Restructuring

Contributed by Victoria Vron
Starting today, anyone filing a claims transfer notice pursuant to Bankruptcy Rule 3001(e) will have to pay a $25 fee for each claim that is transferred.  The fee is assessed for each claim transferred, even if only part of a claim is transferred and even if multiple claim transfers notices are filed together.  The fee is payable regardless of whether the transferee or the transferor files the claims transfer notice.  The fee was approved by the Judicial Conference of the United States at its September 2012 session.      
You may ask why you should even file a notice of a claims transfer in light of the new fee.
First, it is mandatory in certain circumstances.  Bankruptcy Rule 3001(e) provides that if a claim is transferred after a proof of claim has been filed, the transferee shall file evidence of such transfer with the court.  This applies to both an unconditional transfer of a claim and a transfer of a claim for the purpose of security.  Although this requirement does not apply to claims based on a publicly traded note, bond, or debenture, there are many other claims that frequently change hands in bankruptcy cases, such as trade claims, that are covered by this Rule.  After evidence of transfer is filed with the court, the clerk of the court notifies the transferor of the filing of the evidence of transfer and provides the transferor an opportunity to object thereto.  If an objection is filed, the court determines whether the transfer is enforceable under nonbankruptcy law.  In the case of an unconditional transfer, if an objection is not timely filed by the transferor, the transferee is automatically substituted for the transferor with respect to the claim. Through this mechanism, transferors are provided some degree of protection from unauthorized transfers of their claims.
Second, it is for the transferees’ own good.  Although Bankruptcy Rule 3001(e) is generally intended to protect transferors of claims, it is in the transferees’ interests to publicize the claims transfers.  As debtors’ counsel know all too well, thousands, and in large cases even tens of thousands, of claims are typically filed in bankruptcy cases.  Keeping track of claims and the proper parties to receive distributions can be an onerous task.  If a claim is transferred after a proof of claim has been filed, debtors likely will not be aware of the transfer and may make distributions to the transferor instead of to the transferee.  The transferee would then have to try to recover the distributions from the transferor.  Filing of Rule 3001(e) transfer notices alleviates this problem because it enables debtors, likely through their claims agents, to keep track of the claims transfers and make distributions to the proper party.
In light of the frequency in which claims change hands, especially in large chapter 11 cases, it is not surprising that courts will now charge a fee for claims transfers.  Bankruptcy Rule 3001(e) prescribes a role for bankruptcy courts in noticing the claims transfers and in resolving disputes relating thereto.  In determining whether to approve the fee, the Judicial Conference recognized the impact transfers of claims have on the workload of bankruptcy courts, including impact on court time and resources.  It appears the fee was intended to defray the costs associated with this heavier workload rather than as a deterrent to claims trading.  The fee is nominal and is unlikely to limit the trading of most claims. Time will tell whether the new fee will have any consequences on claims trading.