With many bankruptcy cases looming on the horizon as a result of the pandemic and the measures taken to contain it, prudent creditors are reacquainting themselves with their rights, including the right of reclamation. Reclamation is codified in section 2-702(2) of the Uniform Commercial Code, and allows a seller who discovers that the buyer is insolvent to reclaim the goods upon demand within 10 days after delivery. However, this right is junior to the rights of good faith purchasers and lien creditors.
The coronavirus pandemic has driven many companies into bankruptcy, including well-known names such as Brooks Brothers, Neiman Marcus, J.C. Penney, J. Crew and Hertz. In addition to raising bankruptcy-specific issues, the resultant bankruptcy proceedings are likely to raise complex issues of insurance, especially coverage and loss measurement for business interruption losses asserted to have resulted from COVID-19.
In Short
The Situation: On August 11, 2020, a Credit Derivatives Determinations Committee for EMEA ("DC") unanimously determined that the Chapter 15 filing by British retailer Matalan triggered a Bankruptcy Credit Event under standard credit default swaps ("CDS").
The Result: The DC's decision diverged from its only prior decision (involving Thomas Cook) on whether a Chapter 15 petition constituted a Bankruptcy Credit Event.
As the volume of high-profile bankruptcies continues to climb, companies are now in the process of seeking to amend and re-negotiate their credit agreements, or finding new sources of financing in efforts to avoid bankruptcy.
The Australian government has taken swift action to enact new legislation that significantly changes the insolvency laws relevant to all business as a result of the ongoing developments related to COVID-19
In Short
In this series, we look at how various payment rights are treated in bankruptcy. A summary like this could not possibly address every right that might arise in any given bankruptcy case. We have omitted several of the Bankruptcy Code’s more esoteric legal protections and exceptions that arise in specific kinds of bankruptcy cases. When bankruptcy strikes, creditors should always consult a bankruptcy lawyer to understand what actions they need to take to preserve their rights and maximize their recovery.
The Basic Concept of a “Claim”
As Covid-19 and the faltering economy continue to create financial stress on companies across a myriad of sectors, bankruptcies are expected to rise sharply. Executive liability insurers are responding by underwriting cautiously and more aggressively. As a result, the c-suite is likely to encounter rising premiums and more restrictive terms. One such example…the application of an insolvency and/or creditor exclusion.
Earlier this year, Chapter 11’s new Subchapter V became a part of the Bankruptcy Code when the Small Business Reorganization Act of 2019 (SBRA) became effective.