On October 14, 2015, Affirmative Insurance Holdings, Inc. and 7 affiliates filed for relief under chapter 11 of the Bankruptcy Code.  The cases are jointly administered under Case Number 15-12136 and presided over by Judge Christopher S. Sontchi.  The first day hearing was held on October 19, 2015.  The second day hearing is scheduled for November 18, 2015 at 12:30 p.m.

The majority of the information available about the Debtors comes from the Declaration of Michael J. McClure in Support of the Debtors’ Chapter 11 Petitions and First Day Pleadings [D.I. 2] (the “Declaration”).  The Debtors offered non-standard personal automobile insurance (“NSPIA”) policies – policies that are provided to “drivers who find it difficult to obtain insurance from standard automobile insurance companies…”  These policies have a higher average premium, which “results from the increased frequency of loss costs…”

The Debtors’ bankruptcy petition lists assets of $10-$50 million and debt of $50-$100 million.  According to the Declaration, the NSPIA market segment is highly competitive and has few barriers to entry.  The Debtors have incurred losses from operations from 2008 until the present, and began selling portions of the business beginning in 2013.  While it is unclear from the Declaration whether the Debtors intend to liquidate or restructure, the significant NOLs (approximately $80 million) held by the Debtors may make them a prime takeover candidate.  The Debtors are represented by Polsinelli PC and McDermott Will & Emery LLP in these bankruptcy proceedings.

A formation meeting is scheduled for October 30, 2015 at 10:00 a.m. in the J. Caleb Boggs Federal Building, 844 King St., Room 5209, Wilmington, DE 19801.  The 341 Meeting is scheduled for November 18, 2015 at 2:00 p.m.

One way in which creditors can assert their interests is to attend the Formation Meeting and become a part of the creditors’ committee.  The creditors’ committee is one of the most active participants in a corporate bankruptcy, and has access to a significant amount of information not available to normal creditors.  There are, naturally, trade-offs to gaining access to this information (including limitations on a company’s ability to trade in securities of the debtor), but you will be far better informed of what occurs in the bankruptcy proceeding.

Another way creditors can assert their interests is to attend the Section 341 Meeting of Creditors to depose the debtor’s representative regarding the assets and liabilities of the bankruptcy estate.  Creditors may retain counsel to conduct such an examination of the debtor’s representative.  The Section 341 meeting of creditors is an integral component of a bankruptcy proceeding.

General topics that are discussed during a Section 341 meeting may include the following:

  • The nature and scope of a debtor’s assets and liabilities;
  • The amount of accounts receivable and accounts payable;
  • The extent that the debtor is able to repay its creditors;
  • Whether insurance remains active;
  • The condition and location of goods received in the 20-45 days before bankruptcy;
  • The debtor’s or trustee’s plan to reorganize its debt or liquidate its assets;
  • The debtor’s plan after it emerges from bankruptcy (not applicable to a Chapter 7 debtor);
  • Whether the debtor experienced any changes in revenue since filing for bankruptcy; and
  • Potential avoidance actions to be commenced by the debtor or trustee