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Chapter 11 Plan Buyer Sued for Allegedly Not Remitting the Payment to the Debtor


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September 13, 2022, US Bankruptcy Court for Eastern New York – Allan B. Mendelsohn, the chapter 7 trustee (the “Trustee”) for Catch 22 Liny Corp. (the “Debtor”) brings an adversary proceeding against Starfish Investors, LLC (the “Defendant”) to recover a certain amount from the Defendant due to its alleged breach of contract. 

By background, the Debtor’s Chapter 11 Plan was confirmed by the Court in 2018. The Plan required Starfish to remit certain payments to the Debtor in connection with the sale of all or substantially all of the Debtor’s assets to Starfish. A creditor of the Debtor moved the Court to reopen the closed Chapter 11 case and later the case was converted to one under Chapter 7. The creditor alleged that Starfish allegedly failed to remit the payments required pursuant to the confirmed Plan and the promissory note. Now, the Trustee, standing in the shoes of the Debtor, seeks to enforce the alleged bankruptcy estate’s rights against Starfish. 

According to the Trustee’s complaint, the agreement securing the payment under the promissory note allowed the secured party (Trustee on behalf of the Debtor) to declare all note payments to be “immediately due and payable” in the event of default by the obligor. The Trustee used the said provision to make the payment under promissory note immediately due and payable. The Trustee alleges that as of October 2021, Starfish was allegedly in default in the amount of $718,506.36. The Trustee further claims that the amount due to the bankruptcy estate is currently $1,636,138.36, inclusive of interest.

Mendelsohn v. Starfish Investors, LLC (In re Catch 22 LINY Corp.), AP No. 22-08073, US Bankruptcy Court for Eastern District of New York