N2N Commerce, Inc.

Movants are former officers and directors of N2N Commerce, Inc.1
1
UNITED STATES BANKRUPTCY COURT
FOR THE
DISTRICT OF MASSACHUSETTS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
In re
N2N COMMERCE, INC., 	Chapter 7
Debtor 	Case No. 09-10246-JNF
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
MEMORANDUM
I. INTRODUCTION
The matter before the Court is the Motion to Dismiss, Abstain, or, in the Alternative,
for Relief from Stay (the “Motion”) filed by Lawrence Bohn (“Bohn”), Joel Cutler
(“Cutler”), Sharen Turney (“Turney”), Martyn Redgrave (“Redgrave”), Ruben Pinchanski
(“Pinchanski”), Stephen Asbaty (“Asbaty”), Wendy LaHaye (“LaHaye”), and Mark Delcher
(“Delcher”)(collectively, “Movants”). 	Among the arguments they make in their Motion,1
Movants contend that the bankruptcy case commenced “by and through Joseph F. Finn,
Jr., in his capacity as Assignee for the Benefit of Creditors of N2N Commerce, Inc.” should
be dismissed because Joseph F. Finn, Jr., the Assignee for the Benefit of the Creditors of
N2N (the “Assignee”), was not authorized to file a bankruptcy petition on behalf of N2N
Commerce, Inc. (“N2N”).
Finn, on behalf of the Chapter 7 Debtor, creditors, NaviSite, Inc. and Optaros, Inc.
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 1 of 17

Following the hearing, the Court directed Movants to serve Motion on all2
creditors together with notice of a March 6, 2009 deadline for filing objections to the
Motion. Movants complied with the Court’s order. No additional objections to the
Motion were filed.
2
(collectively, the “Creditors”), and the Chapter 7 Trustee filed oppositions to the Motion
in which they contend that the bankruptcy case is needed to protect, preserve and
maximize the assets of N2N. 	The Assignee represented that he filed the bankruptcy
petition after consultation with the largest creditors of N2N, while the Creditors contend
that the Motion is “a thinly veiled attempt by the Former Officers and Directors to avoid
liability for their improper conduct as directors and officers of the Debtor.” Finally, the
parties opposing the Motion assert that Movants lack standing to contest the petition.
The Court heard the Motion and Oppositions on February 26, 2009. 	Upon2
consideration of the Motion, Oppositions, memoranda, and exhibits attached to the
pleadings, as well as the existing record, the Court shall treat the Motion as a motion for
summary judgment. 	See Fed. R. Bankr. P. 7056. 	The Court now makes the following
findings of fact and conclusions of law in accordance with Fed. R. Bankr. P. 7052.
II. FACTS
A. Background
N2N, “by and through Joseph F. Finn, Jr., in his capacity as Assignee for the Benefit
of Creditors of N2N Commerce, Inc.” filed a voluntary petition under Chapter 7 of the
Bankruptcy Code on January 14, 2009. On January 30, 2009, the Assignee filed schedules
of assets and liabilities, and a Statement of Financial Affairs on behalf of N2N. On Schedule
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 2 of 17

3
B- Personal Property, Finn disclosed cash in the sum of $208,061.46 in his operating account
and causes of action against certain former officers, directors and stockholders, as well as
causes of action for fraudulent conveyances against former insiders, all with unknown
values. The Assignee disclosed no other assets.
On Schedule F-Creditors Holding Unsecured Nonpriority Claims, the Assignee
listed approximately 80 creditors with claims totaling $13,388,573.52. He disclosed no other
creditors.
On February 4, 2009, Movants filed the Motion that is now before the Court,
together with a Memorandum to which they attached 1) the Assignment for the Benefit
of Creditors, dated January 4, 2008, pursuant to which Finn agreed to accept an assignment
of the assets of N2N; 2) the By-Laws of N2N, which was initially known as Everest
Commerce, Inc.; and 3) a Verified Complaint for Declaratory Judgment filed by Pinchanski,
Turney, Redgrave, Cutler, Bohn, Asbaty and LaHaye against the Assignee and N2N, as a
nominal defendant, in the Delaware Chancery Court.
The following facts can be gleaned from the Motion and Oppositions. N2N was a
start-up company incorporated in Delaware. It was founded in June of 2006 and conducted
business from premises located in Cambridge, Massachusetts. Its purpose was to develop
and market a software platform to facilitate internet-based retail sales. Its initial investors
were General Catalyst Group IV, L.P. and General Catalyst Entrepreneurs Fund IV, L.P.
(collectively, “General Catalyst”) and L.B.I. Holdings, Inc. (“LBI”), a subsidiary of Limited
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 3 of 17

LBI is the parent of Victoria’s Secret Direct, LLC.3
In the Statement of Financial Affairs filed by Finn on behalf of N2N, Finn4
represented that LBI holds 35% of the convertible preferred stock and 50% of the voting
common stock of N2N; General Catalyst holds 65% of the convertible preferred stock
and 50% of the voting common stock; Pinchanski holds 71.42% of the non-voting
common stock, while Asbaty and LaHaye each owned 14.29% of the non-voting
common stock.
4
Brands, Inc. Turney and Redgrave were LBI’s designees on the Board of Directors of N2N,3
while Bohn and Cutler were General Catalyst’s designees. Pinchanski was the fifth director
and, according to the Assignee, was a co-founder and Chief Executive Officer of N2N.
Asbaty and LaHaye were officers of N2N and Delcher was an employee. 4
N2N worked to develop the software platform until December of 2007 when its
financing was depleted, and it was forced to close its doors. Movants contend that N2N’s
Board considered all options available to the company for winding up its affairs and
liquidating and distributing its assets, including the possibility of filing a voluntary
Chapter 7 petition. 	Again, according to Movants, on January 3, 2008, N2N’s Board of
Directors unanimously voted to enter into an Assignment for the Benefit of Creditors. The
next day, N2N entered into an Assignment with Finn. Movants represent, and Schedule
B reflects, that the Assignee has liquidated all of N2N’s assets, except certain intangible
assets with unknown values.
In their Oppositions, the Creditors and the Assignee represented that N2N
purchased one or more directors and officers liability insurance policies from Federal
Insurance Company at the time of the Assignment. Further, they represented that General
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 4 of 17

5
Catalyst, LBI and the insurance carrier negotiated a multi-million dollar settlement that
included payments from the carrier on account of the insurance policies that were property
of N2N without notifying the Assignee. According to the Assignee, he did not discover the
settlement until the fall of 2008.
On December 17, 2008, following the liquidation of the assets of N2N, Finn
commenced an action in Massachusetts Superior Court Department of the Trial Court
against Pinchanski, Asbaty, LaHaye, and Delcher. Pursuant to his four-count complaint,
Finn sought the avoidance of allegedly fraudulent transfers under the Massachusetts
version of the Fraudulent Transfer Act, see Mass. Gen. Laws ch. 109A, §§ 5 and 6, with
respect to bonuses, severance payments, and other expenditures made to, or authorized
by them, in August of 2007 and December 2007 while N2N was undercapitalized and
insolvent. See Finn v. Asbaty, Civ. Action No. 08-5575-BLS.
On January 5, 2009, approximately one week before the commencement of the
bankruptcy case, Movants commenced a three-count declaratory judgment action in the
Court of Chancery for the State of Delaware, see Pinchanski v. Finn, Civil Action No. 4266-
CC, seeking declarations that, as officers and directors of N2N, they did not breach their
fiduciary duties under Delaware law, that they did not commit waste of corporate assets,
and that they are not liable for any fraud.
B. The Assignment for the Benefit of Creditors
The Assignment for the Benefit of Creditors, which was executed by Finn and the
Chief Executive Officer of N2N, identified N2N as the “Debtor,” duly organized and
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 5 of 17

6
existing under the laws of Delaware. 	It contained four recitals and six separately
numbered sections, most with multiple subsections. The Debtor acknowledged that it had
been forced by its financial circumstances to wind up its business and to liquidate and
distribute its assets, that it was unable to pay its creditors as its obligations became due,
that it wished to provide a mechanism for the payment of creditors, and that it
“determined that the most efficient and economical mechanism to accomplish this purpose
is to make an assignment for the benefit of creditors.” The Assignee acknowledged that
he agreed to accept the assignment “under the terms and conditions hereof.”
The first section of the Agreement contained a number of definitions. Notably,
priority Creditors were defined with reference to 31 U.S.C. § 3713 and “Section 507(a) of
the United States Bankruptcy Code in effect on the date hereof, as modified in section 5.10
below.”
Section 2 contained language whereby the Debtor conveyed and assigned to the
Assignee all of its real and personal property, wherever located and without limitation,
including the following: inventory, accounts receivable, equipment, notes, bills, drafts and
similar instruments, cash and deposit accounts, securities, real property and leasehold
interests, contracts and insurance policies, intellectual property, all products and proceeds
of its assets, books and records, and “any and all other legal or equitable interests in
property of any kind.” The Debtor also assigned to the Assignee “claims of every nature,
contingent or non-contingent, including without limitation those arising from tort, contract,
breach of duty, rights to tax refunds and rights to seek damages, specific performance or
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 6 of 17

7
to exercise set-off, subject to applicable contracts.”
Section 3 provided that the assets would be subject to valid security interests,
mortgages or liens and would be enforceable against the Assignee.
Section 4 of the Assignment specified the powers and duties of the Assignee. The
parties set forth nineteen powers and duties, including the duty to hold the assets in trust
for the benefit of the assenting priority and secured creditors; to incur and pay the actual
and necessary costs of managing, operating, preserving, liquidating and distributing the
Assets, including paying reasonable wages, salaries, commissions, professional fees, rents,
insurance premiums, maintenance charges, supplies, utilities, taxes and reasonable
compensation for his services as Assignee “but in no event to exceed the greater of (a) $400
per hour or (b) maximum amount of compensation which would be permitted to a trustee
in bankruptcy administering the same assets as the Assignee pursuant to 11 U.S.C. A. §
326(a).”
Pursuant to section 4.4, the Assignee had to the power “[t]o institute or defend suits,
legal or equitable proceedings incident to collection, liquidation and distribution of assets.”
Additionally, pursuant to section 4.11, the Assignee had the ability to resign at any time
and he could be removed. In either case, “a successor Assignee may be appointed by the
Debtor with the concurrence of a majority in amount of the Assenting Creditors.” The
parties further agreed in section 4.14 that “[a]ny act or thing done by the Assignee, or by
the duly authorized agents or representatives of the Assignee, shall, as to all persons
dealing with such Assignee or such duly authorized agents and representatives of the
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 7 of 17

8
Assignee, be deemed to be within the purposes of this A/F/B/C and within the powers
of the Assignee.”
Section 5 of the Assignment pertained to rights and duties of creditors. Notably,
various subsections contained references to the Bankruptcy Code. Pursuant to section 5.5,
“[t]he Assignee may reduce any claim by the amount of any set-off to which the Debtor is
entitled and by the amount of any payments received by the claimant from the Assignor
that would have been preferences or fraudulent transfers under §§ 544, 547 and 548 of the
Bankruptcy Code if the Assignor had filed a petition under the United States Bankruptcy
Code on the date of the Agreement.” Pursuant to section 5.7, if assenting creditors agreed
to mediation in the event of a dispute with the Assignee, an attorney would be appointed
“who would qualify as a disinterested person in respect of the Debtor, the Assignee and
the assenting Creditor under the definition of ‘disinterested person’ contained in the
United States Bankruptcy Code in effect on the date hereof.” Pursuant to section 5. 8, the
Assignee also agreed to reduce the amount of any claim by any interest that accrued after
or was unmatured on the date of the Assignment by any costs of collection, late fees or
similar fees or charges, and to allow “[c]laims . . . in accordance with the principles
applicable to claim under Chapter 7 of the United States Bankruptcy Code.”
Section 6 of the Assignment contained miscellaneous provisions, including the
parties’ agreement that it be construed as a Massachusetts contract, that it take effect as a
sealed instrument, that it set forth “the entire agreement among the parties,” and that it was
“binding upon and inured to the benefit of the parties hereto and their respective
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 8 of 17

9
successors and assigns and may be canceled, modified or amended only by a written
instrument executed by each of the parties hereto.” Finally, pursuant to section 6.4, the
Debtor constituted “the Assignee and his successors, the attorney and attorneys in fact of
said Debtor, “irrevocably and coupled with an interest, with power of substitution in the
name of the Debtor to take any act necessary or proper to the exercise of his duties
hereunder.”
C. The By-Laws
Consistent with Delaware corporate law, see Del. Code Ann. Tit. 8, § 141, the by-laws
of N2N provided that “[t]he business of the Corporation shall be managed by or under the
direction of a Board of Directors who may exercise all the powers of the Corporation except
as otherwise provided by law, by the Certificate of Incorporation or by these By-laws.”
III. DISCUSSION
A. Standing
The issue of standing is a “threshold question in every federal case,
determining the power of the court to entertain the suit.” Warth v. Seldin,
422 U.S. 490, 498, 95 S.Ct. 2197, 45 L.Ed.2d 343 (1975). To have standing to
bring an appeal from a final bankruptcy court order, an appellant must be a
“person aggrieved.” Spenlinhauer v. O’Donnell, 261 F.3d 113, 117 (1st
Cir.2001). As such, standing exists only where the order “directly and
adversely affects an appellant’s pecuniary interests.” Id., at 117-18 (citation
omitted). A party’s pecuniary interests are affected if the order diminishes
the appealing party’s property, increases its burdens, or detrimentally affects
its rights. Kehoe v. Schindler (In re Kehoe), 221 B.R. 285, 287 (1st Cir. BAP
1998).
In re High Voltage Eng’g Corp., 397 B.R. 579, 597 (Bankr. D. Mass. 2008), aff’d, __ B.R. __,
2009 WL 987502 (D. Mass. April 14, 2009)(citing In re Murphy, 288 B.R. 1, 4 (D. Me. 2002)).
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 9 of 17

10
Under this broad definition of standing, this Court finds that Movants’ rights will
be affected if the bankruptcy case remains in this Court and the Assignee proceeds with
litigation against them. Accordingly, they have standing as persons aggrieved to seek
dismissal.
B. Standard for Summary Judgment
In Tribeca Lending Corp. v. Laudani (In re Laudani), 401 B.R. 9, 23-24 (Bankr. D.
Mass. 2009), this Court set forth the standard for summary judgment. Quoting Desmond
v. Varrasso (In re Varrasso), 37 F.3d 760 (1st Cir.1994), this Court stated:
It is apodictic that summary judgment should be bestowed only when no
genuine issue of material fact exists and the movant has successfully
demonstrated an entitlement to judgment as a matter of law. See Fed.R.Civ.P.
56(c). As to issues on which the movant, at trial, would be obliged to carry
the burden of proof, he initially must proffer materials of evidentiary or
quasi-evidentiary quality-say, affidavits or depositions-that support his
position. See Lopez v. Corporacion Azucarera de Puerto Rico, 938 F.2d 1510,
1517 (1st Cir.1991); Bias v. Advantage Int’l, Inc., 905 F.2d 1558, 1560-61
(D.C.Cir.), cert. denied, 498 U.S. 958, 111 S.Ct. 387, 112 L.Ed.2d 397 (1990); cf.
Mendez v. Banco Popular de Puerto Rico, 900 F.2d 4, 7 (1st Cir.1990) (“The
mere fact that plaintiff failed to file a timely opposition does not mean that
defendant's Rule 56 motion should be granted”). When the summary
judgment record is complete, all reasonable inferences from the facts must
be drawn in the manner most favorable to the nonmovant. See, e.g., Morris
v. Government Dev. Bank, 27 F.3d 746, 748 (1st Cir.1994); Garside, 895 F.2d
at 48; Greenburg v. Puerto Rico Maritime Shipping Auth., 835 F.2d 932, 934
(1st 	Cir.1987). 	This 	means, 	of 	course, 	that 	summary 	judgment 	is
inappropriate if inferences are necessary for the judgment and those
inferences are not mandated by the record. See Blanchard v. Peerless Ins. Co.,
958 F.2d 483, 488 (1st Cir.1992) (warning that summary judgment is
precluded “unless no reasonable trier of fact could draw any other inference
from 	the 	‘totality 	of 	the 	circumstances' 	revealed 	by 	the 	undisputed
evidence”).
Laudani, 401 B.R. at 23-24. The paramount and determinative issue raised by the Motion
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 10 of 17

11
and the Oppositions is whether the Assignee had authority to file a Chapter 7 bankruptcy
petition on behalf of N2N. The Assignee’s authority is contained within the four corners
of the Assignment. Accordingly, interpretation of the Assignment will resolve the issue
of whether the Assignee had authority to file a bankruptcy petition. 	See Lexington
Insurance Co. v. All Regions Chemical Labs, Inc., 419 Mass. 712, 713 (1995)(interpretation
of a contract is a question of law for the court). Moreover, while the parties disagree as to
the proper interpretation of the Assignment, they do not dispute the sequence of events
leading up to its execution and the filing of the bankruptcy petition. Thus, the Court finds
that the material facts surrounding the execution of the Assignment are not in dispute.
C. Analysis
1. Contract Interpretation
Under Massachusetts law, “[i]f the words of a contract are plain and free from
ambiguity, then they must be construed in accordance with their ordinary and usual
sense.” Colorio v. Marx, 72 Mass. App. Ct. 382, 388 (2008) (citing Fried v. Fried, 5
Mass.App.Ct. 660, 663 (1977)). “The mere fact that the parties disagree with respect to the
interpretation of the agreement does not make the agreement ambiguous.” Colorio, 72
Mass. App. Ct. at 388 (citing Jefferson Ins. Co. v. Holyoke, 23 Mass.App.Ct. 472, 475 (1987)).
In Trustees of Thayer Academy v. Corporation of Royal Exchange, 281 Mass. 150 (1932),
the Supreme Judicial Court stated: “The words in question are to be construed according
to the manifested intention of the parties as of the time of the making of the contract; . . .
they are to be interpreted ‘in accordance with the natural meaning of the words used in the
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 11 of 17

12
light of the circumstances existing at the time.’” Id. at 155 (citations omitted).
If a contract “‘is in any respect uncertain or equivocal in meaning, all the
circumstances of the parties leading up to its execution may be shown for the purpose of
elucidating but not of contradicting or changing its terms.’” Hubert v. Melrose-Wakefield
Hosp. Ass’n, 40 Mass App. Ct. 172, 177 (1996) (citing, inter alia, Robert Indus., Inc. v.
Spence, 362 Mass. 751, 753-754 (1973)). 	Thus, contracts should be construed “‘with
reference to the situation of the parties when they made it and the objects sought to be
accomplished,’” see Hubert, 40 Mass. App. Ct. at 177 (citing Shea v. Bay State Gas. Co., 383
Mass. 218, 222-223, 418 N.E.2d 597 (1981) (citations omitted)), and “[t]he rule of
construction that contract ambiguities must be resolved against the drafter “‘must give way
to the primary and inflexible rule that . . . contracts, are to be construed so as to ascertain
. . . the true intention of the parties.’” Id. (citing Shea, 338 Mass. at 225).
2. The Situation of the Parties
The Movants and the Assignee, as well as the Creditors and the Trustee, do not
dispute that N2N was insolvent and incapable of continuing its operations at the time it
executed the Assignment for the Benefit of Creditors. Moreover, the parties opposing the
Motion did not controvert Movants’ representations in their Motion that the Board of
Directors of N2N contemplated filing a Chapter 7 bankruptcy petition but unanimously
voted to proceed with an Assignment for the Benefit of Creditors. See generally MM Cos.,
Inc. v. Liquid Audio, Inc., 813 A.2d 1118, 1126-27 (Del. Super. 2003) (“The most
fundamental principles of corporate governance are a function of the allocation of power
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 12 of 17

13
within a corporation between its stockholders and its board of directors. The stockholders’
power is the right to vote on specific matters, in particular, in an election of directors. The
power of managing the corporate enterprise is vested in the shareholders’ duly elected
board representatives. . . .”). Thus, at the time N2N and Finn executed the Assignment for
the benefit of creditors, N2N had considered two options, the filing of a Chapter 7
bankruptcy petition, and, alternatively, an assignment for the benefit of creditors, and its
Board chose the latter option.
In In re Arkco Properties, Inc., 207 B.R. 624 (Bankr. E.D. Ark. 1997), the bankruptcy
court was required to consider who had the authority to authorize a corporate bankruptcy
case. Under Arkansas law, like Delaware law, corporations are managed by or under the
direction of their board of directors. See Del. Code Ann. Tit. 8, § 141 (“The business and
affairs of every corporation organized under this chapter shall be managed by or under the
direction of a board of directors, except as may be otherwise provided in this chapter or in
its certificate of incorporation.”). 	According to the bankruptcy court, “[s]tatutes with
similar language have been held to authorize the board of directors to file a petition in
bankruptcy.” Id. (citing Boyce v. Chemical Plastics, Inc., 175 F.2d 839, 843 (8th Cir.1949),
cert. denied, 338 U.S. 828, 70 S.Ct. 77, 94 L.Ed. 503 (1949)). The bankruptcy court added:
It is well-settled that a bankruptcy filing is “a specific act requiring specific
authorization.” 	In 	re 	Stavola/Manson 	Electric 	Co., 	94 	B.R. 	21, 	24
(Bankr.D.Conn.1988); 	In 	re 	Moni-Stat, 	Inc., 	84 	B.R. 	756, 	757
(Bankr.D.Kan.1988); In re Beck Rumbaugh Assoc., Inc., 49 B.R. 920, 921
(Bankr.E.D.Pa.1985), appeal dismissed, 1985 WL 38 (E.D.Pa. Sept. 11, 1985); In
re Penny Saver, Inc., 15 B.R. 252, 253 (Bankr.E.D.Pa.1981); In re Al- Wyn Food
Distributors, Inc., 8 B.R. 42, 43 (Bankr.M.D.Fla.1980). In virtually every
instance, this authority has been held to rest solely with the board of
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 13 of 17

14
directors. 	See, 	e.g., 	In 	re 	Runaway 	II, 	Inc., 	159 	B.R. 	537, 	538
(Bankr.W.D.Mo.1993) (“[H]istorically it has always been true, even before the
Bankruptcy Reform Act of 1978, that a valid resolution of the Board of
Directors of a corporation was a prerequisite to the filing of a voluntary
petition in bankruptcy by a corporation.”); In re Giggles Restaurant, Inc., 103
B.R. 549 (Bankr.D.N.J.1989) (“[I]t is clear that any corporate resolution which
authorizes the filing of a voluntary bankruptcy petition must originate at a
validly held meeting of directors and must be approved by the proper
number 	of such directors.”); 	In re Moni-Stat, Inc., 84 B.R. 756, 	757
(Bankr.D.Kan.1988); (“[T]he law is clear that the decision of whether or not
a corporation should file bankruptcy is a business decision to be made only
by the board of directors.”) (emphasis added); see In re M & M Commercial
Services, Inc., 115 B.R. 212 (Bankr.E.D.Mo.1990). The Court finds no authority
in the law or the By-laws of these corporations that would permit any
governing body, other than the board of directors, to authorize the filing of
a petition in bankruptcy.
207 B.R. at 628. 	Like the Arkansas court, this Court concludes that the decision to
commence a Chapter 7 case rested with the Board of Directors of N2N under its by-laws
and Delaware law. The question is whether the Board of Directors of N2N could or did
intend to delegate that authority to the Assignee. Resolution of that question turns on the
language utilized in the Assignment.
3. Interpretation of the Assignment with Reference to the
Situation of the Parties
Based upon the language employed in the Assignment, the Court concludes that the
Board of Directors did not authorize the Assignee to file a bankruptcy petition, a
conclusion buttressed by the consideration that a Chapter 7 bankruptcy case and an
assignment for the benefit of creditors are similar, but alternative, remedies. 	As one
commentator noted,
An assignment for the benefit of creditors is the state law counterpart to
Chapter 7 liquidation in bankruptcy, without all the requisite formalities.
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 14 of 17

15
State law, not federal bankruptcy law, governs ABCs, and most states have
codified their provisions regarding assignments. In an ABC, the debtor
(assignor) voluntarily transfers all of his or her assets by formal deed to
another person (assignee), who holds the property in trust for the benefit of
creditors. Creditors then choose whether to participate in the ABC. Thus the
assignee is the analogous equivalent to the Chapter 7 trustee. An ABC’s
purpose is to provide the assignor’s creditors with an equal distribution of
the assignor’s estate in proportion to their claims. Once the trust agreement
is created, the assignee stands in the debtor’s shoes and can protect him or
her from creditors because the assignee now possesses legal and equitable
title to all assets. In other words, because the debtor no longer has title to his
or her assets, the creditor cannot attach or execute on the property
transferred to the assignee.
ABCs have re-emerged as viable nonbankruptcy alternatives because of the
many advantages they have over more formal bankruptcy proceedings. First,
ABCs allow debtors more flexibility. For instance, unlike in Chapter 7 where
creditors choose a Chapter 7 trustee, the debtor chooses whom it wants to be
the assignee--the party charged with the duty to liquidate the company's
assets. Second, ABCs are faster than Chapter 7 liquidations. To illustrate, by
allowing the debtor to choose the assignee, the ABC expedites the liquidation
process because, theoretically, the assignee will be more familiar with the
debtor’s business, the location and value of its assets, as well as the
appropriate distributions to creditors. Consequently, the assignee can
increase the recovery of outstanding accounts receivable, thereby reducing
the overall deficiency on debt. This increase in receivables recovery benefits
guarantors of secured 	debt 	because 	their 	deficiency 	decreases when
receivable collection increases. Third, assignments do not attract as much
negative publicity as bankruptcy filings. Therefore, financially stressed
debtors will not likely face as many problems with suppliers and other
parties that are necessary to the operation of their business.
A final advantage of using an ABC is that they are not court-supervised
unless the ABC statute requires court supervision. Thus the assignee need
not petition the court for an order every time he or she wants to make a
decision regarding the assignor’s assets. This lack of judicial oversight may
worry creditors, especially since the assignor selects and pays the assignee.
Nonetheless, the assignee owes fiduciary obligations to creditors, granting
them a cause of action if the assignee acts imprudently. In the end, both the
debtor 	and 	creditors 	benefit 	from 	a 	more 	efficient 	wind-down 	and
liquidation of the company’s assets.
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 15 of 17

The Court could find no case in which a court authorized an Assignee for the5
Benefit of Creditors to commence a bankruptcy case.
16
Jonathan T. Edwards, The Crossroads: the Intersection of State Law Remedies and Bankruptcy,
18 J. Bankr. L. & Prac. 2, Art. 4 ( April 2009) (footnotes omitted).
In view of the advantages of assignments for the benefit of creditors, the Court
concludes that, for the Assignee, the Trustee, and the Creditors to succeed in their
Oppositions to the Motion, the language of the Assignment must clearly manifest the
intention on the part of the Board of Directors of N2N to authorize the filing of a
bankruptcy petition by the Assignee. The Court can discern no such intention. On the
contrary, the references in the Assignment to N2N as the “Debtor” and to various sections
of the Bankruptcy Code manifest the intention of the Board for the Assignment to serve as
the exclusive vehicle for winding up the affairs of N2N. Because the parties demonstrated
significant awareness of the Bankruptcy Code and, indeed, adopted some of its provisions
for the liquidation and distribution of N2N’s assets, the Court concludes that had the Board
of Directors intended for the Assignee to have the power and authority to file a bankruptcy
petition it would have expressly so stated in Section 4 of the Assignment. It did not. The
general language empowering the Assignee to liquidate assets and serve as attorney in fact
for N2N cannot be construed to grant the Assignee the extraordinary authority to
commence a bankruptcy case, authority that is almost always reserved for the Board of
Directors. 	See In re Arkco Properties, Inc., 207 B.R. 628. Cf. Wynco Distributors, Inc. v.5
Wynn (In re Wynco Distributors, Inc.), 126 B.R. 131 (Bankr. D. Mass. 1991), aff’d, 48 F.3d
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 16 of 17

The Creditors, however, can file an involuntary petition under 11 U.S.C. § 303.6
17
1211 (1st Cir. 1995).
Although the Assignee and the other parties opposing the Motion point to various
sections of the Assignment to support their positions that the Assignee was vested with the
authority to file a bankruptcy petition, the Court concludes, in view of the provisions of
Delaware law cited above, N2N’s by-laws, the settled law that a bankruptcy filing is “a
specific act requiring specific authorization,” Arkco Properties, 207 B.R. at 628, and the
absence of express authority in the Assignment, that the Assignee lacked authority to
commence a bankruptcy case on behalf of N2N. 6
IV. CONCLUSION
In view of the foregoing, the Court shall enter an order granting Movants’ Motion
to Dismiss. Because the Court intends to dismiss the bankruptcy case filed on behalf of
N2N by the Assignee, Movants’ alternative requests for relief are moot.
By the Court,
Joan N. Feeney
United States Bankruptcy Judge
Dated: May 1, 2009
cc: 	Michael J. Pappone, Esq., John G. Loughnane, Esq., Gary W. Cruickshank, Esq., D.
Ethan Jeffery, Esq., Mark T. Power, Esq., U.S. Trustee
Case 09-10246 Doc 58 Filed 05/01/09 Entered 05/01/09 12:42:34 Desc Main
Document Page 17 of 17