Creditors Rights

M Fabrikant & Sons was one of the oldest diamond trading businesses in the US, operating continuously since the late nineteenth century. With over 30 companies spanning the globe, Fabrkant claimed worldwide sales of close to $1 billion annually.

Shortly after M. Fabrikant & Sons filed for bankruptcy in late November 2006, its senior lenders sold their nearly $162 million in bank debt on the market, reportedly for approximately 50 cents on the dollar. In December 2006, when Fabrikant’s Official Committee of Unsecured Creditors appointed Consensus as its financial advisors, the prospects of any recovery for unsecured creditors seemed unlikely.

Consensus immediately began a deep forensic review of the multitude of transfers into and out of the Debtors’ businesses over the prior six years. In doing so, Consensus personnel rebuilt the Debtors’ general ledger system in searchable format, developed an extensive list of discovery requests under Bankruptcy Rule 2004 and, ultimately, traced a number of transfers that are now the subject of major fraudulent conveyance litigations against affiliates of the Debtors worldwide and the Debtors’ original lenders. In addition, in exchange for not pursuing successor liability claims against the parties who bought the original bank debt, the unsecured creditors are now guaranteed to receive a distribution of at least $5.0 million and are entitled to share in the recoveries from other asset collections and litigations. Notably, the unsecured creditors retained the exclusive right to any recoveries from the litigation filed against the Debtors’ original lenders, which case is pending in the Southern District of New York Bankruptcy Court and is being managed by a prestigious law firm that has agreed to take the case on a contingency fee basis and to front the Committee’s case-related expenses.