1. 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

2. 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?

3. Step 1
WHAT HAPPENED?

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

6. BANKRUPTCY CHAPTERS 7 12 13 11

7. 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

8. 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

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

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

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

12. 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?

13. 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?

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

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

16. 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

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

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

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

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

21. CONSEQUENCES FOR VIOLATION
Actual Damages
Attorneys’ Fees
Punitive Damages

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

23. WHAT IS A PREFERENCE?
Goods or Service
Debt
Payment
Bankruptcy

24. CLAW BACK THE PAYMENT IF RECEIVED WITHIN 90 DAYS

25. 1 2 3 4 COMMON DEFENSES Contemporaneous exchange Ordinary course
New value
Small potatoes 2 3 4

26. CONTEMPORANEOUS EXCHANGE1
For new value
Normal terms
Intent matters

27. 2 ORDINARY COURSE For the parties Consistency Payment history
For the industry
Common practice
Entire segment

28. 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

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

30. 4
SMALL POTATOES A B C
$6,425

31. 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

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

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

34. 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

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

36. 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

37. ANY QUESTIONS
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