Dissolution, Heller Ehrman

The $57 Million Dollar Typo (Or: Reason Number 57 Why I Shouldn't Be a Practicing Attorney)

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This morning The Recorder is reporting that Bank of America and Citibank could lose $57 million because of a clerical error that could void the preferred status of BoA and Citibank:

A secured creditor must “perfect” its security interests with uniform commercial code filings and file updates every five years. The bank last submitted such a “continuation” in 2005, so another filing wasn’t needed until 2010. On Oct. 1, a week after Heller said it would dissolve, the bank filed a “correction statement” saying the 2007 filing was a “clerical error.” On Monday, the bank declined to discuss how or why the error occurred, or who made it — the 2007 filing required no signature.

The error would nullify BoA’s and Citibank’s secured creditor status:

The firm had paid the banks $51 million since announcing its dissolution and would owe them almost $6 million more if they remain secured creditors.

Closing the loop on Heller’s bankruptcy after the jump.


When Heller announced bankruptcy back on December 29th, the firm explicitly referenced revoking the banks’ status as a key part of the move:

The Committee concluded, however, that if bankruptcy proceedings were commenced by December 30, 2008, a Bankruptcy Court is likely to void the banks’ security interest because the banks had terminated and released their security interest by means of a UCC filing more than a year ago and did not re-establish a security interest in the Firm’s assets until they filed a new UCC statement in early October 2008.

If the banks’ security interest were voided by the Bankruptcy Court, the banks would

be entitled to repayment of their loans only to the same extent as the claims of all other

unsecured creditors of the Firm are paid. They would not be entitled to be “first in line”

and to have their claims paid before all others. This means that significantly more money

might become available to pay the claims of the Firm’s non-bank creditors, including those of former employees, even after factoring in the costs of a bankruptcy proceeding.

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Of course, the firm didn’t say that their case against the banks rested on a typo.

But the grammar police have a way of winning these types of battles. It’s now up to the U.S. Bankruptcy Court for the Northern District of California.

Banks May Lose $51 Million in Heller Dispute [Law.com]

Earlier: Anatomy of a Dissolution: Heller Files for Bankruptcy, Thacher Proffitt WARNS People to Come to Work

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