notice to be provided to unknown
creditors within the meaning of the
U.S. Bankruptcy Code is deemed
adequate notice of the bar date.
Bankruptcy case law distinguishes
between “known” and “unknown”
creditors. See, In re Chemetron Corp.,
72 F.3d, 341, 345 (3d Cir. 1995) cert.
denied, 517 U.S. 1137 (1996). As the
3rd Circuit explained in Chemetron,
“[k]nown creditors must be provided
with actual written notice of a debtors’
bankruptcy filing and claims bar date
….” Id. at 346 (citations omitted). A
known creditor is “one whose identity
is either known or is ‘reasonably
ascertainable by the debtor.’” Id.
(citing Tulsa Professional Collection
Services, Inc. v. Pope, 485 U.S. 478, 490
(1988)). An unknown creditor is “one
whose ‘interests are either conjectural
or future or, although they could
be discovered upon investigation,
do not in the course of business
come to knowledge [of the debtor].’”
Chemetron, 72 F.3d at 346 (citing
Mullane v. Central Hanover Bank &
Trust Co., 339 U.S. 306, 317 (1950)).
In defining the efforts required
to identify known creditors,
the 3rd Circuit has stated:
Precedent demonstrates that what
is required is not a vast, open-
ended investigation…. The requisite
search focuses on the debtor’s
own books and records. Efforts
beyond a careful examination of
these documents are generally not
required. Only those claimants who
are identifiable through a diligent
search are “reasonably ascertainable”
and hence “known” creditors.
Chemetron, 72 F.3d at 346 –
347 (citations omitted).
Thus, a known creditor includes a
claimant whose identity is actually
known to the debtor or is reasonably
ascertainable by the debtor based on
its books and records. For unknown
creditors, constructive notice, such as
by publication, will suffice. See, In re
Drexel Burnham Lambert Group, Inc.,
151 B.R. 674, 800 (Bankr. S.D.N.Y. 1993).
The Borders Case
In re BGI, Inc., 476 B.R. 812 (Bankr.
S.D.N.Y. 2012), appeal denied as moot,
2013 U.S. Dist. LEXIS 77740 (S.D.N.Y.
May 22, 2013), aff’d, 772 F.3d 102 (2d
Cir. 2014), dealt with the specific
issue of notice of the bar date to
holders of consumer gift cards in the
Borders Chapter 11 bankruptcy case.
At its peak, Borders operated over
1,000 stores across the United States
and in Puerto Rico. Borders and
several affiliates filed Chapter 11
petitions in February 2011, but were
unable to locate a going-concern
buyer and thereafter entered into
an orderly liquidation. At the
conclusion of Borders’ liquidation
in September 2011, an estimated 17. 7
million gift cards were outstanding,
with unredeemed balances totaling
approximately $210.5 million, for an
average unused balance of $11.89.
Although the amounts may seem
large, Borders’ gift card program dated
to 1998, and several billion dollars of
gift cards had been sold over time. A
significant portion of the unused gift
card balances reflected “breakage,”
the unused portion of a gift card left
over and often abandoned or not used
after making a purchase for less than
the full amount of the card’s value.
11th Annual TMA Northeast
September 2-3, 2015
Gideon Putnam Spa Resort
Saratoga Springs, New York Northeast Regional
Hosted by the Connecticut, Long Island, New Jersey, New York City, Northeast, and Upstate New York Chapters
Visit turnaround.org/events to register and learn more.