Page 7 - A Practical Guide to Chapter11 Bankruptcy Publication Notice

Notice to Known and Unknown Creditors

Under the rules, the type of notice required is New York Times and the Wall Street Journal was United States and because “it is customary” to throughout the United States, and concluded
simple. Known creditors must be given direct deemed sufficient and satisfied due process publish legal notices in the Wall Street Journal. that the “adequacy of the notice provided in this
notice by mail, or actual notice. Since unknown requirements. 8 Debtors’ counsel went on to note that it provided case has not been meaningfully explored and
creditors are not “reasonably ascertainable” geographically targeted notice in Orange likely was not reasonably calculated to apprise
and notice by mail is impracticable, unknown Similarly, in In re BGI, Inc. f/k/a Borders Group, Inc., County, California where the debtors’ main appellants of the bar date.” 18
creditors are only entitled to constructive notice, the court concluded that gift card holders were office was located and a large concentration of
which typically is provided by publication. unknown creditors and as a result constructive former employees (potential unknown creditors) Ultimately, on appeal the Third Circuit in a non-
notice provided via publication in the national resided. Based partially on this testimony, the precedential opinion vacated the District Court’s
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Burden of Publication Notice is Generally Limited edition of the New York Times was adequate bankruptcy court upheld that notice in the two decision on the merits and remanded the matter
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In a typical bankruptcy case, publication notice notice. On appeal, the court deemed the case selected publications was “reasonably calculated, to the District Court to address the issue of
does not involve an elaborate advertising moot and did not decide what form of notice to under the circumstances, to apprise interested standing and did not address the issue of notice. 19
campaign designed by a legal notice expert unknown creditor gift card holders would satisfy parties nationwide of the bar date and afford Although the question of adequacy of notice was
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with the intent of disseminating notice in every due process. However, in City of New York v. New them an opportunity to file claims,” which left unanswered, this may reflect a new twist in
publication necessary to notify every possible York, New Haven & Hartford R.R. Co., the court satisfied due process. This result is indicative of bankruptcy publication notice and may portend
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creditor. Usually most creditors are known and held that notice by publication in newspapers how bankruptcy courts have traditionally viewed a greater scrutiny on how publications are chosen
the cost of media is just too great, depleting was not “reasonable notice” to the City of New the adequacy of publication notice to reach to reach unknown creditors. It raises the question
money from the bankruptcy estate intended York because the city was a “known” creditor and unknown creditors. of whether a legal notice expert should be
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to pay creditors. As a result, in a garden-variety should have received actual notice. The court consulted to guide notice and ensure that notice
bankruptcy case without extenuating factual also stressed that a creditor having knowledge of The appealing creditors did not stop there is “reasonably calculated” to satisfy due process.
circumstances, a court will generally order a bankruptcy does not alleviate the requirement and appealed the issue of the adequacy of the It certainly implies that debtors’ counsel may
the debtor to provide notice by mail to known that the debtor provide actual notice to known publication notice to unknown creditors to the sometimes need to provide detailed rationale
creditors and supplement notice by publication creditors. 12 United States District Court. In the court’s analysis when presenting publication selections for court
in one or two newspapers or other appropriate Challenging Notice by Publication – the New of whether due process notice was provided to approval. It will be interesting to see how future
medium to reach unknown creditors. Century Example unknown creditors, the court cited the Third 15 cases address the issue.
Circuit’s decision in Wright v. Owens Corning
Challenging Notice One recent example may signal greater scrutiny stressing the need to look at the particular Practical Considerations
The adequacy of notice to creditors has been on publication notice in bankruptcy cases. In In re circumstances of a case when determining Generally, time is of the essence when it comes to
challenged in numerous cases. Typically the New Century TRS Holdings, Inc., the bankruptcy whether due process notice was reasonably providing bankruptcy notice, due to the relatively
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challenges involve one or both of the following: court set forth that supplemental publication of calculated to provide notice. The court also tight deadlines imposed in the bankruptcy
the bar date should be provided in the national highlighted the fact that in Wright, notice for
• Whether the creditors in question were known edition of the Wall Street Journal and local unknown creditors was accomplished with rules. As a result, notice has historically been
or unknown, thus dictating the type of notice. newspapers as the debtors deem appropriate. publication of the notice, twice in the New York published in national newspapers. This allows for
broad geographic distribution, if necessary, and
• Whether the actual notice provided was Following this direction, known creditors were Times, Wall Street Journal and USA Today, among newspapers typically have a quick turnaround
adequate notice to known or unknown sent notice by mail and the notice was published other publications. 17 from the time space is reserved to actual
creditors. in the national edition of the Wall Street Journal publication (often less than a week).
and in the Orange County Register. As a result, the court in New Century concluded
In Chemetron Corp. v. Jones, the court that a single publication of the notice in the This is in contrast to the lengthy lead times that
addressed the issue of whether sufficient Certain creditors objected claiming that the national edition of the Wall Street Journal and magazines, radio and television have, which can
notice was provided to creditors. The Third publication notice to unknown creditors was in the Orange County Register was insufficient be several weeks or even months prior to an ad
Circuit determined that claimants challenging insufficient. In response, debtors’ counsel testified given the facts of the case. In particular, the being published or aired. Generally, it is also much
the adequacy of notice provided in the case that the Wall Street Journal was selected to court stressed that the debtors did not consider less expensive to publish a notice in a newspaper
were “unknown creditors” and as a result, provide nationwide notice, since the debtors the need to provide notice to its more than than it is to air a radio or television ad nationwide
Chemetron’s publication notice published in the had business operations throughout the one million borrowers who apparently resided
or publish in a large consumer publication.

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