Unknown Creditors In A New Century

There are known knowns; there are things we know that we know. There are known unknowns; that is to say, there are things that we know we don't know. But there are also unknown unknowns - there are things we don't know we don't know.

-United States Secretary of Defense, Donald Rumsfeld, February 12, 2002

Though perhaps not on Secretary Rumsfeld's mind at the time, in bankruptcy too there can be known creditors and unknown creditors. Unknown creditors are creditors whose identity or claim is not reasonably known or ascertainable, and to whom the debtor cannot directly provide key information such as the claims bar date.

In a bankruptcy, in order to effectively reorganize or liquidate, a debtor must be able to prevent creditors from asserting prepetition claims after a specified bar date (save excusable neglect). To do so in a manner that protects creditors' due process rights, a debtor must provide notice of the claims bar date. If the creditor is known, the debtor must provide actual notice, whereas if the creditor is unknown, notice by publication is sufficient. Thus, a key issue for a debtor with unknown creditors is what constitutes adequate publication notice.

Publication notice satisfies due process concerns when it is "reasonably calculated to reach all interested parties, reasonably conveys all the required information, and permits a reasonable time for response." Chemetron Corp. v. Jones, 72 F.3d 341, 346 (3d Cir. 1995). As this language suggests, a determination of the constitutional sufficiency of published notice depends on the specific context and facts of a case. Recently, in the case of In re New Century TRS Holdings, Inc., United States Bankruptcy Court Judge Kevin J. Carney (D. Delaware) upheld the constitutional sufficiency of the debtors' bar date publication notice to unknown creditors.

In New Century the court established a bar date of August 31, 2007. The debtors mailed a copy of the bar date notice to all known creditors, and, on July 23, 2007, published the bar date notice in the Wall Street Journal and the Orange County Register. Over the next several years a chapter 11 liquidation plan was confirmed and implemented and a liquidating trustee was appointed to administer the estate. In July 2011, an individual filed a proof of claim, which the trustee sought to disallow and expunge as late-filed. After several motions and rulings on the matter, in April 2012 the trustee moved for an order confirming that New Century...