May 27, 2021, District of Massachusetts – Debtor-Plaintiff, Shamrock Finance LLC (“Shamrock” or the “Debtor”) recently brought an adversary proceeding against 75 defendants under Federal Rules of Bankruptcy Procedure 7001(2) and 11 U.S.C. Sections 544 and 551 to avoid defendants’ unperfected security interests. Shamrock purportedly intends to preserve the alleged unperfected security interest for the benefit of the estate and ensure that all defendants holding general unsecured claims are afforded equality of treatment with other similarly situated holders of general unsecured claims.
Allegedly, the defendants loaned monies to the Debtor, evidenced by a promissory note. To secure the payment of the defendants’ loans, Shamrock purportedly granted security interests to the defendants in some or all of Shamrock’s property. As alleged in the complaint, none of the defendants perfected their security interests by taking possession of any collateral or filed a financing statement to perfect their security interests in and to their alleged collateral. None of the Defendants allegedly held a purchase money security interest as defined by M.G.L. c. 106 §9-317(B) and did not have a priority lien.
Through its complaint, the Debtor argues that the grant of security interests to the defendants constitutes a transfer of property of Shamrock. Since none of the defendants allegedly held perfected security interests in or to any of Shamrock’s property or in or to any property of Shamrock’s bankruptcy estate, the Debtor contends that the defendants’ security interest is unenforceable and avoidable according to Section 544(a)(1) of the Bankruptcy Code. Accordingly, the Debtor asserts that the alleged security interests of defendants should be avoided and be preserved for the benefit of the estate.
Shamrock also seeks a declaratory judgment determining that the defendants’ alleged security interests are null, void, and of no further effect, and that defendants hold, at most, general unsecured claims in the bankruptcy case subject to allowance and disallowance under 11 U.S.C. §502 in the ordinary course.
Two months ago, Shamrock filed its voluntary petition under Chapter 11 of the United States Bankruptcy Code on March 12, 2021. Shamrock remains in possession of its assets and is acting as a debtor in possession according to and with the rights, powers, and responsibilities outlined in, 11 U.S.C. §1107, including, without limitation, the rights and powers of a trustee serving in a case under Chapter 11 of the United States Bankruptcy Code under 11 U.S.C. §1107(a).
The case is In re Shamrock Finance, LLC in the United States Bankruptcy Court for District of Massachusetts under case number – 21-10315-FJB.