported Limited Partners argued that the court should follow the rule set forth in In re DiCroce[10], where the First Circuit BAP held that courts could not require parties to file proofs of claim that were already deemed filed pursuant to section    1111(a).[11] The Greenwich Sentry court stated that this precedent did not apply because the Debtor’s schedule was ambiguous and caused confusion, whereas in DiCroce[12]the claim at issue was unambiguous.[13] In addition, the court rejected the Purported Limited Partners’ argument that they had been denied due process by finding they were not entitled to a distribution from the estate.[14] The court explained that due process requires only that “known. . . interest holders receive clear and unambiguous notice of the bar date in order to afford them the opportunity to file proofs of . . . interest.”[15] The court held that the Purported Limited Partners were not denied due process because the Purported Limited Partners had received a copy of the amended bar date order, which unambiguously required them to file a proof of interest, and they had failed to do so.[16]

It has previously been held that if a court’s request for proof of interest to be filed by parties that were deemed filed under section 1111(a) is ambiguous, the interest holders were not required to file.[17] In In re ATD Corp[18]., the creditors were holders of undisputed, non-contingent, liquidated claims against the debtor, yet the court issued a bar date order requiring the creditors to file proofs of interest, to which the creditors did not reply.[19] In ATD Corp., the court did not decide whether or not a bankruptcy court can order proofs of interest to be filed by interest holders whose interests were deemed filed under section 1111(a).[20] The court held that the bar date order had been ambiguous, and thus it was not sufficiently clear to the interest holders that they needed to file proofs of interest.[21] In Greenwich Sentry there is no doubt that it was clear to the creditors that they needed to file proofs of interest. The Purported Limited Partners do not contest that they received the amended bar date order, which stated in bold, capital letters that all interest holders must file proofs of interest by the extended bar date.[22] Greenwich Sentry makes it clear that as long as a bar date order is unambiguous, a bankruptcy court can order a purported interest holder to file proofs of interest, regardless of whether or not they were deemed filed under section 1111(a). As a result of this decision, it is imperative that an interest holder remain diligent and participate in the bankruptcy court proceedings, even if they are already deemed filed under section 1111(a). As is shown in Greenwich Sentry, even an interest holder who is deemed filed under section 1111(a) risks losing their opportunity to make their claim if they do not stay abreast of the proceedings.