Key
Takeaway:
In
a recent decision in the Chapter 11 case of In re KB Toys,
Inc., the United States Bankruptcy Court for the District of
Delaware disallowed trade claims purchased post-petition by a claims
purchaser because the original holder of the trade claims had not yet
returned the property it had received as a preferential transfer.
Relying on the language in Section 502(d) of the Bankruptcy Code, the
Bankruptcy Court concluded that the trade claims purchaser held those
claims subject to the same rights and disabilities as the seller of such
claims. As a result, the claims would be disallowed until the original
holder returned the property it had received as a preferential transfer.
This decision is important because the Court held that the claims
purchaser was not entitled to the protections of a good faith purchaser.
Accordingly, the risk of purchasing a claim subject to disallowance
could fall squarely onto the shoulder of the claims buyer, and not the
claims seller, unless the seller agrees to indemnify the buyer under
such circumstances.
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