On February 24, 2011, Alfred T. Giuliano, Chapter 7 Trustee for the Bankruptcy Estates of Sunset Aviation, Inc., et al. commenced Chapter 5 preferential transfer recovery litigation with the filing of 200 complaints in the United States Bankruptcy Court for the District of Delaware. By order entered on August 19, 2010 the estates of Regal Jets, LLC, Sunset Aviation, Inc, and JetDirect Aviation, Inc. were substantively consolidated. Each of the 3 debtors filed its respective bankruptcy petition on different dates, with the third filing occurring more than 60 days after the first filing. The Trustee seeks to use the same petition date for all three debtors, but the substantive consolidation order does not provide for retroactive consolidation – i.e. it is not nun pro tunc. The question: Will the retroactive petition dates still fly?
Adversary Proceedings Overview
Lead Bankruptcy Case Name (Case Number): Sunset Aviation, Inc. (09-10778)
Petition Date: February 25, 2009 Regal Jets, LLC filed under chapter 11; March 6, 2009, Sunset Aviation, Inc. filed under chapter 7; May 1, 2009, JetDirect Aviation, Inc. under chapter 7; on August 19, 2010 the estates of Regal Jets, LLC, Sunset Aviation, Inc, and JetDirect Aviation, Inc. were substantively Consolidated
Filed in: United States Bankruptcy Court for the District of Delaware
Associated Cases: The Associated Debtors are: Regal Jets, LLC, Sunset Aviation, Inc, and JetDirect Aviation, Inc.
Plaintiff: Alfred T. Giuliano, Chapter 7 Trustee for the Bankruptcy Estates of Sunset Aviation, Inc., et al.
Number of Proceedings: 200 on February 24, 2011
When Filed: February 24, 2011
Adversary Proceeding Judge: Peter J. Walsh
Plaintiff's Counsel: ASK Financial, LLP (St. Paul MN) through Alex Govze (Lead Attorney); and Cozen O'Connor (Wilmington, DE) through John T. Carroll, III
Avoidance Period: The complaint identifies the preference period as the period "On or within ninety (90) days before the Petition Date, that is between November 27, 2008 and February 25, 2009". Footnote 2 explains that this preference period is applied to all 3 debtors: "For purposes of calculating the Preference Period, the substantively consolidated Debtors share the earliest bankruptcy petition filing date of February 25, 2009."
The Bankruptcy Preference Complaints
The Complaints are standard ASK Financial 5 count complaints... with one significant difference. The complaints explain in a footnote that the same preference period is applied to all 3 debtors: "For purposes of calculating the Preference Period, the substantively consolidated Debtors share the earliest bankruptcy petition filing date of February 25, 2009." The order of substantive consolidation does not purport to make the substantive consolidation retroactive (nun pro tunc) to the earliest petition date. For some of the defendants, it may be worth pursuing the question whether omission of "nun pro tunc" language precludes retroactive resetting of the preference period.
The Courts of Appeal for the Ninth and Sixth Circuits have held that substantive consolidation, by its nature, is effective as of the filing date, without any need to make a special showing. See e.g. In re Bonham, 229 F.3d 750, 771 (9th Cir.2000); In re Baker & Getty Financial Services, Inc., 974 F.2d 712, 720 (6th Cir.1992). In Walton v. Post-Confirmation Committee of Unsecured Creditors of GC Companies, Inc., 298 B.R. 226 (Del. 2003), the District Court for the District of Delaware declined to follow the position of the Sixth and Ninth Circuits that retroactive application was inherent in substantive consolidation. However, in Walton the Distict Court affirmed a Bankruptcy Court's refusal to make substantive consolidation retroactive. In contrast, the substantive considation order in Sunset Airlines simply is silent.
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