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Bankruptcy Plan Record Date Trumps FINRA Ex-Date

By: Derek Piersiak

St. John’s Law Student

American Bankruptcy Institute Law Review Staff

           In In re: Arctic Glacier International, Inc v. Arctic Glacier Income Fund, the United States Bankruptcy Court for the District of Delaware ruled that distributions would be made to unitholders as of the bankruptcy plan’s “Unitholder Distribution Record Date,” and not to the persons who held the units as of FINRA’s ex-date, which fell after the record date.[1] The ex-date is the date on and after which a security is traded without a specific dividend or distribution.[2] Under Arctic Glacier’s reorganization plan, “any distribution, no matter its size, must be made to those who [held] units as of the Unitholder Distribution Record Date, which must be at least 21 days prior to the date on which the distribution is actually paid out, i.e., the payable date.”[3] The plaintiffs purchased units after the plan’s record date.[4]  When Arctic Glacier made distributions to those who held units as of the record date, the plaintiffs sued Arctic Glacier, alleging that under U.S. securities laws, Arctic Glacier should have made distributions to the plaintiffs.[5]

            Under U.S. Securities law, Uniform Practice Code (“UPC”) Rule 11140 determines which unitholders are entitled to a distribution.[6] The UPC sets a “record date” and an “ex-date.”[7] The record date is fixed by the issuer of securities and determines who is entitled to receive dividends or other distributions.[8] The ex-date is set by FINRA, and is the date on and after which a security is traded without a dividend or distribution.[9] A reorganization plan and Rule 11140(b)(2) conflict in cases where the distribution is 25% or greater than the value of the subject security,[10] because in such cases, Rule 11140(b)(2) provides that the ex-date is the first business day after the payable date.[11] The reorganization plan in this case, however, required that distributions be made to unitholders as of the record date, which was required to be 21 days before the payable date.[12]  The court determined that, a reorganization plan supersedes all applicable law, whether bankruptcy law or non-bankruptcy law.[13] In finding that any limitation on the plan’s dividend procedure was “unacceptable,” the court pointed to the comprehensiveness of the confirmed plan.[14]

            This case illustrates the importance of reviewing a company’s bankruptcy plan and purchasing securities prior to the record date set out in the plan. As the case shows, investors who are unaware of a confirmed bankruptcy plan’s record date, or rely on FINRA’s ex-date will not be eligible to receive a dividend.



[1]  In re Arctic Glacier Int'l, Inc., No. 12-10605(KG), 2016 WL 3920855, at *16 (Bankr. D. Del. July 13, 2016).

[2] See Id. at *6.

[3] Id.

[4] See Id. at *1.

[5] See Id.

[6] See Id. at *6.

[7] FINRA, Rule 11140.

[8] See Id.

[9] See Id. at *6.

[10] See Id. at *16.

[11] See FINRA Rule 11140.

[12] See Id. at *16.

[13] In re Bowen, 174 B.R. 840, 847 (Bankr. S.D.Ga. 1994).

[14] See Id. “In section 8.3 and in Schedule “B” the Plan provides a sequence of steps that must begin on the Plan Implementation Date. Nowhere in this sequence is there room for any distribution other than the one presented in section 6.2, which only provides for distributions ‘to each Registered Unitholder, as of the applicable Unitholder Distribution Record Date….’”