INTRODUCTION
The “Small Business Reorganization Act of 2019” (SBRA) signed into law on August 23, 2019 contains two amendments to Chapter 11 preference laws, which are NOT limited to small business reorganizations.
1. Debtors’ Burden of Proof.
On February 25, 2019, the U.S. Court of Appeals (2nd Circuit) ruled that the trustee in the Chapter 11 case for Madoff Investment Securities, LLC could use the U.S. Bankruptcy Code to recover payments made between foreign entities. Previously, the Bankruptcy Court for the S.D.N.Y. and the U.S. District Court for the S.D.N.Y ruled that the trustee could NOT sue the foreign entities based on principles of international comity and the presumption against extraterritoriality of U.S. Laws, including the U.S. Bankruptcy Code.
An April 12, 2019 Delaware Bankruptcy Court decision in the Sports Authority Chapter 11 case (In re TSAWD Holdings, Inc.) is an important reminder for sellers of goods on properly obtaining security in the goods they sell, to insure payment from the customer.
A June 2018 Bankruptcy Court decision in the Southern District of New York (SDNY) held that foreign companies with no presence in the U.S. were subject to default judgments.
Companies sell goods or provide services to customers usually on two bases: (1) purchase orders and invoices with references to terms and conditions, or (2) a written sales or supply agreement.
Innovation and creativity are essential for competitive advantage and success in a global economy. The attendant intellectual property assets are the product of substantial capital investment, and companies should carefully manage risks associated with such assets.
In the Chapter 15 proceeding of Energy Coal S.p.A., the Delaware Bankruptcy Court required a U.S. creditor to recover its claim in Italy.
Companies expend substantial resources managing the credit risk of customers, to protect the value of their sales. Many companies, however, do not always apply credit risk analysis to its supply chain, focusing instead on procurement at the lowest cost, and compliance with a myriad of regulatory issues. However, credit risk in the supply chain may actually pose a greater potential risk of loss. If a supplier fails to deliver product on time, the manufacturing process can be interrupted or halted, potentially idling plants at a significant daily cost to the company.
Debtors in Chapter 11 proceedings rarely pay unsecured creditors a meaningful dividend on prepetition accounts receivable balances, much less pay them in full. In an era of aggressive lending to place capital in the market, loan to value ratios are high. When a company experiences financial distress or insolvency, unsecured creditors may be “out of the money” from the get-go.