During the Chapter 7 proceedings, a key source
of recoveries for the creditors arose from litigation
claims against Connolly’s former accounting firm. The
originally-appointed Chapter 7 trustee (predecessor
trustee) pursued these claims, but the bankruptcy court
declared a mistrial due to the trustee and its counsel’s
violations of discovery rules.
Following the mistrial, the litigation against the
accounting firm was dismissed. Instead of pursuing
these claims further on behalf of the creditors (which
were likely to yield value to the debtor’s bankruptcy
estate if properly pursued), the predecessor trustee
sought to close the bankruptcy case.
Instead of sitting idly by and allowing the predecessor trustee to close the bankruptcy case, creditor
Coface Argentina and Mediofactoring, represented by
Traison, took on a proactive role.
Trustee Accused of Negligence
On July 17, 2009, Coface filed a motion (through
Traison’s former firm, alongside special counsel) to
remove the predecessor trustee. Coface asserted to the
bankruptcy court that the debtor’s estate should not be
closed and the Chapter 7 case should continue, because
the estate held a number of valuable claims against the
predecessor trustee and his law firm for gross negligence
and mishandling of the litigation claims against the
Attorneys can help their clients be lawmakers. It’s a lesson law students are taught in classrooms across the country, but in practice, it is often
lost. In the case of In re Connolly North America, LLC, 1
however, Michael Traison of Sugar Felsenthal Grais &
Hammer paved new ground on behalf of not just his
client, but creditors in general, in the context of realizing value from Chapter 7 bankruptcy proceedings and
ensuring that proactive creditors are compensated for
The Connolly Case
The case background in Connolly is filled with twists
and turns. The debtor, Connolly North America, was
a producer of leather goods. The company filed for
Chapter 11 bankruptcy in the U.S. Bankruptcy Court
for the Eastern District of Michigan. During the
course of the proceedings, the case converted to a
Chapter 7 liquidation.
1 802 F.3d 810 (6th Cir. 2015).
Chapter 7 Policy Maker:
How Creditors Can Benefit from Chapter 7 Proceedings
BY JACK O’CONNOR
Creditors often refrain from actively participating in Chapter 7 bankruptcy proceedings. Jack O’Connor
interviews his colleague, Michael Traison, who represented the creditors in a Chapter 7 case and was
able to recoup a significant amount for the estate in a precedent-setting decision.
Michael Traison of Sugar Felsenthal Grais & Hammer paved new ground
on behalf of not just his client, but creditors in general, in the context of
realizing value from Chapter 7 bankruptcy proceedings and ensuring that
proactive creditors are compensated for their efforts.
Sugar Felsenthal Grais