Alex Jones Tries To Dodge Sandy Hook Given Bankruptcy Bet
Infowars’ Alex Jones is back in bankruptcy court…again.
Why is this important: For the second time this year, the right-wing provocateur is testing the limits of how the US bankruptcy code can be used by companies – and their owners – to limit the cost of damages.
Catch up fast: Jones and his Infowars empire are in the midst of a lawsuit for damages – they have already been found liable in defamation cases brought by the families of victims of the Sandy Hook school shooting. Jones repeatedly called the shooting a hoax.
- Businesses use Chapter 11 bankruptcy when they owe their creditors more money than they actually have and need to come up with a settlement and payment plan.
- Creditors can take the form of bondholders or plaintiffs like the Sandy Hook families. Typically, the company needs the approval of these creditors for a bankruptcy plan to be consummated.
State of play: Jones’ earlier bankruptcy scheme involved the use – or misuse – of a special subchapter of the code intended only for small businesses.
- This debtor-friendly process restricts many of the rights that creditors receive in a regular Chapter 11 case – most notably the ability to form creditors’ committees with legal representation and to have more say in accepting or rejecting claims. a bankruptcy plan.
- In April, Jones placed three Infowars-related front companies in Subchapter V, companies he had isolated in order to limit the amount of money that would go to the bankruptcy settlement with the Sandy Hook families.
- But in June, Jones withdrew those bankruptcy filings. In a motion to dismiss the case, the Justice Department’s bankruptcy watchdog called the strategy “novel and dangerous,” arguing it would have undermined the integrity of the system.
But Jones apparently didn’t give up his desire to use Subchapter V and its potential to impose a settlement on creditors.
- This time around, he filed the parent company of his company Infowars – on the face of it, a seemingly more legitimate move.
The catch: It still uses the small business-focused Subchapter V, for which a business cannot have more than $7.5 million in “qualifying debt” to qualify.
- But Jones’ bankrupt company, Free Speech Systems (FSS), owes far more than that — $54 million to a subsidiary controlled by Jones and his family, in addition to the likely tens of millions it owes Sandy plaintiffs. Hook.
So what gives? There are a few technicalities…for one thing, insider debt (like the $54 million) is not considered “qualifying debt”.
- Ditto for “unliquidated” debt – a legal term for liabilities that have not yet been formally quantified, such as outstanding damages.
That’s the problem. Jones filed for FSS Subchapter V bankruptcy to meet litigation damages, but the amount of such damages would almost certainly render the company inadmissible to actually use subchapter V.
💭 Our thought bubble: Timing is everything. FSS (conveniently) filed in the middle of the lawsuit for damages that could put a looming number on Sandy Hook’s liabilities.
- The bankruptcy court could either allow the Subchapter V case to continue, based on the idea that eligibility is determined by a financial snapshot at the time of filing. — or he could decide that awarding damages is a game-changer.
To note: Bankruptcy disclosures show that over the past few years, while the Sandy Hook litigation was ongoing, approximately $62 million was withdrawn from the FSS in the form of “member drawdowns.”
- It involves raffles by Jones, the sole owner of the business, says Avi Moshenberg, attorney for the Sandy Hook families.
What to watch: Moshenberg says that even if the case remains in Subchapter V, creditors could ask the judge for additional oversight and transparency.
- “It’s unacceptable for us to do normal Subchapter V without transparency, oversight, or investigation. That’s a huge core issue of this bankruptcy,” Moshenberg told Axios.