Involuntary + ABC + Voluntary [All For Same Debtor] = Stay & Transfer Orders (In re Aliera)

A lovely place to stay — oops, wrong “stay” (photo by Marilyn Swanson)

By: Donald L Swanson

An “Order Staying the Later-Filed Bankruptcy Cases” is from In re The Aliera Companies Inc., Case No. 21-11548, Delaware Bankruptcy Court (issued January 18, 2022, Doc. 56), followed by an “Order Transferring Venue of the Later-Filed Voluntary Bankruptcy Cases” (issued January 25, 2022, Doc. 67) in the same case. 

The first Order stays prosecution of five Chapter 11 cases filed in Northern Georgia’s Bankruptcy Court.  The stay is until the Delaware Bankruptcy Court “enters its order determining the district or districts in which this case and [the five Georgia cases] should proceed.”

The second Order determines that the five Georgia cases should proceed in Delaware and orders their transfer there.

Creditor Allegations

Here’s what happened, according to creditors.[Fn. 1]

Aliera exists as a vehicle to sell health insurance to consumers. 

–Regulatory Actions

Multiple states have taken regulatory action against Aliera, finding that:

  • Aliera sold unauthorized and illegal health insurance; and
  • Aliera created a sham health care sharing ministry, with which it contracted to sell illegal, sham health insurance.

–Class Action Judgments

Two class action judgments, totaling more than $25 million, find that Aliera sold fraudulent and unauthorized health plans to thousands of health care consumers and siphoned off money that should have been used to repay class members.

–Involuntary Bankruptcy in Delaware

Shortly after obtaining their judgments, judgment creditors file an involuntary bankruptcy against Aliera in Delaware, alleging that Aliera’s insiders rendered the company insolvent by causing it to “loan” millions of dollars to themselves.

–ABC in Georgia

Instead of filing bankruptcy, which would be judicially supervised and require clawbacks of fraudulent transfers, Aliera’s insiders commence an Assignment for the Benefit of Creditors (“ABC”) in Fulton County, Georgia.  Notably:

  • Under Georgia’s ABC law, an assignee is not required to pursue fraudulent transfers or any other avoidance or clawback actions against insiders, although an assignee may choose to do so; and
  • Aliera insiders hand-pick an assignee to wind up the business and leave virtually no assets in Aliera or its subsidiaries, apart from claims against third parties.

Petitioners are concerned that the insider-selected assignee has no incentive to pursue claims against insiders and might settle such claims for a small fraction of true value.

–Voluntary Bankruptcies in Georgia

Then, despite the pending ABC and the pending involuntary bankruptcy, Aliera files a competing Chapter 11 bankruptcy petition in the Northern District of Georgia, signed by the ABC assignee.  Four related entities also file Chapter 11 petitions in the same Georgia court.

Motion in Delaware

Petitioners in the Delaware case move:

  1. To change venue of the five Georgia cases to Delaware, so one bankruptcy court can address all related cases; and
  2. For an order, under B.R. 1014(b) [fn. 2], staying the later-filed Georgia cases until the venue determination is made.

Aliera’s Objection

Aliera objects (Doc. 40 in Delaware case), saying the venue Motion “is chock full of irrelevant and inappropriate innuendo, hyperbole, half-truths and misleading or incomplete statements that are utterly immaterial.”

Aliera’s Objection adds, “Petitioning Creditors would have the Court believe that this was some type of nefarious plot to shield insiders and others from fraudulent transfer and other claims. That is simply not true, and is based on a complete misunderstanding of the Georgia ABC process” and is “a deliberate mischaracterization.”

First Ruling–Stay

In response to Petitioners’ Motion and Aliera’s Objection, the Delaware Bankruptcy Court initially orders as follows [fn. 3]:

“Pursuant to Federal Rule of Bankruptcy Procedure 1014(b), the following cases are STAYED, and no party to the cases shall proceed further until this Court enters its order determining the district or districts in which this case and the following cases should proceed:”

  • In re The Aliera Companies, Inc., Case No. 21-59493-jrs (Bankr. N.D. Ga.)”;
  • In re Advevo LLC, Case No. 21-59495-jrs (Bankr. N.D. Ga.)”;
  • In re Ensurian Agency LLC, Case No. 21-59496-jrs (Bankr. N.D. Ga.)’;
  • In re Tactic Edge Solutions LLC, Case No. 21-59497-jrs (Bankr. N.D. Ga.)’; and
  • In re USA Benefits & Administrators LLC, Case No. 21-59498-jrs (Bankr. N.D. Ga.).”

Second Ruling–Transfer

Then, the Delaware Bankruptcy Court orders, again, as follows [fn. 4]:

  • “in the interest of justice and for the parties’ convenience,” the five cases pending in Georgia “should proceed in” Delaware; and
  • the five Georgia cases “are transferred . . . to the United States Bankruptcy Court for the District of Delaware.”

Conclusion

It’s fascinating (i) that the Federal Rules of Bankruptcy Procedure actually have a rule (1014(b)) to address the precise circumstances of these cases, and (ii) to see how such rule is actually applied.

——————————

Footnote 1.  This recital of events is based on representations in “Petitioning Creditors’ Motion to Transfer Venue of the Later-Filed Voluntary Bankruptcy Cases of the Aliera Companies Inc. and its Four Affiliates” (Doc. 18 in Delaware Bankruptcy Court, Case No. 21-11548).

Footnote 2.  Fed.R.Bankr.P. 1014(b) provides (emphasis added):

“(b) . . . If petitions commencing cases under the Code . . . are filed in different districts by, regarding, or against (1) the same debtor, . . . or (4) a debtor and an affiliate, the court in the district in which the first-filed petition is pending may determine, in the interest of justice or for the convenience of the parties, the district or districts in which any of the cases should proceed. . . . The court may order the parties to the later-filed cases not to proceed further until it makes the determination.

Footnote 3.  As noted above, this Order is dated January 18, 2022, and appears at Docket 55 in Delaware’s Aliera case (Case No. 21-11548).

Footnote 4. As noted above, this Order is dated January 25, 2022, and appears at Docket 67 in Delaware’s Aliera case (Case No. 21-11548).

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