
To this point there has likely been limited information provided, and it’s also likely you were blindsided, perhaps receiving a bankruptcy court notice in the mail. You need to get beyond the shock and do the following:
Vendors who provide goods to a customer for resale or incorporation into a product should first assess the timing and receipt of recent shipments by the customer, then consider the following:
Continuing to do business with the debtor is perhaps the most difficult decision you need to make but does not require court approval. If you choose continue doing business with the debtor, you will not be paid on your preexisting debts. You can, however, negotiate/demand new payment terms for goods sold post-petition, but you cannot be paid on prepetition debts as part of that negotiation.
One exception to the prepetition payment rule are payments to critical vendors. Vendors who provide unique or specialized goods that are not easily sourced from other suppliers can upon Debtor motion to the Court for approval obtain “Critical Vendor Status”. As a critical vendor you can be paid on prepetition obligations, based on the terms you negotiate.
Early in the bankruptcy process a meeting of creditors known as a 341 meeting will be held. This meeting is an opportunity for the debtor to explain his/her situation to the creditors and explain their plans. Vendors who are so inclined can attend and question the debtor. Either at this meeting or shortly thereafter the Office of the United States Trustee can if deemed appropriate form a committee of unsecured creditors. This committee is typically formed from a group of the largest unsecured creditors and oversees the proceeding on behalf of the entire body of unsecured creditors.
If you need additional information regarding the status of the case, one source is Pacer, an online court database which provides access to all of the filings in the matter.
Whether or not to retain your own bankruptcy counsel to act on your behalf will be driven by your exposure to the debtor both past and future. However, should you have any Leases or an executory contracts with the debtor your rights and need for information get heightened as the debtor will have the option to assume or reject these instruments. Therefore, if this is the case, you should seek your own bankruptcy counsel to assure your rights are protected.
Now the bad news, payments you have received in the 90 days prior to the bankruptcy filing may be subject of a preference action. This will essentially enable the debtor entity or Trustee to recover those payments. There are available defenses to a preference action, which we have discussed in this article, Customer Bankruptcies and the Unfortunate Tale of the Preference Claim.
In conclusion, if you are a creditor who finds himself or herself during a Bankruptcy proceeding you need to act quickly and deliberately to protect your rights. Understanding your options and being able to navigate the process, will maximize your recovery. We at Withum are here to help you navigate this process.
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