Online Creditor Voting: Coming Soon to a Bankruptcy Case Near You?

While it’s still possible to buy new albums on vinyl, music is now usually downloaded. Despite a small subset of people who still watch VHS tapes, movies are watched on DVDs or increasingly are streamed online. But like many people and businesses dealing with the U.S. court system, creditors voting on a bankrupt company’s restructuring plan still receive old-fashioned paper stuffed in old-fashioned envelopes sent to old-fashioned mailboxes.

Now, even that is changing.

With the help of tech-friendly claims agent UpShot Services LLC, antifreeze maker Pitt Penn Holding Co. has filed what’s thought to be the first-ever set of fully electronic vote solicitation procedures, with creditors having the option to vote via an online, electronic transmission rather than having to fill out paper forms sent in the mail.

Instructions for creditors of Pitt Penn, one of the subsidiaries of James Margulies’s Industrial Enterprises of America Inc. before Mr. Margulies was sentenced to 21 years in jail for securities fraud related to the company, are simple: Fill out an online form accepting or rejecting the plan, enter the pertinent information like name, phone number and tax ID, and click send.

In the voting procedures, filed earlier this month with U.S. Bankruptcy Court in Wilmington, Del., creditors are pointed to a website where they can file the electronic ballot.

“You do not also need to submit a hard-copy original,” says the filing, which a judge will consider approving at a hearing next month. Creditors can still mail in their ballots, although it’s noted in the filing that voting by fax or email is prohibited.

“The language is simple, but that is intentional,” Robert Klamser, one of UpShot’s co-founders, told Bankruptcy Beat. “We don’t want electronic balloting to seem like a burdensome addition to the process. It should be easy for attorneys to understand and include in procedures, easy for creditors to use and obvious for judges to approve,” added Mr. Klamser, who used to work at Kurtzman Carson Consultants LLC, one of the more traditional claims agents.

Mr. Klamser and his co-founder, Travis K. Vandell, started UpShot because they saw a need for bankruptcy administrators to embrace today’s technology. The Denver-based company already has a handful of cases, including Saab Cars North America Inc. and Revstone Industries LLC.

In the largest, complex bankruptcy cases, the actual filing of paper claims still presents a big expense.

Mr. Klamser estimates that a completely electronic claims process could save a debtor 90% or more on its claims costs.

Most of the large claims agents, like KCC, have been adding electronic components to their businesses. But fully electronic claims—especially in cases with billions of dollars in claims like that of Lehman Brothers—still seem a long way away. If approved by a judge, Pitt-Penn’s online creditor voting process would be an important step toward doing away with one of the costly aspects of Chapter 11.

“In bankruptcy, it’s so, so paper heavy,” Mr. Klamser said.

Write to Joseph Checkler at [email protected]. Follow him on Twitter at @JoeCheckler.