In re Orexigen Therapeutics, Inc.

Re: D.I. 654

KEVIN GROSS, U.S.B.J.

The Court is ruling on McKesson Corporation's ("McKesson") and its wholly owned subsidiary McKesson Patient Relationship Solutions' ("MPRS") Motion for an Order Determining that McKesson is Entitled to the Disputed Funds (the "Motion")

*12(D.I. 654). McKesson seeks to affect a setoff under section 553 of the Bankruptcy Code.1 Specifically, McKesson asks to offset its $6,932,816.40 debt to the Debtor under the Core Distribution Agreement ("Distribution Agreement") based on the Debtor's approximately $9,100,0002 debt to MPRS under the Master Services Agreement ("Services Agreement"). For the reasons that follow, the Court finds that McKesson is seeking a triangular setoff which is prohibited in bankruptcy due to the lack of mutuality. An enforceable contractual right allowing a parent and its subsidiary corporation to affect a prepetition triangular setoff under state law does not supply the strict mutuality required in bankruptcy. The Court will therefore deny the Motion for the reasons that follow.

BACKGROUND

The material facts are relatively undisputed. The Debtor was3 a biopharmaceutical company that manufactured Contrave®, a drug that treats obesity. Declaration of Michael A. Narachi ("Narachi Dec."), D.I. No. 3, ¶¶ 8, 11. The United States Food and Drug Administration approved Contrave® in 2014. Id. ¶ 8. Prepetition, the Debtor entered into two agreements relevant here: one with McKesson, and one with MPRS. Declaration of Erin Beesley ("Beesley Dec."), D.I. No. 655, ¶ A-3-5. McKesson is the parent corporation and MPRS is its subsidiary corporation. Beesley Dec. ¶ 1. It is undisputed that McKesson and MPRS are legally distinct entities.

On June 9, 2016, effective June 1, 2016, the Debtor entered into the Distribution Agreement with McKesson, which contemplated that McKesson would purchase and distribute Contrave® to various pharmacies in the United States. The parties agreed that California law would control the terms of the agreement:

VII. General

...

b. This Agreement will be governed by and construed in accordance with the laws of California, without regard to or application of conflict of law, rules or principles.

Motion, ¶ 23. More pertinently, the parties agreed that McKesson had certain rights, including a right to set off debts owed between the Debtor and its affiliates against debts owed between McKesson and its affiliates:

*13VII. General

...

i. Notwithstanding anything to the contrary in this Agreement, each of McKesson Corporation and its affiliates is hereby authorized to set-off , recoup and apply any amounts owed by it to Manufacturer's [the Debtor's] affiliates against any all [sic ] amounts owed by Manufacturer or its affiliates to any of McKesson Corporation or its affiliates, without prior written notice[.]

Motion, ¶ 4 (emphasis added) (citation omitted). As of the petition date, McKesson owed the Debtor $6,932,816.40 under the Distribution Agreement. Motion, ¶ 16.

On July 15, 2016, the Debtor entered into the Services Agreement with MPRS, which contemplated that MPRS would manage the Debtor's LoyaltyScript® program. Beesely Dec. ¶ 5. The LoyaltyScript® program enabled patients to receive price discounts on Contrave® from retail pharmacies. MPRS would pay the retail pharmacies and patients for the Contrave® price discounts and other services under the LoyaltyScript® program. Consequently, the Debtor would reimburse MPRS. The Services Agreement does not incorporate or relate to the Distribution Agreement; they are wholly distinct. As of the petition date, the Debtor owed MPRS approximately $9,100,000 (see footnote 2, supra ).

On March 12, 2018, the Debtor voluntarily filed a petition for relief under Chapter 11. Thereafter, the Debtor, McKesson, and MPRS entered into three stipulations that culminated in the Motion at issue here. On April 11, 2018, the Court entered an order approving a stipulation between the Debtor and MPRS (the "April Stipulation") (D.I. 176-1). The April Stipulation provided, inter alia , that: the Debtor would pay MPRS the sum of $6,027,155 on account of the post-petition reimbursements MPRS remitted under the LoyaltyScript® program (Id. , Ex. 1, at ¶ 1); the Debtor would make weekly payments of $1,675,000 to MPRS (Id. , at ¶ 2); but none of the foregoing payments would apply to MPRS's prepetition claim (Id. , at ¶ 1); and MPRS holds a prepetition claim of approximately $9,100,000 against the Debtor under the Services Agreement (Id. , at ¶ G).

On May 18, 2018, the Court entered an order approving a stipulation between the Debtor, McKesson and MPRS (the "May Stipulation") (D.I. 319-1). The May Stipulation provided, inter alia , that as of the petition date, McKesson owed the Debtor $6,932,816.40 under the Distribution Agreement (Id. , at 2). Post-petition, the Debtor paid McKesson $3,266,255.76 on account of such debt but reserved its right to offset the entire $6,932,816.40 amount (Id. ). McKesson agreed to pay the remaining $3,666,560.64 satisfying its entire prepetition obligation under the Distribution Agreement subject to preservation of its setoff right concerning the debt owed to MPRS against McKesson's debt to the Debtor (Id. , ¶¶ 2, 4, and 5).

On July 20, 2018, the Court entered an order approving a stipulation between the Debtor, McKesson, and the Lenders4 (the "July Stipulation") (D.I. 592-1). The July Stipulation provided, inter alia , that McKesson would be allowed to file the Motion at issue here (Id. , ¶ 2); and the Debtor would segregate $6,932,816.40 (the "Disputed Funds") pending resolution of McKesson's Motion (Id. , ¶ 3).

On July 30, 2018, pursuant to the terms of the July Stipulation, McKesson filed the Motion at issue along with the Declaration *14of Erin Beesley in Support of Motion for an Order Determining that McKesson is Entitled to the Disputed Funds (D.I. 655). On August 21, 2018, the Noteholders5 filed their opposition to the Motion in which McKesson sought a ruling that McKesson Specialty Arizona ("MPRS") was entitled to the disputed funds (D.I. 697). On the same day, the Debtor filed the Debtor's Objection to the Motion (D.I. 698) along with the Declaration of Thomas P. Lynch in Support of Debtor's Objection to the Motion. (D.I. 699). On August 31, 2018, McKesson filed McKesson's Reply (D.I. 710). On October 24, 2018, the Court heard oral argument from McKesson/MPRS, the Debtor, and the Noteholders on the Motion. The Motion has been fully briefed and was well argued. Thus, the Motion is ripe for the Court's decision.

JURISDICTION

The Court has jurisdiction over this matter and the judicial authority to enter a final order pursuant to 28 U.S.C. §§ 1334(b), 157(a), and (b)(1). Venue is proper in the District of Delaware pursuant to 28 U.S.C. §§ 1408 and 1409. Consideration of this motion is a core proceeding under 28 U.S.C. § 157(b)(2)(A), (B), and (O).

DISCUSSION

Setoff is a contractual or equitable right that "allows entities that owe each other money to apply their mutual debts against each other, thereby avoiding 'the absurdity of making A pay B when B owes A.' " Citizens Bank of Maryland v. Strumpf , 516 U.S. 16, 18, 116 S.Ct. 286, 133 L.Ed.2d 258 (1995) (quoting Studley v. Boylston Nat'l Bank , 229 U.S. 523, 528, 33 S.Ct. 806, 57 L.Ed. 1313 (1913) ). The Bankruptcy Code's Section 553(a) does not create a federal right of setoff but merely recognizes such party's right under state law. Id. Section 553(a) "sets forth a general rule, with certain exceptions , that any right of setoff that a creditor possessed prior to the debtor's filing for bankruptcy is not affected by the Bankruptcy Code." Id. at 20 (emphasis added). Section 553(a) states in relevant part, that:

Except as otherwise provided in this section and in sections 362 and 363 of this title, this title does not affect any right of a creditor to offset a mutual debt owing by such creditor to the debtor that arose before the commencement of the case under this title against a claim of such creditor against the debtor that arose before the commencement of the case ....

(Emphasis added).

Whether a party has a setoff right under section 553 is a twofold inquiry. First, the party seeking setoff must acquire such right prepetition under applicable nonbankruptcy law. In re Lehman Bros. Inc. , 458 B.R. 134, 139 (Bankr. S.D.N.Y. 2011) (" 'section 553 ... preserve[s] any right of setoff that may exist under applicable nonbankruptcy law.' ") (quoting In re Lehman Bros. Holdings, Inc. , 433 B.R. 101, 107 (Bankr. S.D.N.Y. 2010) (citation omitted); accord In re Am. Home Mortgage, Holdings, Inc. , 501 B.R. 44, 55 (Bankr. D. Del. 2013) (citation omitted). Second, once a party establishes its setoff right, that party must then "meet[ ] the further code-imposed requirements and limitations set forth in section 553." In re SemCrude, L.P. , 399 B.R. 388, 393 (Bankr. D. Del. 2009) (citing *15Packaging Indus. Grp. Inc. v. Dennison Mfg. Co. Inc. (In re Sentinel Prod. Corp. Inc.) , 192 B.R. 41, 45 (N.D.N.Y. 1996) ) (emphasis added).

Setoff Right Under Applicable Nonbankruptcy Law

The parties do not dispute that McKesson had a prepetition setoff right pursuant to section VII.i. of the Distribution Agreement. Because the Debtor and the Noteholders do not dispute McKesson's prepetition setoff right under California law, the Court proceeds with the assumption that McKesson had such right.

Section 553(a) Analysis

McKesson must now meet the further requirements of Section 553(a) that: (1) the party seeking setoff must be a "creditor;" and (2) that party must have a "mutual debt" where that party's debt to the debtor arose prepetition and that party's claim against that same debtor arose prepetition.

"Creditor" under Section 553(a)

Section 101(10)(A) defines a "creditor" as an "entity that has a claim against the debtor that arose at the time of or before the order for relief concerning the debtor." Under section 101(5)(A), a "claim" is a "right to payment." In the Motion, McKesson seems to assume it is a creditor. In their objections, the Debtor and the Noteholders did not extensively argue that McKesson is not a creditor. However, during oral argument, the Debtor made the argument that McKesson was not. See Tr. of Hr'g on Oct. 24, 2018 (D.I. 804, at 19-20) ("Ms. Mumford:6 ... Again, Your Honor, McKesson, [a] non-creditor, [is] seeking to set off MPRS's alleged claim.") ). The Noteholders made the same argument. (Id. , at 36) ("Mr. Murphy:7 ... Firstly, as noted, the party that's asserting the right to setoff is not a creditor.") ). Unsurprisingly, McKesson opposed such view. (Id. , at 51) ("Mr. Garfinkle:8 ... First is an argument made that McKesson is not a creditor. Wrong - dead wrong. I direct the court's attention to the core distribution agreement. On the petition date, McKesson was a creditor.") ).

Distilling the merits, McKesson asserts it is a creditor because, as of the petition date, it had a $6,932,816.40 claim against the Debtor under the Distribution Agreement. However, the Debtor and the Noteholders contend McKesson is not a creditor because pursuant to the May Stipulation, McKesson paid off this debt to the Debtor, thus extinguishing its claim. (D.I. 804, at 31) ("The Court: Am I correct that McKesson has paid the debtor? Mr. Garfinkle: Yes, Your Honor. The Court: The $6.9 million dollars? ... Ms. Mumford: Your Honor, it was paid and the money is being held from [the] sale proceeds.") ); (Id. , at 36) ("Mr. Murphy: That is that the funds [the $6.9 million] were paid by McKesson ...") ).

"[C]ourts have held that a setoff cannot exist when the creditor pays the debt because '[o]nce a debt is paid it is no longer owed, and therefore the required mutual debts do not exist.' United States v. Morris (In re McCormick), 1993 WL 246001, at *2 (D. Kan. 1993) ; Nat'l Bank of Boaz v. Royal Crown Bottling Co. of Boaz, Inc. (In re Royal Crown Bottling Co. of Boaz, Inc.) , 29 B.R. 52, 54 (Bankr. N.D. Ala. 1981) (any right of setoff 'was a right which could be exercised only before [payment of the] sum to the trustee, which is another way of saying that this payment *16by [the bank] extinguished any such right which it might have had.')." In re Reliance Acceptance Grp., Inc. , 2000 WL 33712305, at *3 (Bankr. D. Del. Dec. 6, 2000). McKesson no longer had a "claim" against the Debtor when it paid the Debtor $6,932,816.40 under the Distribution Agreement. At that time, McKesson, lacking a "claim," could not be a "creditor" under section 101(10)(A) and thus section 553(a).

The court's decision by Judge Walsh in Reliance Acceptance is not entirely fatal to McKesson. There, the issue was whether Williams had a setoff right against Reliance after paying off his debt. Judge Walsh opined: "it seems clear to me that Williams lost his right to assert a setoff when he voluntarily paid his loan to Reliance in full. By paying his indebtedness Williams extinguished his liability to Reliance..." Id. However, Judge Walsh determined that Williams' repayment was voluntary and not at the direction of a bankruptcy court order or at a bankruptcy trustee's request. Id. He qualified his holding by finding that "a creditor's right to assert setoff may survive [where] there is no intent to extinguish[ ] the underlying liability which gives rise to the requisite mutuality of obligation. See, e.g., In re Public Serv. Co. of New Hampshire v. New Hampshire Elec. Coop., Inc. (In re Public Serv. Co. of New Hampshire) , 884 F.2d 11, 13 (1st Cir. 1989) (payment of indebtedness pursuant to a bankruptcy court judgment does not render the creditor ineligible to seek setoff where creditor otherwise asserted and maintained its rights)." Id.9

McKesson's position is saved by the May and July Stipulations. The May Stipulation provides that McKesson's payment in satisfaction of the Distribution Agreement is subject to its preservation of its setoff right as to the entire Disputed Funds. (D.I. 319-1, ¶¶ 2, 4, and 5). The July Stipulation provides for the segregation of the Disputed Funds so McKesson/MPRS can file the Motion at issue. (D.I. 592-1, ¶¶ 2 & 3). McKesson agreed to pay off its debt to the Debtor and thereby extinguish its claim only because it could preserve its setoff right, reserve its ability to file the Motion, and have the Disputed Funds segregated. Given the factual posture, McKesson would likely not have paid off its entire prepetition debt under the Distribution Agreement but for such reservation of rights. While this case can be distinguished from Reliance Acceptance because McKesson did not intend to extinguish its debt by stipulation as opposed to a bankruptcy court order or at the direction of the bankruptcy trustee, the Court finds that Judge Walsh's overarching point in Reliance Acceptance is well-taken.

For those reasons, the Court finds that McKesson may have been a "creditor." Although the parties did dispute whether McKesson was a "creditor," they gave short-shrift in their papers to the issue compared to the mutuality arguments which the Court discusses below. They did not fully brief this issue. It is only fair to consider McKesson to be a "creditor" given the May and July Stipulations without which the Court would not deem McKesson to be a creditor.

Mutuality under Section 553(a)

Once a party has a prepetition setoff right under applicable nonbankruptcy law, that party must then meet "[t]he additional restrictions imposed by section 553 [which are] well-settled." SemCrude , 399 B.R. at 393 (citing *17Scherling v. Hellman Elec. Corp. (In re Westchester Structures, Inc.) , 181 B.R. 730, 738-39 (Bankr. S.D.N.Y. 1995) ). The plain language of Section 553(a) only allows a creditor to offset a "mutual debt." There is no statutory definition of "mutuality" or a "mutual debt" under the Bankruptcy Code. However, state10 and federal courts have found to a fare-thee-well that debts are " 'mutual' only when 'they are due to and from the same persons in the same capacity.' " Id. (citing Westinghouse Credit Corp. v. D'Urso , 278 F.3d 138, 149 (2d Cir. 2002) (citing Westchester Structures , 181 B.R. at 740 ) ); Lehman Bros. , 458 B.R. at 140 (citing Lines v. Bank of Am. Nat'l Trust & Sav. Ass'n , 743 F.Supp. 176, 183 (S.D.N.Y. 1990) (internal quotation marks and citations omitted) ("The Bankruptcy Code does not define mutuality, but courts consistently find debts to be mutual only when they are 'in the same right and between the same parties, standing in the same capacity.' ") ); In re Garden Ridge Corp. , 338 B.R. 627, 634 (Bankr. D. Del. 2006) (citing Braniff Airways, Inc. v. Exxon Co., U.S.A. , 814 F.2d 1030, 1036 (5th Cir. 1987) (" 'For mutuality to exist, each party must own his own right severally, with the right to collect in his own name against the debtor in his own right and severally.' "); see also Newbery Corp. v. Fireman's Fund Ins. Co. , 95 F.3d 1392, 1398-99 (9th Cir. 1996) (same); Davidovich v. Welton (In re Davidovich) , 901 F.2d 1533, 1537 (10th Cir. 1990) (same).

Under section 553(a), "mutuality is strictly construed against the party seeking setoff." SemCrude , 399 B.R. at 396 (citation omitted); Garden Ridge , 338 B.R. at 634 (citation omitted) (same); In re Am. Home Mortgage Holdings, Inc. , 501 B.R. 44, 56 (2013) (citation omitted) (same). Moreover, the creditor seeking setoff has the burden of proof on the mutuality requirement. Garden Ridge , 338 B.R. at 632 (citing In re Lason, Inc. , 314 B.R. 296, 305 (Bankr. D. Del. 2004) ; In re Bennett Funding Grp., Inc. , 212 B.R. 206, 212 (2d Cir. BAP 1997) ); see also Lehman Bros. , 458 B.R. at 140 (citation omitted) (same). The Bankruptcy Court's sound discretion governs the allowance of a setoff. Garden Ridge , 338 B.R. at 632 (citing In re Cont'l Airlines , 218 B.R. 324, 328 (D. Del. 1997) (citing United States, Internal Revenue Service v. Norton , 717 F.2d 767, 772 (3d Cir. 1983) ) (additional citations omitted) ).

Here, under the foregoing authorities, McKesson does not have a mutual debt under section 553(a). As of the *18petition date, McKesson owed the Debtor $6,932,816.40 and the Debtor owed MPRS approximately $9,100,000. Post-petition, McKesson paid the debt in its entirety. Now, McKesson seeks to claw back its payment through a triangular setoff. A triangular setoff is a setoff between an affiliate of a contractual party and the counter-contractual party. McKesson's argument is that because the Debtor owes MPRS in excess of the amount of the Disputed Funds under the Services Agreement, section 553(a) enables McKesson to set off the MPRS claim against McKesson's payment under the Distribution Agreement. However, McKesson runs into fatal contrary bankruptcy precedent. A triangular setoff is impermissible under section 553(a) without mutuality. In SemCrude , Judge Shannon's explanation is instructive and the Court agrees:

Because of the mutuality requirement in section 553(a), courts have routinely held that triangular setoffs are impermissible in bankruptcy; See, e.g., Matter of United Sciences of Am., Inc. , 893 F.2d 720, 723 (5th Cir. 1990) ('The mutuality requirement is designed to protect against 'triangular' set-off; for example, where the creditor attempts to setoff debt to the debtor with the latter's debt to a third party.'); In re Elcona Homes Corp. (Green Tree Acceptance, Inc.) , 863 F.2d 483, 486 (7th Cir. 1988) (holding that the Code speaks of 'mutual debt' and 'therefore precludes 'triangular' set offs').

SemCrude , 399 B.R. at 393. The District Court agreed and affirmed Judge Shannon. See In re SemCrude, L.P. , 428 B.R. 590, 594 (D. Del. 2010) ("As the Bankruptcy Court correctly recognized, the mutuality required by Section 553 'cannot be supplied by a multi-party agreement contemplating a triangular setoff.' ") (citation omitted).

Furthermore, McKesson is the parent corporation and MPRS is its subsidiary corporation. They are legally distinct entities. Thus, their corporate structure poses another issue preventing McKesson from affecting a triangular setoff. The Court wholly agrees with Judge Shannon's assessment on this point:

Moreover, because each corporation is a separate entity from its sister corporations absent a piercing of the corporate veil, a 'subsidiary's debt may not be set off against the credit of a parent or other subsidiary, or vice versa, because no mutuality exists under the circumstances.' Sentinel Products Corp. , 192 B.R. [41,] 46 [ (N.D.N.Y. 1996) ] (citing MNC Commercial Corp. v. Joseph T. Ryerson & Son, Inc. , 882 F.2d 615, 618 n. 2 (2d Cir. 1989) ). Allowing a creditor to offset a debt it owes to one corporation against funds owed to it by another corporation-even a wholly-owned subsidiary -would thus constitute an improper triangular setoff under the Code.

Id. at 393-94 (emphasis added).11 McKesson recognizes this problem as it cites SemCrude and Lehman Bros. for propositions that setoff under section 553(a) requires a mutual debt and that triangular setoffs are improper under the Bankruptcy Code. See Motion, ¶ 42 ("McKesson is confident that the Lenders will refer to similar decisions."); McKesson's Reply in Support of Motion for an Order Determining that McKesson is Entitled to the Disputed Funds (the "Reply"), ¶ 1 (citing its Motion in the footnote, from which the Court just quoted) ("[The Lender Parties] go on and *19on about the fact that there are a large number of published decisions that reach conclusions contrary to the relief requested in the Motion. That is undisputed; to the contrary, McKesson admits it in the Motion."). However, McKesson mistakenly contends that those decisions were not based "on proper controlling Supreme Court and Third Circuit precedent and governing principles." Id.

Mutuality is defined under state law. Garden Ridge , 338 B.R. at 633 (citing In re Czyzk , 297 B.R. 406, 409 (Bankr. D. N.J. 2003) ); In re Sunset Aviation , 468 B.R. 641, 647 (Bankr. D. Del. 2011) ("[T]he right of setoff requires mutuality between the debtor and the creditor under the applicable state law."). However, several state and federal courts consistently define "mutual debt" or "mutuality" uniformly. In a nutshell, McKesson argues that when a creditor seeks to affect a setoff, the Bankruptcy Court's inquiry must begin and end with state law. That is, state law determines whether a creditor has a setoff right and also governs whether mutuality exists. Thus, McKesson's view that because California law governs the Distribution Agreement and California, according to McKesson, allows for an agreement between a parent and subsidiary to supply the requisite mutuality the latter needs to "be deemed a mutual debtor-creditor of the parent," a triangular setoff is permitted under section 553(a). Motion, ¶ 15 (citation omitted). For the following reasons, the Court rejects McKesson's argument as a matter of law and policy.

McKesson's point of departure is a precedential bankruptcy case, Butner v. United States , 440 U.S. 48, 55, 99 S.Ct. 914, 59 L.Ed.2d 136 (1979). Butner held that state law, not a federal law or a rule of equity, determined whether a security interest in property extends to rents and profits derived from the property. Id. at 48, 99 S.Ct. 914. Butner is eminent for its proposition that state law rights are respected in bankruptcy absent a contrary bankruptcy rule or policy. In its analysis, the Supreme Court explained with the oft-cited language:

Property interests are created and defined by state law. Unless some federal interest requires a different result, there is no reason why such interests should be analyzed differently simply because an interested party is involved in a bankruptcy proceeding. Uniform treatment of property interests by both state and federal courts within a State serves to reduce uncertainty, to discourage forum shopping, and to prevent a party from receiving a 'windfall merely by reason of the happenstance of bankruptcy.'

Id. at 55, 99 S.Ct. 914 (emphasis added) (citation omitted).

The Court agrees that McKesson had a prepetition setoff right. McKesson, lacking the mutuality requirement, uses Butner to support its assertion that its Distribution Agreement under California law permits a triangular setoff in bankruptcy. McKesson relies on a California Supreme Court case, Prudential Reinsurance Co. v. Superior Court , 3 Cal.4th 1118, 14 Cal.Rptr.2d 749, 842 P.2d 48 (1992). Extraordinarily, McKesson relies on one sentence, which is dicta :12 "Accordingly, we refuse to expand *20the section 1031 setoff of debts in the absence of an express mutual agreement that the subsidiary would be deemed a mutual debtor-creditor of the parent (See, e.g., In re Berger Steel Company (7th Cir. 1964) 327 F.2d 401 ; Black & Decker Mfg. Co. v. Union Trust Co. (1936), 53 OhioApp. 356, [4 N.E.2d 929].)." Id., 14 Cal.Rptr.2d 749, 842 P.2d at 60.

In Prudential Reinsurance , the California Supreme Court held in the affirmative concerning "whether reinsurance debts and credits generated between a reinsurer and the original reinsurer, under the terms of their reciprocal reinsurance contracts, may be set off pursuant to section 1031 [of the Insurance Code], when the original insurer becomes insolvent." Id., 14 Caal.Rpptr.22d 749, 842 P.2d at 50 & 52. Most aptly, the court explained "the key to setoff [under Insurance Code section 1031] is the requirement of mutuality, under which the debts must be due to and from the same persons in the same capacity." Id., 14 Cal.Rptr.2d 749, 842 P.2d at 53. Moreover, the California Court held that the debts must be mutual in three respects: (1) "the debts must be owed contemporaneously with, or prior to issuance of, the liquidation order;"