Bimbo Mg Objection to Motion (1)

8/3/2019 Bimbo Mg Objection to Motion (1)

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Hearing Date and Time: November 22, 2011 at 3 p.m.

BAKER & HOSTETLER LLPGeraldine Ponto

45 Rockefeller Plaza

New York, New York 10111Telephone: (212) 589-4200

Facsimile: (212) 589-4201

Attorneys for Bimbo Foods, Inc. and Bimbo

Hungria Company, the U.S. Branch of Bimbo

Hungria, Zrt., a Hungarian corporation

UNITED STATES BANKRUPTCY COURT

SOUTHERN DISTRICT OF NEW YORK

In re:

MF GLOBAL, INC.

Debtor.

Case No. 11-2790 (MG) SIPA

BIMBO FOODS, INC. AND BIMBO HUNGRIA

COMPANYS LIMITED OBJECTION TO MOTION FOR ORDER

AUTHORIZING THE APPOINTMENT OF AN OFFICIAL COMMITTEE OF

COMMODITY BROKER CUSTOMERS AND APPROVING COMPENSATION

OF ALLOWED FEES AND EXPENSES OF COMMITTEE PROFESSIONALS

Bimbo Foods, Inc. and Bimbo Hungria Company, the U.S. Branch of Bimbo Hungria,

Zrt., a Hungarian corporation (collectively, BFI), by and through its undersigned counsel,

respectfully submits this limited objection (the Limited Objection) to the Motion for Order

Authorizing the Appointment of an Official Committee of Commodity Broker Customers and

Approving Compensation of Allowed Fees and Expenses of Committee Professionals filed on

November 15, 2011 (the Motion) [ECF No. 161] by certain individual commodity broker

11-02790-mg Doc 362 Filed 11/21/11 Entered 11/21/11 11:50:56 Main DocumentPg 1 of 7


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customers1 (the Movants) of MF Global, Inc. (MFGI), and respectfully represents as

follows:

BACKGROUND

1. MFGI is a futures commission merchant, a U.S. broker-dealer and a member ofthe Securities Investor Protection Corporation (SIPC).

2. On October 31, 2011 (the "Filing Date"), upon the complaint and application ofSIPC, the United States District Court for the Southern District of New York (Engelmayer, J.)

entered an order commencing the liquidation proceeding of MFGI under the Securities Investor

Protection Act of 1970, as amended, 15 U.S.C. 78aaa et seq. (SIPA), appointing James W.

Giddens as trustee (the Trustee), and removing the MFGI SIPA proceeding to this Court.

3. According to the Motion, on November 7, 2011, a group of commodity brokercustomers, who cleared their commodity trades through MFGI, formed an ad hoc committee to

protect their interests in MFGIsSIPA proceeding. See Motion, 4 at 3 and 4.

4. On the Filing Date, BFI was a commodities customer of MFGI. Since the Filingdate, all of BFIs commodities positions have been transferred from MFGI either pursuant to the

bulk transfer put in place by the Trustee and approved by Order of this Court dated November 2,

2011 (Bulk Transfer) [ECF No. 14], or to a commodities broker independently identified by

BFI. At the present time, the Trustee has retained all of BFIs collateral relating to

approximately 21% of BFIs commodities positions that BFI transferred independently to ABN

AMRO on November 1, 2011, before the Trustee gave notice of the Bulk Transfer. The Trustee

also is holding a percentage of the collateral relating to the remaining 79% of BFIs

commodities positions transferred with the Bulk Transfer.

1 The Movants are David Rosen, Daniel Shak, Gary Parziale, Michael Caponiti and David Kotz, commodities

customers of MFGI, and constitute the steering committee for an ad hoc group of commodity customers, as detailed

below. See Motion, n.1.



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LIMITED OBJECTION TO AD HOC COMMITTEES MOTION

5. The Motion seeks entry of an order (i) authorizing the appointment of an officialcommittee of commodity broker customers of MFGI, and (ii) approving the allowance and

payment of the fees and expenses of the customer committees professionals as administrative

expenses of the commodity customer property estate. See Motion, 5 at 4. The Motion relies

upon sections 105, 503 and 705 of the Bankruptcy Code as statutory support for the relief sought.

6. Section 705 of the Bankruptcy Code allows for the selection of a committee ofunsecured creditors in a liquidation case under chapter 7 of the Bankruptcy Code. It provides:

(a) At the meeting under section 341(a) of this title, creditors thatmay vote for a trustee under section 702(a) of this title may elect a

committee of not fewer than three, and not more than eleven,

creditors, each of whom holds an allowable unsecured claim of a

kind entitled to distribution under section 726(a)(2) of this title.

(b) A committee elected under subsection (a) of this section may

consult with the trustee or the United States trustee in connectionwith the administration of the estate, make recommendations to the

trustee or the United States trustee respecting the performance ofthe trustees duties, and submit to the court or the United States

trustee any question affecting the administration of the estate.

11 U.S.C. 705(a) and (b).

7. Section 705 does not provide for compensation for a creditors committee underchapter 7 of the Bankruptcy Code. SeeId. The Ninth Circuit Court of Appeals has held that

[t]he legislative history of section 705 confirms that the omission of a compensation provision

for a Chapter 7 creditors committee attorney was intentional. In re Dominelli, 788 F.2d 584,

586 (9th Cir. 1986)(citing Notes of Committee on Judiciary, S.Rep. No. 989, 95th Cong., 2d Sess.

94, reprinted in 1978 U.S.Code Cong. & Ad.News, 5787, 5880).

8. If section 705 of the Bankruptcy Code does not permit a creditors committeesprofessionals to be compensated from the estate, section 105(a) cannot provide that support.



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Section 105(a) of the Bankruptcy Code does not empower the Bankruptcy Court to create

substantive rights not otherwise provided for under applicable law. In re Park South Securities,

LLC. 326 B.R. 505, 514 (Bankr. S.D.N.Y., 2005);New England Dairies, Inc. v. Dairy Mart

Convenience Stores, Inc. ( In re Dairy Mart Convenience Stores, Inc.), 351 F.3d 86, 9192 (2d

Cir.2003).

9. The Motion acknowledges that section 705 of the Bankruptcy Code does notexpressly authorize the allowance and payment of the fees and expenses of a committee

appointed in a chapter 7 case. See Motion, 16. The Movants argue nonetheless that the Court

has the power to authorize such compensation under sections 766(h) and 507(a)(2) of the

Bankruptcy Code. Those sections provide generally that allowed net equity claims of customers

shall receive a ratable distribution of customer property in priority to all other allowed claims,

except administrative expenses allowed under section 503(b) of the Bankruptcy Code. See 11

U.S.C. 507(a)(2) and 766(h).

10. Section 503(b) of the Bankruptcy Code accords a first-priority administrativeexpense to compensation and reimbursement of expenses awarded under section 330(a) of the

Bankruptcy Code. 11 U.S.C. 503(b)(2). Section 330(a) applies only to professional persons

employed under sections 327 or 1103 of the Code. Section 327 applies to professionals

employed by the Trustee, which is patently not applicable to professionals retained by Movants.

Moreover, inasmuch as this is a liquidation proceeding conducted under chapters 1, 3 and 5 and

7 of the Bankruptcy Code, to the extent not inconsistent with SIPA, 2 15 U.S.C. 78fff(b), section

1103 is equally inapplicable. Section 503(b), in relevant part, provides that the actual and

necessary expenses of a creditor that recovers property for the benefit of the estate, after the

2 There is no counterpart in SIPA to section 705 of the Bankruptcy Code that would permit the selection of a

creditors committee in a SIPA liquidation.



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Courts approval, and the reasonable compensation of an attorney or accountant employed by

such a creditor, may be allowed. 11 U.S.C. 503(b)(3)(B) and (b)(4). However, the Trustee is

charged with recovering any property transferred or concealed by MFGI. See 11 U.S.C. 544,

547, 548, 550 and 551; 15 U.S.C. 78fff-2(c)(3). Even if a committee could be officially

recognized in a SIPA liquidation absent statutory authority under SIPA, a committee could not

exercise a trustees power to avoid and recover property. Under section 705(b) of the

Bankruptcy Code, the role of a committee in a liquidation case is merely to consult with the

trustee, make recommendations to the trustee and U.S. Trustee, and submit questions concerning

administration to the court or U.S. Trustee. 11 U.S.C. 705(b). A committee that makes a

substantial contribution in a case under chapter 9 or chapter 11 of the Bankruptcy Code, and any

attorney or accountant employed by such a committee, may be compensated from the estate. 11

U.S.C. 503(b)(3)(D) and (b)(4). On the face of those statutes, they also do not apply in a

liquidation case. Accordingly, none of the statutory authority relied upon by the Movants

supports their right to obtain recognition as an official committee or be compensated from

customer property.

11. Analyzing the decisional authority relief upon by Movants, none of the casesMovants cite supports recognition of the formation of an official committee in a SIPA liquidation

or compensation for a committee from customer property. See In re Property Lyons Transp.

Lines, Inc., 162 B.R. 460 (Bankr. W.D.Pa., 1994) (counsel to a creditors committee appointed in

a chapter 11 case allowed compensation from the estate for services rendered after the case

converted to a liquidation under chapter 7 because the Court had previously ordered that it

should remain intact to provide services post-conversion and continue to bear responsibility for

the course of the case functioning as special counsel to the trustee);In re Wonder Corp. of



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America, 72 B.R. 580 (Bankr. D.Conn.,1987) (permitting payment of fees to counsel for a

chapter 11 creditors committee post-conversion to chapter 7 pursuant to prior court order

allowing fees).

12. In a SIPA liquidation, SIPC has exclusive discretion to specify who shall serve asattorney for the Trustee. 15 U.S.C. 78eee(b)(3). Compensation for services rendered and

reimbursement of expenses incurred by the SIPA Trustee and professionals employed by the

Trustee are governed by 15 U.S.C. 78eee(b)(5). Allowances to the Trustee and professionals

employed by the Trustee are charged against the general estate of the debtornot against

customer property. 15 U.S.C. 78eee(b)(5)(E).

13. Under the CFTCs regulations, in determining a customers allowed net equityclaim, [d]isbursements to or on behalf of the customer and [t]he normal costs attributable to

the payment of commissions, brokerage, interest, taxes, storage, transaction fees, insurance and

other costs and charges lawfully incurred in connection with the purchase, sale, exercise, or

liquidation of any commodity contract are to be deducted from the ledger balance of the

customer account. In re Stotler and Co., 1991 WL 158889, at *2 (N.D. Ill. 1991)(quoting

190.07(b)(1)(B)( 1 )-( 3 )). The court in Stotler and Co. also explained that that the intent to

favor the customer could not be clearer. In re Stotler and Co., 144 B.R. 385, 392 (N.D. Ill.

1992) (citing 17 C.F.R. 190.07, 190.08(a)(1)(ii)(J) (1991) (a customer's claim is limited to her

net equity, defined to exclude commissions owed, but the estate's other funds are to be tapped

to satisfy in full all claims of public customers.)). The fees and expenses incurred by

professionals retained by a customer committee are not lawful costs that are factored into the

determination of a customers allowed net equity claim. Such fees and expenses, therefore, may

not be charged to any customer.



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14. In light of the above, there is no authority, statutory or otherwise, that permits theCourts recognition of an official committee in a SIPA liquidation or ratably charging BFIs

customer property for the fees and reimbursable expenses of such a committee.

15. It would appear, therefore, that the fees and expenses of the professionals to thead hoc customer committee must be paid by the members of that committee. If absent statutory

or other authority, the ad hoc committee seeks the allowance and payment of compensation, such

reasonable fees and reimbursable expenses could only be paid from a general estate, if any, and

not be charged ratably against customer property.

WHEREFORE, for the reasons set forth above, BFI respectfully requests that this Court

enter an order: (i) denying any compensation of fees and expenses of the ad hoc customer

committees professionals as administrative expenses of the commodity customer property

estate, and (ii) granting such other and further relief as this Court deems to be just and proper

under the circumstances.

Dated: New York, New York

November 21, 2011

BAKER & HOSTETLER LLP

By: s/Geraldine Ponto

Geraldine Ponto

45 Rockefeller Plaza,

New York, New York 10111Telephone: (212) 589-4200

Facsimile: (212) 589-4201

E-mail: [email protected]

Attorneys for Bimbo Foods, Inc. and Bimbo

Hungria Company the U.S. Branch of Bimbo

Hungria, Zrt., a Hungarian corporation


Documents

Bimbo Mg Objection to Motion (1)