Litigation surrounding Republic’s bankruptcy continues in the Southern District of New York in lower Manhattan. Pease & Curren provided initial insights here, bankruptcy FAQs here, and now provides an update on some of the important issues that have come up as the case proceeds.
The Court Approved An Investigation of the Rubin Family
Creditors Will Likely Try to Clawback at Least $40 Million from the Rubins
The Unsecured Creditors Committee – which seeks to recover monies for those Republic creditors who are least likely to be paid back – asked for and received permission from the Court to demand information from Republic and certain members of the family that owns it.
Republic’s bankruptcy petition described how a “significant discrepancy in its inventory accounting” was discovered in April of 2018. In its motion, the Committee stated that it had never been able to get a straight answer from Republic as to how to the “discrepancy” came about – and raised the possibility of fraud.
The Committee noted that the Rubin family—which owns Republic until and unless the company is sold in bankruptcy—has paid itself $40 million in the time since Republic went insolvent. Depending on what the Committee learns, it may be able to claw some of that $40 million back from the Rubins to pay Republic’s creditors.
The Rubins are not the only ones in legal jeopardy. Anyone who has received payments from Republic since it became insolvent could be subject to clawback litigation, and the timeframe for when Republic became insolvent has yet to be definitely determined.
Clawing back funds already spent by Republic may be the only way that unsecured creditors will get paid, given that Republic owes more than it has on its books to senior lenders and bankruptcy professionals, who will get paid first.
The Committee will now be able to issue subpoenas to Republic officials and the Rubin family forcing them to turn over documents and testify at depositions.
Some, but Not All, Pre-Paid Inventory to be Auctioned Off:
At the time it filed for bankruptcy, Republic had possession of metals that had already been paid for by many its customers. Some of these may be customers who sent scrap metals to be refined and requested pure metals back.
Republic has obtained permission to sell most of the pre-paid metals off. The parties who pre-paid will be left to litigate against the secured lenders to determine who has the right to be paid out of the proceeds first. Being paid first is important because those who slated to get paid last are unlikely to ever be paid, given that Republic owes more than its value.
Interestingly, many businesses who hold themselves out as “refiners” are among the list of customers who prepaid for metals from Republic. These include Mid-States Recycling and Refining and Global Bullion. These companies are likely middlemen who shipped to Republic to do the true refining.
January 9th Hearing to Set Procedures for Selling Republic:
Republic is Attempting to Sell Itself as a Going Concern as Soon as Possible
Republic is moving towards being sold as a going concern. The company has asked the Court to supervise an auction at which the company would be sold and the proceeds used to pay its creditors. The Court filing asks the Court to set a January 28th deadline for interested parties to take action to become bidders. If the Court agrees, an auction would be held on January 31st and the court would confirm the sale sometime in early February.
If the auction fails to generate a purchase price that is satisfactory to the Court, Republic could be liquidated and have its assets sold piecemeal. Republic’s precious metals inventory would not be part of the sale.
It does not appear that any creditors have objected to this proposal. The Court is scheduled to set the rules of any sale at a hearing on January 9th.
For more information on bankruptcy and definitions of bankruptcy terms, please consult our Republic Bankruptcy FAQ page.
Before joining Pease and Curren, Frank Curren attended Georgetown Law in Washington D.C. and practiced with a Boston-area non-profit, focusing on litigation between debtors, creditors, and debt-collectors.