on claim sales
A court panel tells LibertyBy Peter Wagner
House vendors to scrutinize
checks by an investment firm
A court-appointed committee representing unsecured creditors in the Liberty House bankruptcy case says offers by "claims traders" to buy claims against the retailer at a discount should be closely scrutinized.
Committee attorney Chuck Choi yesterday said some vendors may have unknowingly triggered the transfer of their claims against Liberty House by cashing unsolicited checks sent by a New York investment firm last month.
According to records in U.S. Bankruptcy Court, Aurel Capital LLC has so far bought 51 claims against Liberty House with a total face value of $99,770. Some of the claims were transferred to Aurel at less than 5 cents on the dollar after checks were cashed.
The checks were accompanied by a letter saying that cashing them would transfer claims to Aurel. But Choi suspects some checks were unwittingly cashed by employees unaware of the complex Liberty House Chapter 11 bankruptcy.
"Why would Alamo Rent A Car, which is owed $1,400, cash a check worth 5 cents on the dollar?" Choi asked. "Why would AT&T need 5 cents on the dollar on $2,200? Why would Avis transfer its claim on $655 for 5 cents on the dollar?"
Liberty House is to present its 1999 business plan to parties in the case at a meeting in Los Angeles later this month. The plan is to be a key part of the company's reorganization plan, which would bring the case to an end by June.
Choi said Aurel recently agreed to send clarifying letters to all creditors who cashed their checks, offering to withdraw the transfers.
Meanwhile, five claims totaling $9,860 were recently withdrawn by Aurel, all of them before the creditors committee protest. The rescinded claims belong to Polo for Boys, of Atlanta; Nap Inc., of New York; Bali Daywear, of Charlotte, N.C.; Oneida Silversmiths, of Charlotte, N.C.; and Outdoor Systems, of Los Angeles.
Aurel spokesman Christopher Abad yesterday confirmed some of the transfers were unintended.
"Some of the transfers were made in error," Abad said. "Basically, it was a case of miscommunication."
Choi said the committee, which represents thousands of unsecured creditors of Liberty House, received calls from creditors concerned about the claims trading. Some complained they were told the case could drag on for five years.
"We thought that was misleading," Choi said. "We expect the reorganization plan to be filed in a couple of months."