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Successor Liability Claims Constitute a 'Property Interest' for Purposes of a 363 Sale In Bankruptcy
In In re Norrenberns Foods, Case No. 21-30825, (Bankr. S.D. Ill. July 8, 2022), the U.S. Bankruptcy Court for the Southern District of Illinois had occasion to rule on a creditor's objection to the sale of a debtor's assets. The debtor had proposed that, under Section 363(f) of the Bankruptcy Code, the sale be free and clear of any third-party interest in the assets. The creditor, a multi-employer pension fund, held successor liability claims against the debtor and asserted that those claims could not be extinguished through a sale of assets under Section 363. After a thorough analysis of the claims asserted by debtor and creditor, the bankruptcy court overruled the creditor's objections and allowed the sale to be consummated.
Background
The debtor in this case, Norrenberns Foods, Inc., operated a group of grocery stores in southern Illinois. The debtor became increasingly unable to compete with the large corporate grocery stores moving into the area, and over time was ultimately forced to close all of its stores but one, known as "Tom's Supermarket." While the debtor operated this group of grocery stores, it was party to certain collective bargaining agreements administered by the United Food and Commercial Workers Unions and Employers Midwest Pension Fund. The fund is a multiemployer pension fund that provides retirement, disability and death benefits to retail food employees affiliated with certain unions, including the unions then representing workers at the debtor's stores. As these stores began closing, their cumulative union pension withdrawal liabilities were passed through to the debtor's remaining stores, until only Tom's Supermarket remained.
In 2019, the debtor sought a buyer for Tom's Supermarket. At this point, the debtor owed secured debt obligations to its bank lender, and was solely responsible for the withdrawal liabilities due and owing to the fund. Unable to service its debt and pay the union liabilities, the debtor sought bankruptcy protection under Subchapter V of the Bankruptcy Code.
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