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Now What?

Now What?. Evaluating Your Position Upon a Counterparty’s Bankruptcy Brandy A. Sargent November 9, 2009. Gather Your Information. Internal Materials: Ongoing Contracts Non-Contract Materials (emails, letters, verbal agreements) Current Accounts Receivable, Accounts Payable

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Now What?

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  1. Now What? Evaluating Your Position Upon a Counterparty’s Bankruptcy Brandy A. Sargent November 9, 2009

  2. Gather Your Information • Internal Materials: • Ongoing Contracts • Non-Contract Materials (emails, letters, verbal agreements) • Current Accounts Receivable, Accounts Payable • Recent History (one year’s A/R is very helpful) • Upcoming Events (goods in transit, shipments to be made, payments due, etc.)

  3. Gather Their Information • Where is the Bankruptcy Case Pending? • State, District, Company Name, Case Number • How can you get the information? • From the Company • From a Notice Agent • From the Court (fee for use service) • Pay attention to notices you receive! • They can affect you and your ability to recover

  4. Gather Their Information • First Day Motions (in larger corporate cases) • Omnibus Affidavit • Post-Petition Financing, Cash Collateral Use • Goods In Transit/Ordered Pre-Bankruptcy • Lien Claimants • Critical Vendors/503(b)(9) Claims • Customer Programs • Utility Providers • Sale Motions

  5. Stop The Bleeding(If you Can) • Automatic Stay • You must stop activities that seek to collect funds due, force delivery of goods, or cancel most “executory contracts” • Consider Whether to Stop Selling/Purchasing • If you sell or buy on a non-contract, open account basis, you are not required to continue • Stop Goods in Transit (but don’t resell them yet) • If you are delivering or using a common carrier

  6. Protect (Enhance?) Your Position • Critical Vendors • Watch out for the stick that comes with the carrot • 503(b)(9) Claims “20-day Claims” • Goods delivered in the ordinary course within 20 days before bankruptcy • Are not required to be paid immediately • Reclamation Demands • Not a violation of the stay • Subject to prior security interests • Look back 45 days, must be asserted within 20 days of bankruptcy • Setoff Rights • Governed by underlying law • Must seek relief from the automatic stay • Liens • Your ability to assert them post-bankruptcy depends on underlying law

  7. Going Forward • If you are a party to an on-going “Executory Contract” • Your obligation to perform generally continues during bankruptcy • The Debtor may assume or reject the contract, but does not have to make the decision immediately • Sometimes you can request that the Court force the debtor to make the decision early or provide adequate assurance of performance • Watch for assumption, rejection, assignment and cure notices • Special rules apply to: real property leases, commodities contracts, intellectual property agreements

  8. Proof of Claim • Deadlines will vary depending on the Court and type of case • Form and location for filing will vary by Court and case • Applies to pre-bankruptcy claims • Pay special attention to 503(b)(9) claims, “gap” claims, secured claims • Does not cover administrative claims or cure claims • Consider whether there is any reason you do NOT want to file a claim

  9. Other Events/Considerations • Creditors’ Committees • Plan Process • Conversion/Dismissal • Claims Objections • Claims Sales • Preference Actions • Doing Business After the Bankruptcy

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