Download Your Client or Vendor Just Filed for Bankruptcy – Tips on What

Your Client or Vendor Just Filed For Bankruptcy
Tips On What Corporate Counsel Should Do Next
Ben Court
Bankruptcy and Creditor’s Rights
Stinson Leonard Street LLP
June 2, 2017
DEVELOPING A GAME PLAN
Step 1
Step 2
Step 3
Step 4
Step 5
• What Happened?
• What is My Relationship to the Debtor?
• What Does it Mean?
• What Happens Now?
• What Should I Do?
2
Step 1
WHAT HAPPENED?
3
THE BASICS
• Who filed?
• For what?
• Where?
• When did they file?
• How much do they owe you?
4
BANKRUPTCY CHAPTERS
12
6
CH 7 – COMMERCIAL & CONSUMER
• Liquidation of debtor’s non-exempt
assets
• Bankruptcy is administered by a trustee
• Discharge of pre-petition debts
(individual)
• Pro rata payment of claims
7
CH 11 – BUSINESSES / HIGH NET WORTH
• Reorganize the Debtor
• Debtor retains control of assets
• Restructure debts
• Debtor creates repayment plan
• Creditors get to vote on plan
8
CH 12 – FAMILY FARMERS
• Reorganize the Debtor
• Trustee has control but Debtor
maintains assets
• Restructure debts
• Creditors do not get to vote on plan
9
CH 13 – CONSUMER
• Reorganize the Debtor
• Trustee control and debtor maintains
assets
• Pay debts over time
• Generally 3 to 5 year plan
10
WHAT’S MY RELATIONSHIP
Step 2
TO THE DEBTOR?
• Vendor
• Customer
11
VENDOR
• Is the Debtor staying in business?
• Do I need to find a replacement
vendor?
• Does the Debtor owe me product or
services that I’ve already paid for?
• Do I owe the Debtor money?
12
CUSTOMER
• What type of Creditor am I?
–
–
–
–
Secured
Unsecured
Executory
Administrative
• Has the Debtor paid me money within
90 days?
• Does the Debtor owe me money?
13
SECURED CREDITOR
• Over or under secured
• Your collateral
• Interest payments
• Cash collateral
14
UNSECURED CREDITOR
• Creditors’ committee
• Pro rata payment
• Little control
• Last to get paid
15
EXECUTORY CREDITOR
• Contracts that have not been fully
•
•
•
•
performed by both parties
Leases for real estate and personal
property
Debtor can assume or reject the
contracts
If assume, must perform
If reject, you may have damages
16
ADMINISTRATIVE CREDITOR
• Special priority
• Goods shipped within 20 days
• Services provided post-petition
• Cure of breached contracts
17
OTHER PLAYERS
• Trustee
• Creditors’ Committee
• US Trustee
• Bankruptcy Judge
• Debtor / Debtor in Possession
18
Step 3
WHAT DOES THIS MEAN?
• Automatic Stay
• Getting your stuff back
• Giving stuff you have back
19
AUTOMATIC STAY
Debtor Presses the Pause Button
• Collections
• Lawsuits
• Repossession
• Eviction / Foreclosure
• Related threats
20
CONSEQUENCES FOR VIOLATION
• Actual Damages
• Attorneys’ Fees
• Punitive Damages
21
RELIEF FROM STAY
• For cause
• No debtor equity / No need to keep
• Get your collateral back
• Continue your lawsuit
22
WHAT IS A PREFERENCE?
Goods or
Service
Debt
Payment
Bankruptcy
23
CLAW BACK THE PAYMENT IF
RECEIVED WITHIN 90 DAYS
24
COMMON DEFENSES
1 Contemporaneous exchange
2 Ordinary course
3 New value
4 Small potatoes
25
CONTEMPORANEOUS EXCHANGE
1
• For new value
• Normal terms
• Intent matters
26
ORDINARY COURSE
2
For the parties
• Consistency
• Payment history
For the industry
• Common practice
• Entire segment
27
NEW VALUE
3
• New goods or services
• Provided by the creditor
• No new value paid by debtor
Event
Date
Amount
Running Tally of
Preference Exposure
Payment
Services
1/1
1/2 - 2/1
$1,000
($1,000)
$1,000
$0.00
Payment
Services
Payment
Services
2/1
2/2 - 3/1
3/1
3/2 - 4/1
$5,000
($2,800)
$1,000
(3,100)
$5,000
$2,200
$3,200
$100
28
NEW VALUE
Creditor Gives
New Value to Debtor
Debt Owed
Payment to
Creditor
Bankruptcy
Preference
29
4
SMALL POTATOES
30
TIPS TO AVOID PREFERENCES
Accounting
Invoice per the industry
standard
Collect receivables
consistently
Legal
Tell counsel about
financially shaky
customers - COD
Preserve financial
communications
Work on defenses
promptly
31
Step 4
WHAT HAPPENS NOW?
• File a claim
• Vote on a plan
• Get paid
32
PROOF OF CLAIM
• Check deadline to file
• Complete the official Form 401
• Include invoices
• Monitor for objections
33
THE PLAN
• Creditors vote
• Restructures the debt
• May involve modifications to amount paid,
interest rate charged or repayment term
• Paid pro rata and over time
• Debtor continues to operate
34
GETTING PAID
•
•
•
•
•
Liquidate of assets/363 sales
Claw back money
Value of collateral
Pro rata for unsecureds
Stand in priority line
35
Step 5
WHAT SHOULD I DO?
• Talk to a lawyer
• File a proof of claim
• Check for docket updates
• Pay attention – you snooze, you lose
36
ANY QUESTIONS
Ben Court
# 612.335.1615
[email protected]
© 2017 STINSON LEONARD STREET LLP \\ STINSON.COM
DISCLAIMER: This presentation is designed to
give general information only. It is not intended to
be a comprehensive summary of the law or to treat
exhaustively the subjects covered. This information
does not constitute legal advice or opinion. Legal
advice or opinions are provided by Stinson
Leonard Street LLP only upon engagement with
respect to specific factual situations.