By Shana A. Elberg, Bram A. Strochlic, and Moshe S. Jacob (Skadden, Arps, Slate, Meagher & Flom LLP and Affiliates)
Summary of the Silicon Valley Bank Bar Date Ruling
Judge Glenn issued a significant decision in the Silicon Valley Bank (SVB) Chapter 11 case, clarifying that a bankruptcy bar date can extinguish indemnification and contribution rights against a debtor, even if the underlying lawsuit is filed after the bar date. This ruling underscores the importance for directors, officers, and other stakeholders to proactively assess and take steps to safeguard such potential claims in bankruptcy.
Background and Context
SVB’s 2021 merger with Boston Private Financial Holdings (Boston Private) led to several prepetition lawsuits alleging securities law violations. Most of these were resolved before SVB’s 2023 bankruptcy filing, which followed a historic run on the bank. After the bankruptcy, but before the bar date, additional securities class action suits were filed against SVB and related parties, including Morgan Stanley (the underwriter) and former Boston Private executives Cooper and DeChellis. However, these individuals were not named in any lawsuits until February 2024—seven months after the August 2023 bar date.
Upon being named in the new class action, Morgan Stanley, Cooper, and DeChellis filed late proofs of claim seeking to preserve their rights to indemnification and contribution from SVB. They argued that their delay was excusable because the claims were unforeseeable and they only became aware of their potential liability after the bar date. SVB and the official committee of unsecured creditors objected, arguing the claims accrued prepetition, the new class action was foreseeable and the delay in filing was unjustified.
Court’s Analysis and Decision
Judge Glenn addressed two main issues: the adequacy of notice and whether the late filings met the “excusable neglect” standard under Bankruptcy Rule 9006(b)(1).
- Notice: The court found that Cooper, as a minimally involved former executive, was an “unknown” creditor and thus only entitled to publication notice of the bar date. The court held that even if a claim is later deemed foreseeable, publication notice suffices for unknown creditors, and failure to receive actual notice does not excuse missing the bar date.
- Excusable Neglect: Applying the factors from Pioneer Inv. Servs. Co. v. Brunswick Assocs. Ltd. P’ship, 507 U.S. 380 (1993), the court took a strict approach, emphasizing the need for finality in bankruptcy. The court found that:
- Allowing late claims would prejudice the debtor and disrupt the claims reconciliation process.
- The seven-month delay here was significant because SVB was already preparing for plan confirmation.
- The claimants, as sophisticated parties with legal counsel, had a duty to investigate and file protective claims for any potential liability.
- There was no evidence of bad faith, but this was not enough to outweigh the other factors.
The court thus denied the late claims, holding that the bar date extinguished the indemnification and contribution rights, even though the underlying lawsuit was filed post-bar date.
Aftermath and Implications
The claimants appealed, but the parties ultimately settled, allowing the late claims in agreed-upon amounts. The decision, however, raises important questions about the scope of protective proofs of claim, the burden on debtors, and due process for parties receiving only publication notice.
Key Takeaways
- Stakeholders should file protective proofs of claim for contingent or unliquidated rights, such as indemnification and contribution, to avoid losing them.
- Creditors must diligently investigate potential claims and monitor bankruptcy proceedings, even if their involvement with the debtor is remote.
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