Bankruptcy Court Allows Claim Limiting Default Interest and Subordinated Debt, But Dismisses Fraudulent Assignment Claim | Koenig & Spalding

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On February 25, 2022, Judge Christopher J. Panos of the US Bankruptcy Court for the District of Massachusetts granted in part and denied in part an assigned lender’s motion to dismiss claims of a related group of debtors. The court first found that the debtors made a plausible claim that lender SHS ACK, LLC was not entitled to default interest. It then examined the debtors’ allegations that the lender’s bankruptcy claim should be subordinated and asked whether the complaint alleged that the plaintiff had “conducted improper conduct”, that the alleged misconduct “resulted in harm to creditors” or that the plaintiff ” provides an unfair advantage,” and the subordination “would not conflict with the provisions of federal bankruptcy law.” The court found that the debtors’ allegations, albeit somewhat conclusive, were sufficient to establish a claim for equitable subordination because: (a) the claim was obtained for an improper purpose – to give SHS leverage in an attempt to to take over the debtors – and (b (

Next, the bankruptcy court examined the debtors’ fraudulent assignment claims. The debtors alleged that one of the debtors provided SHS with a mortgage without receiving anything in return during the company’s bankruptcy. SHS asserted that the debtors’ claim must fail, among other things, because the debtors had not asserted any facts that prove the debtor’s inability to pay. Because the debtor’s bankruptcy claim was final and did not specify the value of the company’s assets, debts or capital needs, the bankruptcy court dismissed that claim with permission to repeat the claim in more detail.

The case is NESV Ice, LLC v SHS ACK, LCC (Regarding NESV Ice, LLC), No. 21-ap-1093 (Bankr. D. Mass. February 25, 2022). The Debtors are represented by Downes McMahon LLP. SHS is represented by Curran Antonelli, LLP. The order is available here

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