In re Nogin Commerce LLC

The United States Bankruptcy Court for the Southern District of New York (the Court) recently denied the motion of an Assignee for the Benefit of Creditors to dismiss an involuntary chapter 7 proceeding or to abstain, concluding that the best interests of creditors and administration of the estate favored a bankruptcy proceeding.  In re Nogin Commerce LLC,  ___ B.R. ___, 2025 WL 1645880 (Bankr. S.D. NY June 11, 2025).  View the opinion here.

Facts

The alleged debtor Nogin Commerce LLC (Nogin) is a Delaware limited liability company with offices in New York whose business is to manage e-commerce for top brands in apparel, outdoor, health and household goods.  Its management duties included marketing, shipping, credit card processing, and collecting payment for goods sold through its platform.  For each transaction, Nogin would receive a fee and remit the balance of the sale price to the suppliers.

On March 22, 2025, Nogin entered into a License Agreement with Cart.com, Inc. for the license of Nogin’s technology.  Under the License Agreement Cart.com had begun transitioning Nogin’s customer accounts from Shopify to Cart.com.  On March 31, 2025, a Deed for Assignment for the Benefit of Creditors was delivered to and accepted by the Assignee pursuant to Article 2 of the New York Debtor and Creditor law.  The main assets of Nogin were its intellectual property, a 50% Lownership interest in Bicoastal Alliance LLC, and approximately $650,000 cash on hand in the Assignee’s bank account designated for Nogin.  The Assignee alleged that Nogin owed secured debt to CPH Capital Fund I, LLC (CPH) whose $17 million claim exceeded the value of Nogin’s assets.

Following New York law, on April 8, 2025, the Assignee filed in the Supreme Court of New York an Order to Show Cause and related pleadings regarding the commencement of an assignment proceeding.  The New York court set a hearing on the OSC on May 20, 2025, after which formal commencement of the Assignment Proceeding could occur.  The Assignee asserted that various customers of Nogin were notified of the filing.  The Petitioning Creditors, however, challenge that this notice was complete.

On April 24, 2025, four Nogin creditors (the Petitioning Creditors) commenced an involuntary chapter 7 proceeding against Nogin, asserting that the case was filed “due to concerns of, among other things, lack of payment and lack of communication from [Nogin] regarding the status of the business, in particular a sudden shut down of the business.”  They also contended that Nogin’s predecessor had filed a prior chapter 11 case in December 2023.  In that case the debtor’s pre and post-petition lender, B. Riley Securities Inc, purchased 100% of the reorganized debtor under the terms of a confirmed plan.  Nogin is the entity which B. Riley owns.

The Assignee filed a motion, seeking dismissal of the involuntary chapter 7 case or, alternatively, for abstention so that the Assignment Proceeding could go forward. Secured creditor CPH joined that motion.  The movants asserted that the involuntary case would cause confusion and wreak havoc on the Assignment Proceeding, which was positioned to better serve the creditors.  They claimed that the Assignee would be able to do what a bankruptcy trustee could do with less court oversight and more efficiency. 

The Petitioning Creditors countered that at least one of them had not received notice of the Assignment Proceeding, so notice to creditors was suspect.  In addition, in the weeks prior to the shutdown of Nogin’s business, it had diverted cash it was holding for the benefit of suppliers to other parties, including B., Riley, which had made the decision to shut down the operation. Therefore, an independent investigation of the alleged Debtor and its insiders was necessary, best conducted by a trustee.

After a hearing, the Court denied the motion to dismiss and declined to abstain.

Reasoning

Section 303(b)(1) of the Bankruptcy Code sets forth the criteria for filing an involuntary bankruptcy proceeding:

An involuntary case… is commenced by the filing with the bankruptcy court of a petition..(1) by three or more entities, each of which is…a holder of a claim…that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount… if such noncontingent, undisputed claims aggregate at least $18,600 more than the value of any lien on property of the debtor securing such claims held by the holders of such claims.

These criteria are not challenged here.

The Assignee moved for dismissal under section 707(a),  which provides a statutory mechanism for dismissal of chapter 7 cases for cause, setting forth three examples of cause, none of which are applicable here, and further cause left to the discretion of the bankruptcy court.  Precedent in the Second Circuit set forth the general parameters for bankruptcy courts to follow when finding “cause”: “[a] bankruptcy court’s decision to dismiss a case for cause under section 707(a) is guided by equitable considerations and is committed to the sound discretion of the bankruptcy court.” [citations omitted]  This discretion is not unbounded; the court must consider “the interests of both the debtors and creditors” and decide each case on a case by case basis. The Court here was also guided by a list of factors set forth in In re Murray, 543 BR 484, 492 (Bankr. S.D. NY 2016) and emphasized that the focus is whether “dismissal would be in the best interest not only of the parties but of the bankruptcy system” [citation omitted}

The Court considered the list of factors and determined the involuntary was not a two party dispute and was not brought solely to enforce a judgment.  There were competing creditors who needed pari passu distribution.  The chapter 7 trustee might have greater avoidance powers than the Assignee.  There was a creditor community which needed protection.  And there might be a loss of assets because the Assignee was already preparing to sell all the viable assets to Cart.com perhaps without competitive bidding or investigation regarding whether the transaction was arm’s length.  The factors weighed in favor of the involuntary over the Assignment Proceeding.

The factors reviewed for abstention under 11 U.S.C. § 305(a) were similar with regard to creditor protection and focused on whether the bankruptcy proceeding could be efficient, whether a federal proceeding was necessary to reach a just and equitable solution, the scope of bankruptcy court jurisdiction, and whether a non-federal insolvency had proceeded so far that it would be inefficient and costly to replace it with a bankruptcy case.  The Court denied abstention because the bankruptcy jurisdiction was core and the chapter 7 offered an efficient means for addressing the claims in a just and equitable fashion.  The automatic stay, with national reach, alone made the bankruptcy case superior to the Assignment Proceeding.  The Court denied both mandatory and permissive abstention.

Author’s Comments

As a retired bankruptcy judge, I have to admit a bias in favor of any properly commenced involuntary case over an Assignment for the Benefit of Creditors (ABC) , although I do recognize that an Assignment in New York would have court oversight which does not happen in California. Still, for an ABC to work almost all creditors must buy in because no automatic stay is available.  If any creditors resist, as was evident here with four Petitioning Creditors, one of which never received notice of the ABC at all,  they can interfere with maximizing the value of assets which might be sold.  They are not required to sit by silently because there is no stay.  Also, where, as here, there is an appearance of insider preferences or sales to related parties, a trustee’s independent investigation might be necessary to maximize value to creditors and to make certain no one is gaming the system.  The Court here properly concluded a chapter 7 case would be fairer and more equitable for all parties.

[The Commercial Finance Newsletter is written by an ad hoc group of layers in the Business Law Section of the California Lawyers Association.  This review was written by the Hon. Meredith Jury, U.S. Bankruptcy Judge, Central District of California (Ret.), a member of the ad hoc group.   The opinions contained herein are solely those of the author.]