1. MAXIMIZE VALUE IN YOUR CUSTOMER’S BANKRUPTCY
2017 Credit Professionals’ Conference and Expo THE BUSINESS CREDIT MANAGEMENT ASSOCIATION
MAXIMIZE VALUE IN YOUR CUSTOMER’S BANKRUPTCY

2. 312-628-7193 | ccahill@lowis-gellen.com
Christopher M. Cahill
Head of Bankruptcy and Restructuring Group |
Chris advises businesses on relationships with vendors, customers, and lenders to maximize market share, return, and liquidity. He also represents secured creditors, trade creditors, and others with respect to litigation in chapter 11 cases and corporate restructuring more generally, including workouts, loan forbearance, assignments for the benefit of creditors, UCC Article 9 foreclosure sales, and avoidance litigation.
Chris also publishes frequently and speaks regularly on commercial insolvency and commercial transaction issues. He is an Executive Editor of Commercial Bankruptcy Litigation, 2d Edition (Jonathan P. Friedland, Elizabeth Vandesteeg & Christopher M. Cahill eds., 2017), a comprehensive treatise that is updated annually and published by Thomson Reuters.
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3. MAXIMIZE VALUE IN YOUR CUSTOMER’S BANKRUPTCY
5 important points to walk away with:
Assert stop shipment and reclamation rights immediately
Collect all relevant data and documentation ASAP
Beware shiny objects like critical vendor payments and offers to purchase your claim
Administrative claims are good, but not as good as gold
Assumed and revised contracts are better than brand-new post petition contracts

4. Pre-Bankruptcy: KEEPING IT OUT and GETTING IT BACK
Stop Shipment/Adequate Assurance/Reclamation (UCC)/Setoff & Recoupment
In Bankruptcy: GETTING IT BACK
Reclamation (Bankr. Code)/20-Day Claim/Setoff & Recoupment/Proof of Claim
In Bankruptcy: MAKING MORE CASH
Administrative Claim (new contract, new supply)/Critical Vendor/Assumption of Executory Contract/Plan treatment

5. IF ENOUGH MONEY IS AT STAKE, GET THIS DONE ALL AT ONCE: DATA AND DOCUMENTATION
Contracts (including any security agreements and perfection documentation)
What is owed by debtor? What is owed to debtor?
Evidence of shipment and receipt by debtor, evidence of provision of services to debtor
Last two years of invoices and payment documentation
Invoice and payment documentation of the 90 days immediately preceding a bankruptcy case

6. BANKRUPTCY FUNDAMENTALS
Automatic Stay
Chapter 11 (or 7) estate of the debtor
DIP & trustee
Creditors Committee
Section 341 Meeting of Creditors
Proof of Claim Bar Date
Payment Priorities: Secured Claims, Administrative Claims, General Unsecured Claims (champagne glass pyramid)
*in a chapter 11 plan, GUS may be paid less than 100%; in a distribution upon liquidation, GUS at bottom of water hole

7. Pre-Bankruptcy: KEEPING IT OUT
Stop Shipment [UCC §§ 2-702, 2-705], When “the seller discovers the buyer to be insolvent”
Adequate Assurance [UCC §2-609], When seller has reasonable grounds to be insecure about receiving due performance
Preference defense planning – COD, CIA terms (no half-measures) or keep invoice and payment behavior as it has been, or within industry norms

8. Pre-Bankruptcy: GETTING IT BACK
Reclamation [UCC §2-702]
Set-off or Recoupment
Proof of Claim preparation (to be brought to bear later)

9. In Bankruptcy: GETTING IT BACK
Reclamation, see 11 U.S.C. §546(c): (c) (1) Except as provided in subsection (d) of this section and in section 507(c), and subject to the prior rights of a holder of a security interest in such goods or the proceeds thereof, the rights and powers of the trustee under sections 544(a), 545, 547, and 549 are subject to the right of a seller of goods that has sold goods to the debtor, in the ordinary course of such seller’s business, to reclaim such goods if the debtor has received such goods while insolvent, within 45 days before the date of the commencement of a case under this title, but such seller may not reclaim such goods unless such seller demands in writing reclamation of such goods— (A) not later than 45 days after the date of receipt of such goods by the debtor; or (B) not later than 20 days after the date of commencement of the case, if the 45-day period expires after the commencement of the case. (2) If a seller of goods fails to provide notice in the manner described in paragraph (1), the seller still may assert the rights contained in section 503(b)(9).

10. In Bankruptcy: GETTING CASH BACK
* Set-off & Recoupment
* Proof of Claim filing
* 20-Day Claim - 11 U.S.C. §503(b)(9):
(b) After notice and a hearing, there shall be allowed administrative expenses, other than claims allowed under section 502(f) of this title, including—
. . .
(9) the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.

11. In Bankruptcy: GETTING NEW CASH
[Does debtor have cash flow and financing?]
New supply or new contract, paid at administrative claim priority
Critical Vendor Status – can get part or all of pre-petition claim paid, but . . .
Assumption of Executory Contract
NOTE: CV Status and Executory Contract Assumption can obviate preference exposure
Plan Treatment (including assumption and cure issues)

12. Special Topic 1: Consignments
If title does not pass to debtor, then the shipped goods are not property of the estate
Sale on Approval [UCC §2-326], Bailment [UCC §2- 403(3)] – problems of documentation
UCC default is that transaction is a secured transaction – safest to follow consignment perfection rules, and you may leapfrog the debtor’s bank lender! [UCC §9- 103, §9-324: purchase money security interest in inventory]

13. Special Topic 2: Selling Your Claim
To quote Ringo Starr, “Honey Don’t”