1. Customer-Sponsored Credit Enhancement Programs (Consignment and PMSI) and Payment Programs (Supply Chain Finance): Reducing Supplier A/R and Preference Risk, or Opening the Door for a Priority Fight?
JERRY BAILEY
RONALD A. CLIFFORD, ESQ.
SCOTT E. BLAKELEY, ESQ.

2. Credit Enhancement Decision Tree

3. Two Required Elements 1. Security Agreement
2. Financing Statement or UCC-1
We’ll start with security agreements
There are 2 critical elements to your UCC Filing:
Security agreement, and the UCC-1 or financing statement. They’re synonymous
The security agreement is where the customer grants the secured interest to you.
The financing statement is the second part
It makes the public record
This is my “you can’t have one without the other slide”
You can’t get a security agreement signed, and never file a financing statement and think you are secured, you’re not.
Conversely, you can’t just file financing statements if you haven’t gotten a signed security agreement
And just because you’ve gotten security agreement signed doesn’t mean you have to file it.
We have clients that get them signed in every credit application, but they only file on accounts over a certain dollar amount 3

5. Sports Authority Pre-Bankruptcy Consignment Program First Day Hearing
Judge approves GOB sales at 140 stores
Consignment vendors seek to reclaim their goods
170 consignment vendors
Approximately $84.8 million in consigned inventory
20% of TSA’s revenue
Consignment Challenge
TSA sells consigned inventory and proceeds to consignors
TSA files 160 lawsuits against consignors, challenging their standing to have a senior right to inventory

6. Hancock Fabrics Pre-Bankruptcy Consignment Arrangement
Chapter 11 Restructuring Plan
70 stores conduct GOB sales
Consignment Challenge
Debtor files adversary complaints against consignment vendors
Part of bankruptcy estate
Avoid interest on consignment goods

7. Family Christian Books
Pre Bankruptcy Consignment Program
Consignment program offered to all suppliers
Chapter 11 Restructuring Plan
Sale of stores to insider
Consignment Challenge
Consignment vendors filed objections to retain ownership of consigned inventory

8. Supply Chain Finance Stages
The customer approves a vendor’s invoice and uploads to a supply chain finance platform
Financial institution contacts the vendor to offer an earlier payment of the invoice in exchange for financing the receivable through its due date
Financial institution purchases the vendor’s receivable from the customer at a discount
Financial institution pays the vendor on the agreed upon date,
Ex. 10 days from issuance of the invoice, instead of the customer-imposed term 75 days
The customer pays the financial institution by the invoice due date

9. Vendor Strategy for Dealing with TPS