WASHINGTON, D.C. — (Mealey’s) The U.S. Supreme Court today declined to hear a case in which an unsecured creditors committee had argued that 11 U.S. Code Section 546(e) permits it to recover transfers made by a debtor company to stockbrokers, financial institutions and other “qualified” entities (The Official Committee of Unsecured Creditors of Quebecor World (USA) Inc. v. American United Life Insurance Company, et al., No. 13-455, Chapter 11, U.S. Sup.).
Quebecor World (USA) Inc. filed for Chapter 11 bankruptcy in the U.S. Bankruptcy Court for the Southern District of New York in 2008. Prior to filing for bankruptcy, Quebecor USA's parent, Quebecor World Inc. Capital Corp. (QWCC), issued $371 million of notes into the private placement note market, pursuant to two nearly identical note purchase agreements.
The noteholders are American United Life Insurance Co., Barclays Bank PLC, Deutsche Bank AG, Deutsche Bank Securities Inc., Life Investors Insurance Company of America, Midland National Life Insurance Co., Modern Woodmen of America, North American Company for Life and Health Insurance, North American Company for Life and Health Insurance of New York, The Northwestern Mutual Life Insurance Co., The Paul Revere Life Insurance Co., Provident Life and Accident Insurance Co., Symetra Life Insurance Co., Transamerica Financial Life Insurance Co., Transamerica Life Insurance Co., Wachovia Capital Markets LLC and Wilton Reassurance Life Company of New York.
In 2007, QWCC informed the noteholders that it intended to redeem the notes pursuant to the prepayment option in the note purchase agreements, but Quebecor USA later realized that it would incur a certain Canadian tax obligation if QWCC repaid an “external debt” to the noteholders by redeeming the notes. Therefore, Quebecor USA informed the noteholders that it would pay a price set forth in the contract to purchase the notes, and it wired $376 million to the trustee overseeing the issuance of the notes. The trustee then wired to each noteholder its portion of the transfers, and the noteholders delivered the notes to Quebecor USA. However, 84 days after the transfers, Quebecor USA filed for Chapter 21 bankruptcy after its parent company, QWCC started insolvency proceedings in Canada.
11 U.S. Code Section 547
Pursuant to the reorganization plan, Quebecor USA succeeded the Official Committee of Unsecured Creditors (the committee) for the purposes of pursuing current or potential avoidance actions. The committee sued the noteholders in the Bankruptcy Court to recover the transfer under 11 U.S. Code Sections 547 and 550. The noteholders moved for summary judgment. The Bankruptcy Court ruled that the transfer was “a qualified transfer.” The committee appealed to the U.S. District Court for the Southern District of New York, which affirmed the Bankruptcy Court. The committee then appealed to the Second Circuit U.S. Court of Appeals, which affirmed the District Court.
The committee filed a petition for writ of certiorari in the U.S. Supreme Court on Oct. 8, 2013.
However, the noteholders argued that the decision by the Second Circuit correctly enforced 11 U.S. Code Section 546(e) because the “plain language” of the statute and the purpose behind the statute “compel” such a finding.
The noteholders are represented by David B. Salmons and Patrick Strawbridge of Bingham McCutcheon in Washington and Joshua Dorchak and Dina R. Kaufman of Bingham McCutcheon in New York. The committee is represented by Paul D. Clement of Bancroft in Washington.
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