More often than ever before, bankruptcy cases are affecting businesses and consumers, yet little is shared about what should be done to protect their rights.
SFBW spoke with attorney Charles M. Tatelbaum, Florida Director of Tripp Scott, who focuses his practice on bankruptcy and creditors” rights, as well as complex business litigation. He is a national Certified Specialist in Business Bankruptcy Law by the American Board of Certification, accredited by the Florida Bar.
SFBW: My company delivered goods on credit to another business that just filed for bankruptcy. What can I do?
Tatelbaum: The vendor may seek to have any remaining goods delivered within 45 days prior to the filing of the bankruptcy returned, or the vendor can file for an administrative priority claim (which elevates the claim in the payment hierarchy) for goods delivered within 20 days prior to the bankruptcy. In both instances, immediate action must be taken.
SFBW: If my company has goods in transit to a customer that files for bankruptcy, can I stop the goods from being delivered?
SFBW: Is my business protected if it provides goods or services on credit to another business that is in Chapter 11?
Tatelbaum: While creditors that extend credit to a debtor-in-possession operating under Chapter 11 are entitled to administrative priority status, if the debtor runs out of cash, the priority status becomes meaningless.
SFBW: What is a bankruptcy preference or clawback?
Tatelbaum: Any transfers made by a debtor within 90 days prior to filing bankruptcy may be recovered or “clawed back” by a debtor-in-possession or trustee within two years of the filing of the bankruptcy. There are many statutory defenses available to creditors, and one should not automatically acquiesce to a preference or clawback demand.
SFBW: Should I or my business file a proof of claim immediately upon learning that a customer has filed bankruptcy?
Tatelbaum: No. The filing of a proof of claim subjects the creditor to the jurisdiction of the bankruptcy court wherever it is located. Before filing a proof of claim, it is important to determine if you or your business may be subject to a preference or other clawback recovery. If so, it may be prudent to withhold filing a proof of claim until it can be determined if the contemplated distribution to creditors is so small that it will be better for you not to file a proof of claim in order to retain all jurisdictional rights in the event of a clawback action.
SFBW: What do I do if I have a contract with a company that has filed a Chapter 11 case?
Tatelbaum: Debtors in Chapter 11 (and trustees in Chapter 7) can unilaterally reject ongoing agreements where there is continuing performance, such as leases, franchises, supply agreements, distribution agreements, etc. Counterparties to these agreements have many rights and remedies when a contract is to be rejected, and care must be taken to protect these rights and remedies.
SFBW: What is the difference between a Chapter 7 and Chapter 11 bankruptcy case?
Tatelbaum: In Chapter 7, a business or the assets of an individual are liquidated by a trustee, with distributions made to creditors. In Chapter 11, the business or an individual can seek to reorganize (or liquidate in an orderly manner), and a plan is proposed which is voted on by creditors to deal with the claims of creditors. ?
Contact Tatelbaum at CMT@trippscott.com or 954.525.7500.