11 April 2011

Monday Morning Borders Bankruptcy Update

Just a quick Borders bankruptcy update to start the week off right...

Last Thursday, there was an omnibus hearing covering a bunch of motions and administrative matters. Last Friday, Judge Glenn signed an order establishing deadlines (Doc. 580) (PDF). And, of course, the "publishing press" has had not one word to say on it.

The 08 April 2011 order establishes the "bar date" for filing proofs of claim in the Borders bankruptcy. For certain governmental entities, that date is 15 August 2011; for everyone else, that date is 01 June 2011. And, unlike most other deadlines in far-off cities with which Americans are familiar — like the IRS deadline this coming Friday — that is the date by which a proof of claim must be received in New York. This is most likely to affect small presses (and, indirectly, authors whose books are published by small presses), and especially those who dispute Borders' accounting... which, based on my experience with bankruptcies in general and accounting in the industry in particular, should exceed 100% of the claims on the various schedules (Docs. 491, 493, 495, 497, 499, 501, 503, 505).

Fortunately, the actual process of filing a proof of claim is relatively simple and does not require either a lawyer or a filing fee. The actual form is the last two pages of the 08 April 2011 order, and only one side of it requires filling things out. A claimant must include documentation proving the claim, but that's relatively easy in these circumstances — copies of shipping invoices and payment records would suffice.

Unfortunately, the consequences of not filing a proper proof of claim are rather draconian. Although both the Bankruptcy Rules and common law concerning bankruptcy filings say that those whose claims are properly scheduled need not file separate proofs of claim, that glosses over the key adverb: properly, which includes both the nature of the claim and the amount of the claim. Consider, for example, a hypothetical author who has essentially "self-published" with a vendor (not just Borders — I'm taking the opportunity to do a little general education). The schedules — if they list that author's claim at all, which is extraordinarily unlikely — will almost certainly list that claim on Schedule B (personal property) as an amount owed... which is only part of the claim. Instead, such claims should be listed on Schedule G (executory contracts) so that the publishing rights get returned, too — so as to avoid creating later doubt concerning those publishing rights. If this sounds disturbingly like the problems with the iBooks bankruptcy that resulted in transfer of publishing rights to a new entity without any notice to the authors whatsoever — even when the author-Preiss/iBooks contracts required author approval that was never sought, let alone obtained — it should.

Thus, anyone who has a direct claim against a Borders entity for anything other than a straight "I shipped them three cases of commemorative pencils on a nonreturnable basis for which they haven't yet paid me"-type vendor claim should (1) read the disclaimer in the upper-right-hand corner of your screen and (2) probably consult counsel. That may not be necessary to actually file the proof of claim... but it may well be necessary to determine whether to file a proof of claim, and for what.