Exclusion of Creditor with Materially Adverse Interest

Minnesota Bankruptcy Case: Exclusion of Creditor with Materially Adverse Interest Results in a Lack of Quorum for Election of Trustee

The following is a summary of a Minnesota bankruptcy case or a case relevant to Minnesota bankruptcy law.

Minnesota Bankruptcy Case:

In re Petters Co., Inc., et al., 425 B.R. 534 (Bankr. D. Minn. 3/10/10)(Kishel, J.)

Case Summary:

Exclusion of Creditor with Materially Adverse Interest Results in a Lack of Quorum for Election of Trustee

The Ritchie parties, creditors in the PGW (Petters Group Worldwide, a subsidiary of Petters Co.) chapter 11 case, filed a motion pursuant to FRBP 2003(d)(2) to resolve a dispute reported by the UST. Ritchie filed four proofs of claim in the PGW case on the day before the noticed date for the meeting of creditors, when the trustee would be elected. The unsecured creditors committee filed an objection to Ritchie’s claims and challenged Ritchie’s capacity to participate in the trustee election process, on the grounds that it held an “interest materially adverse . . . to the interest of creditors entitled to . . . distribution” within the meaning of § 702(a)(2). The court rejected several arguments made by the UST and unsecured creditors committee against Ritchie’s motion, but was persuaded that Ritchie held a materially adverse interest and was pursuing its own separate recoveries from the estate in the related Polaroid case, in competition with PGW as a creditor there. The court found no basis to disqualify other creditors whose participation was challenged. Ultimately, the bankruptcy court determined the issue to be whether the election of the trustee was properly called under § 702(b). The court found that a quorum was not met under § 702(a), so the trustee whose appointment had previously been approved was not displaced.

Credit: The preceding was a summary of a case relevant to Minnesota bankruptcy law. The case summary was prepared by the U.S. Bankruptcy Court through Judge Robert J. Kressel & attorney Faye Knowles.