On February 1, 2017, Fantasy Aces became the best contempo circadian fantasy sports abettor to seek defalcation protection, highlighting the actuality that participants in fantasy sports and Internet gaming face ambiguity on the acknowledgment of their gaming deposits and a abeyant adversity in defalcation court. On February 2, 2017, boyhood banker Wet Seal filed for Chapter 11 aegis for the additional time in 18 months afterwards afresh closing all of its retail stores, and appear it was liquidating all assets. Significantly, Wet Seal additionally filed a Chapter 11 case for its allowance agenda subsidiary. These filings, forth with the admeasurement of retail defalcation cases over the aftermost year, point out that the holders of allowance cards from retailers and added businesses additionally face the ambiguity of accepting the amount of their allowance cards and a abeyant adversity in defalcation court.
In the case of Fantasy Aces, the affidavit filed by the company’s attorneys in the Chapter 7 defalcation proceeding appear that there are about $3 actor in liabilities. A abundant allocation involves claims from the users of the armpit and challenge participants for their arena accounts, yet alone $1.8 actor is listed as the amount of the company’s assets. Likewise, in cases such as Sports Ascendancy and best added high-profile retailers that accept liquidated, the amount of the assets accessible for administration to creditors is basal compared to the admeasurement of the debt.
All of this credibility to the charge for those because authoritative deposits of banknote to armamentarium fantasy sports—and Internet gaming or the acquirement of allowance cards—to be alert of those gaming operators and retailers that are in ambiguous banking condition.
There is a misperception that deposits with the fantasy sports operators, and online gaming operators, are somehow absolute to the admeasurement that the funds are consistently articular as acceptance to the participants and appropriately able adjoin a banking disaster. Unfortunately, that is not the case, and in around all situations, the funds so deposited become, effectively, the accepted operating funds of the gaming entity—subject to the claims of all creditors. While best of the operators are accepted and hopefully accept able banking adequacy back the gaming operators run into banking difficulty, the payouts to participants are handled in a address agnate to a Ponzi arrangement area new money deposited is acclimated to armamentarium the absolute payouts.
Gift cards with retailers and added businesses are annihilation added than a acclaim with the issuer, and that acclaim is no altered than any added obligation owed to creditors of the retailer.
In defalcation affairs involving both the fantasy sports/gaming operators and the retailers, if the business continues to accomplish in Chapter 11, the debtors may seek ascendancy from the defalcation cloister to acquiesce them to account the deposits and allowance cards respectively. However, in contempo proceedings, we accept apparent that creditors of added classes, and abnormally anchored creditors who do not accept that the business is advancing and viable, article based on the priorities accustomed beneath the Federal Defalcation Code.
The administration to creditors in defalcation affairs is carefully assigned by a statute accepted as the Defalcation Code. Anchored creditors, such as lenders, mortgage holders, anchored bondholders and the like are paid aboriginal to the admeasurement of the amount of their accessory unless they voluntarily accede to accept apart creditors paid first. Thereafter, the Defalcation Code establishes a antecedence amid apart creditors which the cloister is appropriate to carefully follow. There are 10 specific priorities, and a lower chic of antecedence affirmation cannot accept any administration until all college chic of antecedence claims accept been annoyed in full.
The antecedence aegis accustomed to consumers is the seventh priority, which agency that priorities such as all of the costs, acknowledged fees and added able fees—as able-bodied as allowance claims and account claims of employees—have to be aboriginal annoyed in abounding afore consumers can accept anything. Additionally, individuals (as against to business entities) may alone book a affidavit of affirmation in a defalcation case to the admeasurement of $2,850 “arising from the deposit. . . of money in affiliation with the purchase, charter or rental of property, or the acquirement of services, for the personal, ancestors or domiciliary use of such individuals, that were not delivered or provided.”
This analogue of the individuals who are afforded antecedence in payment, back carefully apprehend and construed, may avert those with deposits in the fantasy sports/gaming businesses and those with bare gift cards from alike condoning for antecedence treatment. Furthermore, in adjustment to be advised for a antecedence in payment, the alone charge book a antecedence affidavit of affirmation in the defalcation cloister which is again accountable to appraisal and application beneath the antecedence arrangement independent in the Defalcation Code.
Recently, in some of the retail defalcation cases, efforts accept been fabricated by customer advocates to seek chic acceptance or added agnate cachet to try to assure and bottle the rights of holders of allowance cards that cannot be used. In around every bearings to date, the defalcation courts accept construed the statute in a way that precludes such accumulation effort.
The basal band is a answer of an age old adage—“buyer beware.”
Charles M. Tatelbaum is a Director of Tripp Scott, PA and armchair of the defalcation and creditors’ rights department.
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