Sale Order Does Not Protect A Non-Debtor Subsidiary Sold During Bankruptcy From Preference Action
Amphenol Corp. v. Shandler (In re Insilco Techs., Inc.), 351 B.R. 313 (Bankr. D. Del. 2006) (Judge Kevin J. Carey)
Amphenol challenged the filing of a preference action against PCM, a non-debtor subsidiary it had purchased from the debtor, because the order approving the sale did so free of all liens and encumbrances. The Court interpreted the sale agreement and order as releasing Amphenol from the estate’s claims related to the purchase and ownership of PCM’s stock, but not releasing PCM itself from any estate actions, as PCM was a distinct corporate entity from Amphenol.
A declaratory relief action was filed by the Amphenol buyer of PCM, a non-debtor subsidiary, seeking a determination that an order approving the sale of PCM precluded a preference action filed against PCM by the trustee for the liquidating trust of the debtor.The Plaintiff, Amphenol, and the debtor, Insilco, entered into an agreement to sell the assets of PCM, a non-debtor subsidiary of the debtor, to Amphenol. The sale agreement included provisions that the assets would pass to the buyer free of all transferred interests, including preferences, with all transferred interests to attach only to the proceeds of the transaction.
The Trustee challenged the standing of Amphenol to bring a declaratory action because no case or controversy existed between the parties. The Court found that Amphenol had standing to bring the declaratory action because an actual controversy existed regarding the parties’ rights under the sale agreement and sale order. The Court found that Amphenol had established that the alleged injury under the sale order and sale agreement was actual and imminent. Furthermore, the relief requested would remedy Amphenol’s injury of being deprived of the benefit of its bargain.
The Trustee also challenged the Court’s jurisdiction to hear the declaratory judgment action as the non-debtor subsidiary had not sought bankruptcy relief. The Court rejected such arguments, stating that it had the jurisdiction to interpret and enforce its own orders and the declaratory action sought a review of the sale order. Furthermore, the Court found that the declaratory judgment action was a core proceeding under 11 U.S.C. §§157(b)(2)(F), (N) and (O).
Turning to the sale agreement, the Court interpreted the language of the agreement, in the best case, to only release Amphenol from the estate’s claims related to the purchase and ownership of PCM’s stock, but not PCM itself. The Court determined that PCM was a distinct and separate legal entity from Amphenol and that PCM was not a party to the agreement. PCM was not protected by any provision in the agreement that absolved the buyer from liability, including liability for avoidance actions. Arguments by Amphenol that such a reading of the agreement rendered the provisions meaningless were discredited by the Court. The Court held that the provisions which allowed for sale of the debtor’s assets free and clear of liens and encumbrances permitted the buyer to fend off suits by creditors based on a successor liability theory.
Amphenol also argued that the sale order reserved several types of claims, such as environmental claims, but did not preserve preferences. The Court noted that the agreement preserved the right to assert preferences by including such actions in its list of excluded assets.
For these reasons, the Court granted the motion to dismiss the declaratory judgment action.
