“Reducing a customer’s Accounts Receivable in the zone of Insolvency”

by David CONAWAY Reuters, Bloomberg and Debtwire are all reporting negative financial information about your customer: Bond ratings are downgraded, bond prices are falling, a likely “restructuring” to address the bond debt is on the way, bondholders form an “ad hoc” committee to negotiate with the customer, the bondholders retain financial advisors and counsel… as does the customer. You know what’s coming, a Chapter 11 filing, but the customer will not confirm that. In fact, the customer denies the “rumors”, fearful of triggering defaults and losing credit terms provided by suppliers. Your accounts receivable balance is $500,000, which will become a pre-petition general unsecured claim in Chapter 11. You know all too well that such claims are rarely paid in a Chapter 11 proceeding, so the $500,000 accounts receivable is looking like a write-off.