Ascendia Brands Inc Poised to Launch Mass Bankruptcy

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Ascendia Brands, Inc. Poised to Launch Mass Bankruptcy Preference Actions
Date: July 20, 2010
Author: burbageweddell

Ascendia Brands, Inc. (Delaware Bankruptcy Lead Case No. 08-11787) is poised to launch a barrage of bankruptcy avoidable, preferential transfer adversary proceedings within the next 2 weeks.  Our analysis of the Debtor’s schedules indicates that approximately 140 former suppliers and other trade creditors will be targeted for avoidable transfer recovery under section 547, and there is a maximum theoretical recovery of approximately $21 million. 
The Liquidation of the Business of the Debtor
The Debtor recently provided the following description of its, and its co-debtors’, former business:
As of the Petition Date, the Debtors manufactured, marketed, distributed and sold branded and private label health and beauty care products in North America. They also exported products to over 90 countries in Central and South America, Africa, Asia and the Middle East. On the Commencement Date, the Debtors held a portfolio of nationally and internationally-recognized brands, such as Baby Magic, Binaca, Mr. Bubble, Calgon, Ogilvie, the healing garden, Lander and Lander Essentials, several of which occupied the number one or number two market position in their respective product categories in the United States.
Substantially all of their assets of Ascendia Brands have been liquidated through a series of Court-authorized Section 363 sales.  Now, all that the Debtor has left are accounts receivable and avoidance actions.
The Size of Potential Avoidable Transfers;  Venue and Jurisdiction to have Minimal Effect
The Ascendia Brands bankruptcy is before Judge Brendan Linehan Shannon.  It will be interesting to see if the Debtor will test the recent decision of Judge Kevin Gross, who confirmed the applicability to preference actions of the venue dollar threshold of 28 USC Section 1409(b).  Dynamerica Mfg. LLC v. Johnson Oil Co., LLC, 2010 WL 1930269 (Bkrtcy.D.Del., May 10, 2010).  See our note “Delaware Bankruptcy Court Confirms Applicability of Section 1409(b) Venue Dollar Threshold to Claims for Recovery of Avoidable Preferential Transfers under Section 547.”  Under Section 1409(b), venue is limited to the district in which the defendant resides for proceedings to recover money or property from a noninsider of less than $11,725.
This case does not, however, present the type of preference size distribution that would warrant a debtor pushing the venue issue.  Only approximately $300,000 in preference claims fall under the venue dollar limitation of $11,725 and above the jurisdictional limitation of $5,850.  The preference size distribution is heavily top end loaded with $17.5 million in theoretical preference claims against just 45 of the potential 140 targets.
Potential Benefit to Unsecured Creditors From Bankruptcy Preference Recoveries
In retrospect, that bankruptcy preference actions were going to be pursued in the Ascendia Brands Bankruptcy was a foregone conclusion from day one.   The Official Committee of  Unsecured Creditors (represented by Landis Rath & Cobb LLP of Wilmington, Delaware) did a good job for the unsecured creditors by focusing on assuring that a material potion of the proceeds from the avoidance action recoveries were distributed to the general unsecured creditors.  As a result of “extensive negotiations” between the unsecured creditors committee and the secured lenders, the final debtor in possession financing order provides for a split of recoveries from the avoidance actions:
To the extent the Pre-Petition Agent, for the benefit of itself and the Pre-Petition Lenders, recovers any proceeds from the Avoidance Actions (the “Avoidance Action Recoveries” pursuant to its Term Loan Priority Claim, if any, the Avoidance Actions Recoveries, after deducting the fees and expenses incurred in connection with prosecuting or settling such Avoidance Action Recoveries (the “Net Avoidance Action Recoveries”) shall, to the extent of the Term Loan Priority Claim, if any, be shared as follows: (i) the first $1,500,000 of Net Avoidance Action Recoveries shall be shared fifty (50%) percent in favor of the Pre- Petition agent and fifty (50%) percent in favor of the Committee or any subsequently appointed chapter 7 trustee, solely for the benefit of unsecured creditors, acting on behalf of the unsecured creditors, and (ii) any remaining Net Avoidance Action Recoveries above the $1,500,000 shall be shared seventy-five (75%) percent in favor of the Pre-Petition Agent and twenty-five (25%) percent in favor of the Committee, or any subsequently appointed chapter 7 trustee, solely for the benefit of unsecured creditors. Each of the Pre- Petition Agent and the Committee or any subsequently appointed chapter 7 trustee, solely for the benefit of unsecured creditors shall appoint a representative with the responsibility and authority to make decisions with respect to the prosecution and settlement of the Avoidance Actions.

Posted in: Bankruptcy Preference Threat Watch List.Tagged: Adversary Proceedings, Ascendia Brands Inc., bankruptcy preference. Last Modified: August 28, 2011

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Ascendia Brands, Inc. Poised to Launch Mass Bankruptcy …