Amend Your Proof of Claim? Nope You’re about 7 Years Too Late!
We’ve discussed bankruptcy proof of claims before, but today we are reminded just how vital accuracy is when filing a proof of claim.
In Delaware Court Shuts Down Creditor’s ‘Unreasonable’ Motion to Amend its Proof of Claim, author Aditi Kulkarni-Knight discusses a recent bankruptcy decision.
Here’s a quick breakdown (oversimplification) of the decision. The debtor filed for bankruptcy protection in January 2009 and the court set the bar date for September 30, 2009. The creditor filed their initial proof of claim timely, in the amount of $21,281. Then, in November 2016, the creditor filed a motion to amend its claim to add a co-claimant and to increase its claim amount to $81 million.
(The increase in claim amount was because the creditor wanted to “convert its claim for contractual royalties to a claim for more than $81 million of alleged copyright infringement damages.”)
The Claim Amount Increased by 363,438%. Whoa!
Unsurprisingly and as you can imagine, the court denied the creditor’s request. Asking to amend your claim 7 years after the bar date & increasing your claim amount by 363,438% seems unreasonable to me too!
I read a lot of case law. While it’s usually fact based with rare anecdotal bits, occasionally a judge tells it like it is – this is one of those cases.
“the court stated, ‘the law is clear: ignorance is not a sufficient reason to permit amendment’ Additionally SNMPR was represented by counsel when it filed the Claim, and ‘lawyers are charged with knowing the law.’”
(I admit it, when I read it, I absolutely chuckled “Ooooh, burn!” at my desk.)
It’s True, It’s Ridiculous
The judge is right, of course, improperly completing a proof of claim and wanting to fix it 7 years later is ridiculous. The creditor had months to properly review their claim and complete the document.
As a best practice, Kulkarni-Knight recommends due diligence.
“The case serves as a warning to creditors and creditors’ counsel alike when filing proofs of claim. Courts may be unwilling to allow amendments to proofs of claim when (1) a considerable amount of time has passed since the bar date, (2) the amended amount of the claim far exceeds the original amount of the claim, or (3) the amendment changes the substantive nature of the claim. Creditors and their counsel must ensure that proofs of claim include as much detail as possible at the time they are filed, that the amount sought is accurate and supported by appropriate documentation, and that all legal bases for the claim are asserted. While a motion to amend may be necessary in light of newly-discovered evidence, creditors and their counsel can avoid such motions by doing their due diligence and legal analysis before they file their proof of claim.”