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The Seventh Circuit has ruled that a proof of claim faxed on the bar date by an unsecured creditor to a Chapter 7 debtor's claims agent was not timely and that the claim should be subordinated to the timely-filed claims. In re Outboard Marine Corporation, No. 04-1009 (Oct. 18).

The appeals court noted that rather than following the “simple instructions” contained in the notice, the unsecured creditor faxed its proof of claim to counsel for the trustee on the Bar Date. The POC, therefore, was not actually received by the claims agent until six days after the Bar Date. Consequently, the court ruled that the POC was not timely filed under the terms of the Notice of Bar Date and that a phone call made to the claims agent did not change this result. The court did, however, reverse the bankruptcy court's decision to disallow the proof of claim, holding that the claim should properly be subordinated to the timely filed claims.

Certiorari Denied in Kmart Case

The Supreme Court has declined to consider the much debated critical vendor issue, letting stand a Seventh Circuit ruling that Kmart had no authority to pay certain suppliers that it had not proved were critical to the retailer's operations. The Court's denial of certiorari in the Kmart case leaves the lower courts split as to whether Chapter 11 debtors can immediately pay in full the pre-petition claims of critical vendors. The Seventh Circuit cases at issue here are Irving Pulp & Paper v. Capital Factors, 04-181, Knight-Ridder v. Capital Factors, 03-1581, and Handleman Co. v. Capital Factors et al, 03-1583.

Proof of Claim Faxed on Bar Date Ruled Not Timely Filed

The Seventh Circuit has ruled that a proof of claim faxed on the bar date by an unsecured creditor to a Chapter 7 debtor's claims agent was not timely and that the claim should be subordinated to the timely-filed claims. In re Outboard Marine Corporation, No. 04-1009 (Oct. 18).

The appeals court noted that rather than following the “simple instructions” contained in the notice, the unsecured creditor faxed its proof of claim to counsel for the trustee on the Bar Date. The POC, therefore, was not actually received by the claims agent until six days after the Bar Date. Consequently, the court ruled that the POC was not timely filed under the terms of the Notice of Bar Date and that a phone call made to the claims agent did not change this result. The court did, however, reverse the bankruptcy court's decision to disallow the proof of claim, holding that the claim should properly be subordinated to the timely filed claims.