In a matter of first impression relating to an important bankruptcy claims administration issue, Judge Sean H. Lane of the United States Bankruptcy Court for the Southern District of New York, recently denied the ability of a court appointed claims agent to sell and profit from providing direct access to publicly available claims register information. The unsuccessful purchaser of such information was XClaim Inc. (“Xclaim”), a relatively new venture that is seeking to develop a web-based claims trading platform. Pursuant to an “access agreement” with the claims agent (which Judge ordered to be disclosed to the public), Xclaim sought exclusive access to creditor data in a digital format that is compatible with Xclaim’s platform – presumably to immediately utilize such data to solicit creditors and drive them to their claims trading website. In exchange for providing direct access and related services, the claims agent would have received a processing fee equal to 10% of the commission collected for each transferred claim.
The issue of claims agents entering into these access agreements with Xclaim was first revealed in the Pareteum case, where Judge Lisa G. Beckerman inquired whether that claims agent had a contractual relationship with Xclaim and questioned the legitimacy of such an arrangement. The issue was then raised again in the Voyager and Celsius bankruptcy cases, but those claims agents agreed to carve out the access arrangement with Xclaim and therefore avoided the issue altogether. While Judge Lane passed no judgement on the morality of such a venture, he found that the arrangement specifically violated numerous section of Federal law including 28 U.S.C. § 156(c), 28 U.S.C. § 1930(e) and SDNY Bankr. Local Rule 5075-1. Those rules and regulations govern the ability of a claims agent to act as the Clerk of the Court in providing non-exclusive access to the public claims register as well as proscribing and limiting the fees that may be charged for performing these quasi-Clerk services. Judge Lane found that Xclaim’s fee arrangement could not be reconciled with the applicable rules and regulations including the proscribed fees that may be charged.
Judge Lane’s ruling can be found in the record of the hearing held on July 20, 2022 in the In re Madison Square Boys & Girls Club, Inc. bankruptcy proceeding, Case No. 22-10910-shl.