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WANDA BORGES, ESQ. BORGES & ASSOCIATES, LLC 575 UNDERHILL BLVD. SYOSSET, NY 11791 516-677-8200 x 225 0 TRMG - BUSINESS WITH A DEBTOR.

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Presentation on theme: "WANDA BORGES, ESQ. BORGES & ASSOCIATES, LLC 575 UNDERHILL BLVD. SYOSSET, NY 11791 516-677-8200 x 225 0 TRMG - BUSINESS WITH A DEBTOR."— Presentation transcript:

1 WANDA BORGES, ESQ. BORGES & ASSOCIATES, LLC 575 UNDERHILL BLVD. SYOSSET, NY 11791 516-677-8200 x 225 borgeslawfirm@aol.com 0 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011

2  Debtor obtains First Day Orders  Creditors’ Committee is Formed  Debtor Operates as a Debtor-in-Possession  SOMETIMES there is a Sales of Assets  PLAN OF REORGANIZATION/LIQUIDATION  ACCEPTANCE  CONFIRMATION  EMERGENCE FROM CHAPTER 11 1

3 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  FORMATION OF CREDITORS’ COMMITTEE ◦ Generally 7 largest unsecured creditors ◦ Prepetition committee may be appointed ◦ Party in interest may petition court to change membership of the committee ◦ Small business may be added ◦ More than one committee may be appointed 2

4 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  FUNCTION OF CREDITORS’ COMMITTEE ◦ Investigate into the Financial Affairs of the Debtor  Prior to Chapter 11 Proceeding  During Chapter 11 Proceeding ◦ Negotiate a Plan of Reorganization  Debtor has a viable business and can reorganize with payments to creditors ◦ Negotiate a Liquidation/Sale  Debtor cannot survive in business  Sell all the assets to a third party as a “going concern”  Sell all the assets piecemeal. 3

5 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  POST-PETITION SALES are PRIORITY ADMINISTRATIVE EXPENSES ◦ On an even footing with ALL other priority administrative expenses, including attorneys’ fees, accountants’ fees, post-petition wages, etc. 4

6 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 POST-PETITION SALES – FIRST STEPS ◦ NOT necessary to obtain a new credit application  All financial information will be available through the court filings ◦ The DIP is a new/different legal entity  Don’t mix old credits with new transactions 5

7 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 EXTENDING CREDIT TO A DIP ◦ If you extend credit there is the risk that you can be “burned” twice ◦ Don’t accept any payments on pre-petition debts UNLESS there is a court order ◦ Don’t let a DIP account get old  Requires constant monitoring 6

8 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 SELLING TO A CHAPTER 11 DEBTOR [Can the DIP Pay its Bills?]  First Day Motion to Obtain Financing or Use Cash Collateral provides substantial financial information ◦ Read declaration/affidavit/affirmation in support of First Day Motions  Budget appended to Financing Motion or Motion to Use Cash Collateral tells you what the DIP cash flow is expected to be  Monthly Operating Reports give monthly data on an ongoing basis 7

9 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Important Information for Creditor Contemplating Sales to the Debtor-in- Possession ◦ DIP FINANCING MOTION  Lets you know how much cash the debtor will obtain  Read the Financing Stipulation for terms of borrowing  “Carve Out” for US Trustee, Committee Professionals, Other Professionals  What kind of security is given the Lender  Read the Budget 8

10 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Important Information for Creditor Contemplating Sales to the Debtor-in- Possession ◦ MOTION TO USE CASH COLLATERAL – money received by the debtor from the sale of its assets  Lets you know the bank is unfriendly  Bank sometimes objects  Debtor needs its cash to buy new product to sell  Budget most important to determine what kind of cash DIP will have to buy new products  Look for other points similar to Financing Order 9

11 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 SELLING TO A CHAPTER 11 DEBTOR  Monthly Operating Reports give monthly data on an ongoing basis ◦ Receipts and Disbursements ◦ a/r reconciliation and aging ◦ a/p and secured payments report ◦ Inventory and Fixed Assets Report ◦ Summary of Bank Activity ◦ Check Register ◦ Detail of Investment Accounts, Petty Cash, Report of Taxes Owed and Due ◦ Officer or Owner Compensation ◦ Significant Developments 10

12 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 SELLING TO A CHAPTER 11 DEBTOR  Considerations if you have a 503(b)(9) Priority Administrative Claim  Considerations if You are a Critical/Essential Vendor  Considerations if you have a pre-petition security interest  Considerations if you are merely a pre-petition unsecured creditor 11

13 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  BEFORE YOU DECIDE TO SELL TO A DIP, PROTECT YOUR PRE-PETITION CLAIM ◦ Are you a Critical/Essential Vendor? ◦ Do you have a Personal Guaranty? ◦ Did you receive any preference payments? 12

14 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 CRITICAL VENDOR ORDERS ●Doctrine of Necessity ● Creditor essential to debtor’s business operations ● Debtor will be forced to buy goods for cash in advance or COD 13

15 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 CRITICAL VENDOR ORDERS ●Cost of goods or services from different vendor much greater ●Debtor cannot get goods or services anywhere else ●Debtor has favorable contract with vendor ●Vendor threatening not to sell to debtor at all 14

16 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 Considerations if You are a Critical/Essential Vendor SELLING TO A CHAPTER 11 DEBTOR Considerations if You are a Critical/Essential Vendor ◦ Are you getting paid in full for your pre-petition claim? ◦ Are you receiving some of your money now and some later? ◦ Debtor’s attempt to bind you to prepetition standard terms and conditions ◦ Debtor’s attempt to bind you to prepetition credit extension 15

17 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 CRITICAL VENDOR RECENT DECISION  In re Corner Home Care, Inc. (U.S. Bankruptcy Court, Western District, Kentucky)  Critical Vendor Relief Denied ◦ No proof that Debtor could not obtain goods from vendor’s competitors ◦ No proof that vendor would not sell to Debtor on any terms ◦ No proof that vendor was obligated to continue selling to Debtor 16

18 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 CRITICAL VENDOR ORDERS ● QUID PRO QUO ● Creditors receiving critical vendor status must agree to extend post-petition credit ● other requirements 17

19 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 CRITICAL VENDOR DEMANDS BY THE DIP ■agree to continue to supply goods and services based on “Customary Terms” ■Continue to supply goods or services on an uninterrupted basis ■No credit limit or cap 18

20 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 CRITICAL VENDOR DEMANDS BY THE DIP SAMPLE (Cooper Automotive) “On the Filing Date, the Debtors requested authority to pay pre-bankruptcy claims of certain suppliers in recognition of the importance of the Debtors’ relationships with these suppliers… order authorizing the Debtors, under certain conditions, to pay the prepetition claims of certain trade creditors that agree to the terms set forth below and to be bound by the terms of the Final Order” 19

21 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 CRITICAL VENDOR ORDERS ● Only Debtor determines who will be deemed critical ● Accept no payments without a court order ● Not always granted 20

22 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 SELLING TO A CHAPTER 11 DEBTOR CAVEAT!!!!!! ■Acceptance of payment and Agreement to Terms IS BINDING UPON CREDITOR ■Creditor who arbitrarily changes its mind: ▪Creditor to repay all prepetition money it has been paid ▪ Creditor can be held in contempt 21

23 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 SELLING TO A CHAPTER 11 DEBTOR AS A CRITICAL VENDOR: PREFERENCE ISSUES ■Payment received AFTER the critical vendor order is signed is NOT recoverable as a preference ■ Payment received PRIOR to the bankruptcy filing and during the 90 day preference period MAY be recoverable as a preference ▪Creditor should insist on a preference waiver in its contract with the debtor 22

24 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  DEFINITION ◦ ONE WHERE SOME FUTURE ACT IS TO BE DONE (Black’s Law Dictionary) ◦ ONE IN WHICH A PARTY HAS MATERIAL UNPERFORMED OBLIGATIONS (Wikipedia) ◦ No definition in the Bankruptcy Code 23

25 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Requirements Agreement  Consignment Agreement  Service Agreement 24

26 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  11 U.S.C. §365(d)(2) authorizes a debtor to assume or reject any executory contract subject to court approval ◦ Defaults must be cured or adequate assurance must be provided ◦ Creditor must be compensated for any actual pecuniary damage due to default ◦ Adequate assurance of future performance must be given 25

27 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  DEFINITIONS ◦ ASSUMPTION  all prepetition monies paid  Adequate assurance of future performance ◦ REJECTION  contract is terminated  No future action  Creditors’ prepetition claim becomes a general unsecured claim 26

28 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Debtor has absolute right to assume or reject  No strict deadline  Debtor must decide before Plan Confirmation 27

29 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Motion to Compel may be filed  11 U.S.C. §365(d) provides: ◦ On request of any party to contract ◦ Court may order the trustee/debtor to determine within specified period of time to assume or reject such contract 28

30 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Creditor doesn’t want to be stuck with contract  Creditor wants to work with another entity  Contract is really unfavorable  Creditor wants/needs to get paid its prepetition debt 29

31 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Importance of Contract to Debtor’s business and reorganization  Debtor’s failure or ability to satisfy post-petition obligations  Damage the non-debtor will suffer  Exclusivity intact or terminated  Has debtor had sufficient time to appraise its financial situation 30

32 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Debtor may agree to release creditor from contract  Creditor may be able to negotiate more favorable terms  Debtor may agree to deadline  Cases of Note: ◦ Quebecor ◦ Lyondell ◦ Cooper 31

33 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Failure to fulfill terms of any executory contract can find the creditor in contempt of automatic stay  Long Term Contracts = Executory Contracts  Court may issue OSC to hold creditor in contempt ◦ Metaldyne ◦ Visteone 32

34 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 Considerations if You are MERELY a Pre-Petition Unsecured Creditor SELLING TO A CHAPTER 11 DEBTOR Considerations if You are MERELY a Pre-Petition Unsecured Creditor ■Very Little Recourse ■Decide what you can afford to lose 33

35 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 STRATEGIES TO DETERMINE IF A CHAPTER 11 WILL BE SUCCESSFUL ■Budget – Review the Budget appended to any of the Financing Orders - Monitor the Debtor’s spending in relation to its Budget - Debtor may over-spend and bank may pull the plug 34

36 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 CAVEAT ■NO GUARANTIES: Beware the expression “Don’t worry you are guaranteed to be paid for post-petition goods/services” 35

37 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 CAN A CREDITOR PROTECT ITSELF AGAINST A LIUIDATION ▪ Creditor cannot prevent a liquidation ▪ Sales Motions Will every post-petition creditor get paid in full? Stop selling except for cash or L/C 36

38 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 PRIORITY ORDER IN EVENT OF CHAPTER 7 CONVERSION SELLING TO A CHAPTER 11 DEBTOR PRIORITY ORDER IN EVENT OF CHAPTER 7 CONVERSION ■Secured Creditors get paid before anyone else TO THE EXTENT THE COLLATERAL EXISTS ▪ Watch in particular – Superpriority Post-Petition liens ■Administrative Expense Claims get paid next and ALL equal to one another ▪ Beware the administratively insolvent estate ■List of Pre-petition Priority contained in §507 of the Code 37

39 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 WHAT TO DO WITH THAT PERSONAL GUARANTY WHEN THE BUSINESS IS IN CHAPTER 11 OR 7 WHAT TO DO WITH THAT PERSONAL GUARANTY WHEN THE BUSINESS IS IN CHAPTER 11 OR 7 ● Make sure you have the right kind of guaranty ● Differentiation between Guaranties ● Guaranty of Payment - GOOD A requirement to pay immediately upon a default in payment by the primary debtor 38

40 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 39 GUARANTIES ● Guaranty of Payment Recommended Language The Guarantor acknowledges that this Guarantee is a Guarantee of Payment, and the Guarantor’s obligations under this Guarantee are and shall at all times continue to be absolute and unconditional in all respects, and shall at all times be valid and enforceable irrespective of any other agreements or circumstances of any nature whatsoever which might otherwise constitute a defense to this Guarantee and the obligations of the Guarantor under this Guarantee or the obligations of any other person or party (including, without limitation, the Customer) relating to this Guarantee or the obligations of the Guarantor hereunder.

41 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 GUARANTIES ● Differentiation between Guaranties ● Guaranty of Collection - BAD ● All collection efforts must be exhausted first before the credit grantor can seek recovery from the guarantor ● Chapter 11 or 7 must be completed so that distribution is determined ● Collection efforts can only proceed after business entity is OUT of bankruptcy 40

42 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 GUARANTIES ● Maintain Original Document ● The original minimizes the possibility that the guarantor will claim fraud or forgery ● Without original, the guarantor will have a better case to claim forgery ●Using a copy will not always be fatal ● Best Evidence Rule permits a copy PROVIDED there is no dispute over authenticity of original 41

43 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  CREDITOR MUST ACT IMMEDIATELY ◦ ACT AS SOON AS PLAN AND DISCLOSURE STATEMENT ARE FILED ◦ ACTUALLY A CONFIRMATION ISSUE ◦ OBJECT TO THE DISCLOSURE STATEMENT ◦ IF NO RESOLUTION  OBJECT TO CONFIRMATION 42

44 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  RELEASE TO A NON-DEBTOR ◦ Creditor accepts this release by accepting Plan of Reorganization ◦ Unwary creditor may not notice it ◦ Generally no separate notice on ballot  One Judge in Pennsylvania mandates that the ballot contains a CAVEAT that acceptance of the plan will also constitute acceptance of the release provisions 43

45 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  RELEASE TO A NON-DEBTOR ◦ Included as a provision in chapter 11 plan ◦ Not hidden – but certainly not highlighted ◦ All guaranties are wiped out 44

46 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  ANY TRANSFER OF AN INTEREST OF THE DEBTOR IN PROPERTY ◦ TO OR FOR THE BENEFIT OF A CREDITOR; ◦ FOR OR ON ACCOUNT OF AN ANTECEDENT DEBT OWED BY THE DEBTOR BEFORE SUCH TRANSFER WAS MADE; ◦ MADE WHILE THE DEBTOR WAS INSOLVENT; 45 ●

47 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 PREFERENCE DEFINITION  ANY TRANSFER OF AN INTEREST OF THE DEBTOR IN PROPERTY ◦ MADE –  ON OR WITHIN 90 DAYS BEFORE THE DATE OF THE FILING OF THE PETITION; OR  BETWEEN NINETY DAYS AND ONE YEAR BEFORE THE DATE OF THE FILING OF THE PETITION, IF SUCH CREDITOR AT THE TIME OF SUCH TRANSFER WAS AN INSIDER; AND ◦ THAT ENABLES SUCH CREDITOR TO RECEIVE MORE THAN SUCH CREDITOR WOULD RECEIVE IF –  THE CASE WERE A CASE UNDER CHAPTER 7 OF THIS TITLE  THE TRANSFER HAD NOT BEEN MADE; AND  SUCH CREDITOR RECEIVED PAYMENT OF SUCH DEBT TO THE EXTENT PROVIDED BY THE PROVISIONS OF THIS TITLE 46

48 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  CONTEMPORANEOUS EXCHANGE FOR VALUE (COD or CIA) ◦ Transfer was intended by debtor and creditor to be contemporaneous exchange for new value and ◦ Transfer was substantially contemporaneous exchange (e.g. check tendered for delivery of goods, COD transactions) 47

49 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  New Value Given after Transfer ◦ Creditor extending credit to debtor after payment that was not secured and not paid by otherwise unavoidable transfer 48

50 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Paid for New Value? Split among the Circuits! ◦ Counts: 4 th, 5 th, 8 th and 9 th Circuits ◦ Does not count: 3 rd (?) 7 th and 11 th Circuits  U.S. Bankruptcy Court Delaware’s decision in In re Pillowtex allows paid new value  U.S. Bankruptcy Court Eastern District of Pennsylvania’s recent decision In re Frey Mechanical Group allows paid new value ◦ Other Circuits: 1 st, 2 nd, 6 th, 10 th, and D.C.?  Lower courts are weighing in! PAID FOR NEW VALUE AS A DEFENSE 49

51  Yes – Commissary Operations – U.S. Bankruptcy Court, Middle District of Tennessee  No – TI Acquisition LLC  No – Circuit City TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 50

52 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  ORDINARY COURSE OF BUSINESS DEFENSE AND  TRANSFER WAS IN PAYMENT OF A DEBT INCURRED BY THE DEBTOR IN THE ORDINARY COURSE OF BUSINESS OR FINANCIAL AFFAIRS OF THE DEBTOR AND THE TRANSFEREE; AND OR ◦ SUBJECTIVE TEST – MADE IN THE ORDINARY COURSE OF BUSINESS OR FINANCIAL AFFAIRS OF THE DEBTOR AND THE TRANSFEREE; OR ◦ OBJECTIVE TEST – MADE ACCORDING TO ORDINARY BUSINESS TERMS 51

53 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  PROTECTION OF VALID PURCHASE MONEY SECURITY INTERESTS  PROTECTION OF REFINANCE OF SECURITY INTEREST  PROTECTION AGAINST PAYMENTS RECEIVED IN ACCORDANCE WITH AN ALTERNATIVE REPAYMENT PLAN CREATED BY A CREDIT COUNSELING AGENCY 52

54 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  The later of two years after the order for relief or one year after the appointment or election of the first trustee if it occurs before the expiration of the two year period. 53

55 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 PREFERENCES UNDER BAPCPA  VENUE OF CERTAIN PROCEEDINGS ◦ LESS THAN $5,850 IN THE AGGREGATE  NO  NO preference action to be commenced  Trustees most likely to send demand letter anyway ◦ MORE THAN $5,850 BUT LESS THAN $11,725  ACTION ONLY IN FEDERAL DISTRICT COURT WHERE DEFENDANT RESIDES  CERTAIN COURTS HAVE REFUSED TO RECOGNIZE THIS 54

56  Funds Provided to Debtor to Pay Specific Indebtedness Is Not Property of Debtor ◦ Transfer Did Not Disadvantage Other Creditors ◦ Theory is Based on Whether -  the Debtor had the right to disburse the funds to whomever it wished– or  the Debtor was compelled by a third party (sometimes a new creditor/lender) to disburse the funds to one particular creditor or a group of creditors  Effectively Destroys Concept of Preference – because ◦ Transfer is NOT of property in which Debtor has an interest TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 55

57  A Trustee May Recover a Preference From an Initial Transferee  Mere Conduit Defense says That the One Who Received the Transfer is Not an Initial Transferee But Only a Recipient  Theory is That the Recipient of Preferential Transfer is Not a Transferee but Only a Mere Conduit For the Transfers TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 56

58  Mere Conduit Defense Must Show ◦ no dominion over the funds  no right to use the money for its own purposes  no legal ownership or title to the funds ◦ no control over the funds  funds merely pass through one’s hands  Conduit is a fiduciary  Conduit is under explicit instructions regarding the funds ◦ courts must step back and evaluate a transaction in its entirety (equitable remedy) TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011 57

59 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Immediate Cash Realization  Avoids Risk of Smaller Distribution  Avoids Risk of Delayed Distribution  Avoids Risk of Distribution in Less Liquid, More Speculative Assets, Such as Stock 58

60 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Profit Motive ◦ Difference between anticipated dividend and purchase price  Gaining Control Over the Debtor 59

61 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Claims are Typically Sold at a Discount  Claims Could be Sold Before or After Bankruptcy Filing 60

62 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Claims Sold During Bankruptcy Case Are Governed By Bankruptcy Rule 3001(e) ◦ If claim was sold before filing of proof of claim, buyer can file the proof of claim without court intervention ◦ If claim was sold after filing of proof of claim, the following procedure applies:  Buyer files evidence of sale with the bankruptcy court  Court clerk must give seller notice of the sale and seller has 20 days to object to the sale  If no timely objection, clerk notes sale on court records 61

63 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Usually a Written Offer  Based on % of Claim  Investigate claims market for reasonable selling price 62

64 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Means to determine if there is a “higher and better” offer for the claim? ◦ Check other prospective buyers for their price ◦ Check bankruptcy case docket for relevant information 63

65 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Bankruptcy pleadings may disclose likely distribution on unsecured claims ◦ First Day Affirmation/Declaration ◦ DIP Financing Motion ◦ Schedules ◦ Asset Sale Motions ◦ Plan and Disclosure Statement  Notices of Sales of Claims – NOT likely  Check Debtor’s/Creditors’ Committee’s Websites 64

66 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Locks in Sale Price  DO NOT PERMIT THIS TO BECOME A CONTRACT  Sets Deadline for Seller to Finalize Sale, the Passage of Which, Without a Final Sale, Gives Buyer an Out ◦ Make sure there is a similar deadline for seller  Otherwise - Risk of buyer locking in seller indefinitely 65

67 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Timing of Payment of Purchase Price ◦ Immediate payment of undisputed portion ◦ No reference to timing of payment could mean trouble! ◦ Payment conditioned on Buyer’s acceptance without time deadline could mean trouble! 66

68 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Amount of Price ◦ % of undisputed/scheduled claim amount  Should be immediately payable ◦ Treatment and payment of disputed portion of claim following allowance  Agreement to pay % of allowed claim amount  Option to pay % when claims allowed  NEVER PERMIT THIS  Is disputed portion of claim sold or retained by seller? 67

69 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Representations by Seller  Claim not disputed or subject to defense, offset or counterclaim.  OR Disclose the disputed portion of claim  No preference risk 68

70 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Buyer Should be Obligated to Notify Seller of Objection to Claim and Seller Should be Given Ample Opportunity to Contest Objection  Buyer Should be Obligated to Notify Seller of Preference Action and Seller Should be Given Option to Defend Same 69

71 TRMG - BUSINESS WITH A DEBTOR IN POSSESSION - 2011  Treatment of Preference Recovery  Seller’s Obligation to Repurchase Claim in the Event of Breach of Any Warranty/Representation or Other Breach of the Agreement ◦ Interest usually charged from date of execution of the agreement [should accrue from date of seller’s receipt of purchase price] ◦ Interest rate could be very high ◦ Interest rate usually subject to negotiation 70


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