While uncertainties loom around the auto industry, suppliers and OEMs can try to prepare for the road the lies ahead.
In a recent decision, the Bankruptcy Court for the District of Delaware allowed the collateral agent for senior lenders to credit bid for the debtors’ assets even though all of the senior lenders had not authorized the bid. One of the senior lenders had objected to the group’s acquisition of the debtors’ assets by the credit bid. In re GWLS Holdings, Inc., 2009 WL 453110 (Bankr. D. Del. Feb. 23, 2009) (Walsh, J.).
A recent court decision, Thermal Supply, Inc. v. Big Sky Beef,LLC, 195 P.3d 1227 (Mont. 2008) underscores the importance of filing Uniform Commercial Code (“UCC”) continuation statements to prevent the lapse of financing statements even during bankruptcy or litigation.
vWe are on pace to see a record number of business bankruptcies in 2009, with a notable amount of activity in the retail, manufacturing and automotive sectors. In light of the impact of today's bankruptcies on vendors of goods, it is worthwhile to revisit one of the protections afforded to trade creditors under the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA).
Oil and gas producers in Texas and a handful of other states have had the comfort of believing that they held purchase money security interests against the production in the hands of first purchasers and proceeds of that production. Now, the law supporting that belief has come under fire.
The rate of loan defaults has been on the rise, and given the current state of the economy, this trend is likely to continue. Doubtful loans may only get worse, raising that subject that lenders never want to hear, much less discuss: Foreclosure. Senior lenders will almost certainly have a first priority lien on all of the general assets of the borrower, and to the extent a junior lender is even permitted a second priority lien on these assets, it will be subordinate to the senior lender’s lien pursuant to a subordination agreement.
As the automotive industry continues to restructure, whether through self-liquidation or government intervention, suppliers will inevitably be confronted with many of the same issues prevalent 4-5 years ago, including a supplier’s obligation to continue to provide goods post-petition and the supplier’s rights to adequate assurance as a condition to such shipment.
In our update of October 20, 2008, we reported on whether "negative equity" can be part of a purchase money security interest. (http://www.masudafunai.com/showarticle.aspx?Show=3093) "Negative equity" is the excess of the amount owed on a trade-in item over the market value of the item.
It seems safe to assume that no lender would extend high-dollar credit without first having a deep knowledge of the party accepting the funds. Certainly, such deep knowledge would include the precise legal name of that borrower. Nevertheless, recent cases continue to demonstrate the prevalence of filing UCC-1 financing statements that may be deemed “seriously misleading” as to the name of the debtor and, therefore, ineffective to fix the secured creditor’s place in the chain of priority.
In a recent order entered in In re SemCrude, L.P., Case No. 08-11525, the Delaware bankruptcy court (1) clarified the application of Bankruptcy Code section 503(b)(9) to creditors’ priority claims arising from the delivery of goods in the 20 days before a bankruptcy filing and (2) amended a previously entered procedures order to allow for the resolution of disputed “Twenty Day Claims” on their merits.