Ben Court Bankruptcy and Creditor’s Rights Stinson Leonard Street LLP Your Client or Vendor Just Filed For Bankruptcy Tips On What Corporate Counsel Should Do Next Ben Court Bankruptcy and Creditor’s Rights Stinson Leonard Street LLP June 2, 2017

Developing a Game Plan What Happened? Step 1 What Happened? Step 2 What is My Relationship to the Debtor? Step 3 What Does it Mean? Step 4 What Happens Now? Step 5 What Should I Do?

Step 1 WHAT HAPPENED?

THE BASICS Who filed? For what? Where? When did they file? How much do they owe you?

BANKRUPTCY CHAPTERS 7 12 13 11

CH 7 – COMMERCIAL & CONSUMER Liquidation of debtor’s non-exempt assets Bankruptcy is administered by a trustee Discharge of pre-petition debts (individual) Pro rata payment of claims

CH 11 – BUSINESSES / HIGH NET WORTH Reorganize the Debtor Debtor retains control of assets Restructure debts Debtor creates repayment plan Creditors get to vote on plan

CH 12 – FAMILY FARMERS Reorganize the Debtor Trustee has control but Debtor maintains assets Restructure debts Creditors do not get to vote on plan

CH 13 – CONSUMER Reorganize the Debtor Trustee control and debtor maintains assets Pay debts over time Generally 3 to 5 year plan

What’s My Relationship to the debtor? Step 2 What’s My Relationship to the debtor? Vendor Customer

VENDOR Is the Debtor staying in business? Do I need to find a replacement vendor? Does the Debtor owe me product or services that I’ve already paid for? Do I owe the Debtor money?

CUSTOMER What type of Creditor am I? Secured Unsecured Executory Administrative Has the Debtor paid me money within 90 days? Does the Debtor owe me money?

Secured Creditor Over or under secured Your collateral Interest payments Cash collateral

UNSecured Creditor Creditors’ committee Pro rata payment Little control Last to get paid

EXECUTORY CREDITOR Contracts that have not been fully performed by both parties Leases for real estate and personal property Debtor can assume or reject the contracts If assume, must perform If reject, you may have damages

Administrative Creditor Special priority Goods shipped within 20 days Services provided post-petition Cure of breached contracts

OTHER PLAYERS Trustee Creditors’ Committee US Trustee Bankruptcy Judge Debtor / Debtor in Possession

What does this mean? Step 3 Automatic Stay Getting your stuff back Giving stuff you have back

AUTOMATIC STAY Debtor Presses the Pause Button Collections Lawsuits Repossession Eviction / Foreclosure Related threats

CONSEQUENCES FOR VIOLATION Actual Damages Attorneys’ Fees Punitive Damages

RELIEF FROM STAY For cause No debtor equity / No need to keep Get your collateral back Continue your lawsuit

WHAT IS A PREFERENCE? Goods or Service Debt Payment Bankruptcy

CLAW BACK THE PAYMENT IF RECEIVED WITHIN 90 DAYS

1 2 3 4 COMMON DEFENSES Contemporaneous exchange Ordinary course New value Small potatoes 2 3 4

CONTEMPORANEOUS EXCHANGE 1 For new value Normal terms Intent matters

2 ORDINARY COURSE For the parties Consistency Payment history For the industry Common practice Entire segment

Running Tally of Preference Exposure NEW VALUE 3 New goods or services Provided by the creditor No new value paid by debtor Event Date Amount Running Tally of Preference Exposure Payment 1/1 $1,000 Services 1/2 - 2/1 ($1,000) $0.00 2/1 $5,000 2/2 - 3/1 ($2,800) $2,200 3/1 $3,200 3/2 - 4/1 (3,100) $100

NEW VALUE Debt Owed Payment to Creditor Preference Creditor Gives New Value to Debtor Bankruptcy

4 SMALL POTATOES A B C $6,425

TIPS TO AVOID PREFERENCES Accounting Invoice per the industry standard Collect receivables consistently Legal Tell counsel about financially shaky customers - COD Preserve financial communications Work on defenses promptly

Step 4 What Happens now? File a claim Vote on a plan Get paid

PROOF OF CLAIM Check deadline to file Complete the official Form 401 Include invoices Monitor for objections

THE PLAN Creditors vote Restructures the debt May involve modifications to amount paid, interest rate charged or repayment term Paid pro rata and over time Debtor continues to operate

GETTING PAID Liquidate of assets/363 sales Claw back money Value of collateral Pro rata for unsecureds Stand in priority line

WHAT SHOULD I DO? Step 5 Talk to a lawyer File a proof of claim Check for docket updates Pay attention – you snooze, you lose

ANY QUESTIONS Ben Court # 612.335.1615 benjamin.court@stinson.com