Arent Fox Partners Leah Eisenberg, Jeffrey Rothleder, and Andrew Silfen were published in the August 16 edition of Bankruptcy Law 360. The article, titled “Validating A Holder’s Right To Elect Ch. 7 Trustee,” analyzes a recent contested matter in the case Home Valley Bancorp. Inc., pending in the U.S. Bankruptcy Court for the District of Oregon. In this matter, the Bankruptcy Court validated the vote and election of a Chapter 7 trustee candidate by a security holder where (a) the indenture trustee for the debt issue declined to exercise its right under the Indenture to vote for a Chapter 7 trustee, (b) the security holder acted openly and actively with respect to the election of its Chapter 7 trustee candidate, and (c) the indenture trustee did not object to such actions by the security holder.

The court also agreed with the indenture trustee’s interpretation of the indenture and confirmed that the indenture trustee’s rights to file proofs and claim and vote for a trustee were rights, not obligations, and that such rights did not preclude other parties, here, a security holder meeting the threshold requirements for action under the Indenture, from filing proofs of claim and electing to vote for a Chapter 7 trustee on its own behalf. Leah, Jeff and Andy write:

The Bankruptcy Court ruled that the holder’s vote for Stephenson was valid in accordance with the Bankruptcy Code’s provisions on the election of a trustee, one that reflects a congressional policy that the liquidation and distribution of a Chapter 7 estate is ultimately for the creditors and such creditors should have a clear and effective voice in selecting a trustee who will carry out this process.

The court also found that the holder was permitted to vote under the Indenture once it was clear the indenture trustee declined to exercise such right. The court appeared to be persuaded by the facts that (a) the holder held 100 percent of the underlying debt and (b) the indenture trustee was aware that the holder was actively asserting itself by casting its vote to elect a trustee and did not object. For these reasons, the court upheld the election of the holder’s Chapter 7 trustee candidate.

For the full article, please click here.