This article, part of our Creditor’s Rights Toolkit [link] series, serves as an essential guide for vendors navigating the complex landscape of dealing with financially distressed or bankrupt customers. It provides a detailed exploration of the options available to vendors who are proactive and quick to act when they learn of their customer’s financial woes.

Your customer, who has always paid on time, has started to fall behind on payments and maybe has even started to short pay invoices. When you inquire about what is going on, your customer has a million excuses but assures you that everything is fine. On the one hand, you want to continue to do business with this long-standing customer. On the other hand, you are worried about the growing accounts receivable and a potential bankruptcy filing by your customer. How can you protect your business?

Key Issues

Successor liability is a catchall term for a group of legal theories that, in certain circumstances, allow a creditor to recover amounts owed by its obligor from a person or entity who succeeds to the assets or business of that obligor. Typically, claimants cannot pursue successor liability against a purchaser in a bankruptcy sale because most sales are made "free and clear" of such claims under Section 363(f) of the Bankruptcy Code. However, there are some limited exceptions to this general rule.

If your company is named in a new lawsuit or receives a EEOC charge, part of your review process should include checking to see if the filing complainant or plaintiff has a pending bankruptcy action. If so, the next step is to see if the claimant disclosed their lawsuit or administrative complaint in his or her bankruptcy petition. If not, you may have a successful estoppel argument.

Though controversial, cannabis[1] has steadily grown into a booming industry. Despite this rapid growth and the legalization of cannabis in numerous states[2], cannabis is still classified as a Schedule I drug under the Controlled Substances Act (CSA).

In April, we discussed how Colorado’s state supreme court issued its highly anticipated decision confirming a borrower’s bankruptcy discharge does not accelerate secured installment debt or trigger the final statute of limitations period to recover the debt.

The U.S. Bankruptcy Court for the Southern District of Florida created a three-factor test to help determine the ownership interests of social media accounts. The court in In re Vital Pharm[1] found that (1) documented property interests, (2) control over access, and (3) use, each play a role in establishing ownership over social media accounts.

In January, the U.S. Supreme Court agreed to hear Lac du Flambeau Band of Lake Superior Chippewa Indiansv. Coughlin after the First Circuit barred the Lac du Flambeau Band from seeking to collect on a $1,600 debt obligation to the tribe’s lending arm, Lendgreen, after the debtor filed for Chapter 13 bankruptcy.

Colorado just became the latest state to recognize that a borrower’s bankruptcy discharge does not accelerate secured installment debt or trigger the final statute of limitations period to recover the debt.

For at least the past decade, federal bankruptcy courts have routinely prohibited cannabis businesses from seeking protection under federal bankruptcy law, regardless of whether a cannabis business is legally operating under state law.