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Lowenstein Sandler LLP

Bruce S. Nathan

Bruce S. Nathan

Partner

Expertise

  • Bankruptcy, Financial Reorganization & Creditors’ Rights
  • Bankruptcy, Financial Reorganization & Creditors' Rights

WSG Practice Industries

Activity

WSG Leadership

ABA Group
Member
WSG Coronavirus Task Force Group
Member

Lowenstein Sandler LLP
New York, U.S.A.

Profile

With more than 35 years of experience in the bankruptcy and insolvency field, Bruce is a recognized leader nationwide in trade creditor rights and the representation of trade creditors in bankruptcy and other legal matters. He has represented trade and other unsecured creditors, unsecured creditors' committees, secured creditors, and other interested parties in many of the larger Chapter 11 cases that have been filed. Bruce also handles letters of credit, guarantees, security, consignment, bailment, tolling, and other agreements and legal credit issues for the credit departments of institutional clients.

Among his various legal recognitions, Bruce received the Top Hat Award in 2011, a prestigious annual award honoring extraordinary executives and professionals in the credit industry. He was co-chair of the Avoiding Powers Committee that worked with the American Bankruptcy Institute's (ABI) Commission to Study the Reform of Chapter 11, participated in ABI's Great Debates at their 2010 Annual Spring Meeting–arguing against repeal of the special BAPCPA protections for goods providers and commercial lessors–and was a panelist for a session sponsored by ABI. He is a frequent presenter at industry conferences throughout the country, as well as a prolific author regarding bankruptcy and creditors' rights topics in various legal and trade publications.

Bruce is a co-author of "Trade Creditor Remedies Manual: Trade Creditors' Rights under the UCC and the U.S Bankruptcy Code," published by ABI at the end of 2011. He has also contributed to ABI Journal and is a former member of ABI's Board of Directors and former co-chair of ABI's Unsecured Trade Creditors Committee.

Bar Admissions

    New York

Education

University of Pennsylvania Law School (J.D. 1980)
Wharton School of Finance and Business (M.B.A. 1980)
University of Rochester (B.A. 1976), Phi Beta Kappa
Areas of Practice

Bankruptcy, Financial Reorganization & Creditors' Rights | Bankruptcy, Financial Reorganization & Creditors’ Rights

Professional Career

Significant Accomplishments

Speaking Engagements

Bruce Nathan and Ken Rosen will present "Mining for Hidden Assets and Liabilities: Unlocking a Financially Distressed Customer's Balance Sheet," along with William A. Brandt Jr., Development Specialists Inc. The program will identify potential assets and liabilities that do not appear on a balance sheet, finding hidden value in a balance sheet when the liabilities side of a balance sheet does not tell the whole story, and when hidden liabilities arise in a bankruptcy or liquidation. The program will also cover unlocking the value of unreported or undervalued intellectual property and below market leases and how other contracts could substantially increase recoveries for unsecured trade creditors in their customer's bankruptcy case. Bruce and Ken will be joined by Bruce Buechler in co-hosting a private dinner with ABC-Amega for invited attendees at the conference.

Bruce Nathan is presenting "Spotting and Reacting to Warning Signs of Financially Distressed Customers: Dodging the Bankruptcy Bullet." Sponsored by NACM Great Lakes Region, the program addresses the early warning signs hovering over a company at risk of a future bankruptcy filing and how a credit executive can dodge a huge loss by quickly identifying and reacting to these warning signs as they accumulate.

Bruce Nathan will participate in a panel discussion, offering his perspectives on inquiries regarding bankruptcy and commercial law.

Bruce Nathan will present "Spotting and Reacting to the Warning Signs of a Financially Distressed Customer: Dodging the Bankruptcy Bullet." Sponsored by the National Association of Credit Management, this program will address the early warning signs hovering over a company at risk of a future bankruptcy filing and how a credit executive can dodge a huge loss by quickly identifying and reacting to these warning signs as they accumulate and point toward the inevitable customer bust.

Bruce Nathan will present two programs at the MFM/BCCA 56th Annual Conference: "Legal Issues of Credit" and "Current Hot Bankruptcy Issues Facing Trade Creditors and the Future of Chapter 11." Bruce will also host a private dinner for referral sources during the conference.

Bruce Nathan will present "Spotting and Reacting to Warning Signs of Financially Distressed Customers: Dodging the Bankruptcy Bullet." The program addresses the early warning signs hovering over a company at risk of a future bankruptcy filing and how a credit executive can dodge a huge loss by quickly identifying and reacting to these warning signs as they accumulate. Bruce will also present "Loose Lips Sink Ships" with Lawrence O'Brien of Potash Corporation at the annual meeting sponsored by NACM Connect. The program explores a number of areas where the slip of the tongue or inclusion of damaging information in one's file could land credit professionals into "hot water" and possibly liability. Topics include preference claims and what "smoking guns" in a file can make it more difficult and costly for a creditor to successfully defend against a preference claim, permissible communications at a trade group meeting, responding to a request for a reference and other communications between credit professionals, and the risk of costly antitrust litigation if credit professionals engage in impermissible discussions, as well as improper communications of an adverse action in violation of the Equal Credit Opportunity Act and Regulation B and the Fair Credit Reporting Act.

Bruce Nathan will present "Spotting and Reacting to Warning Signs of Financially Distressed Customers: Dodging the Bankruptcy Bullet." The program addresses the early warning signs hovering over a company at risk of a future bankruptcy filing and how a credit executive can dodge a huge loss by quickly identifying and reacting to these warning signs as they accumulate. Bruce will also present "Loose Lips Sink Ships," a program that explores a number of areas where the slip of the tongue or inclusion of damaging information in one's file could land credit professionals into "hot water" and possibly liability. Topics include preference claims and what "smoking guns" in a file can make it more difficult and costly for a creditor to successfully defend against a preference claim, permissible communications at a trade group meeting, responding to a request for a reference and other communications between credit professionals, and the risk of costly antitrust litigation if credit professionals engage in impermissible discussions, as well as improper communications of an adverse action in violation of the Equal Credit Opportunity Act and Regulation B and the Fair Credit Reporting Act.

Bruce Nathan will present "Can a Creditor Have Its Section 503(b)(9) Cake and Eat It, Too?" We have just passed the tenth anniversary of BAPCPA, which introduced extensive changes to the Bankruptcy Code. One of those changes provides sellers of goods a priority claim for goods sold to a debtor and received within 20 days of bankruptcy. Sponsored by NACM Tampa Inc., this program addresses a myriad of litigation issues involving efforts by debtors and secured lenders to reduce trade creditors' recoveries on this priority claim and court ruling, which will have a significant impact on trade creditors' rights.

Bruce Nathan will present "Loose Lips Sink Ships," a program that explores a number of areas where the slip of the tongue or inclusion of damaging information in one's file could land credit professionals into "hot water" and possibly liability. Topics include preference claims and what "smoking guns" in a file can make it more difficult and costly for a creditor to successfully defend against a preference claim, permissible communications at a trade group meeting, responding to a request for a reference and other communications between credit professionals, the risk of costly antitrust litigation if credit professionals engage in impermissible discussions, as well as improper communications of an adverse action in violation of the Equal Credit Opportunity Act and Regulation B and the Fair Credit Reporting Act.

Bruce Nathan will co-present with Aubrey Kauffman, partner at Fasken Martineau, "Canadian Bankruptcy Law Buffet Style With a U.S. Garnish." The webinar will provide an overview of Canada's bankruptcy laws that have the most impact on U.S. trade creditors selling goods and/or providing services to Canadian companies and a comparison with U.S. bankruptcy law. There will be a discussion of creditors' rights under Canada's CCAA, BIA, and other proceedings compared to creditors' rights under comparable U.S. Bankruptcy Code provisions. There will also be a discussion of recent Canadian retail filings.

Bruce Nathan will present "War Stories on Increasing Sales, Protecting Future Receivables, and Surviving Bankruptcy," along with Wanda Borges of Borges & Associates. This program will offer credit professionals a rare glimpse into the development of strategy to maximize leverage and recovery, and minimize risk from financially distressed customers prior to and following their bankruptcy filing. The Riemer Conference provides educational opportunities on general credit and international subjects for credit professionals.

Bruce Nathan will present "Spotting and Reacting to Warning Signs of Financially Distressed Customers: Dodging the Bankruptcy Bullet." The program addresses the early warning signs hovering over a company at risk of a future bankruptcy filing and how a credit executive can dodge a huge loss by quickly identifying and reacting to these warning signs as they accumulate.

Ken Rosen, Bruce Nathan, and Jeffrey Prol will lead a discussion entitled "Spotting and Reacting to Warning Signs of Financially Distressed Customers: Dodging the Bankruptcy Bullet." The program is sponsored by NACM Connect and NACM Midwest.

Bruce Nathan and Lowell Citron will present "Risk Mitigation Tools: Purchase Money Security Interests, Guarantees, and Letters of Credit" in-house to the legal and credit departments of a prospective client. The program will cover various risk mitigation options, such as purchase money security interests, letters of credit, and guarantees. Bruce and Lowell will host a dinner for the attendees following the presentation.

Bruce Nathan will present "Current Hot Chapter 11 Issues Facing Trade Creditors" at the annual conference sponsored by NACM. The seminar will address the myriad of issues in Chapter 11 cases faced by credit professionals, in which debtors and creditors have sought to obtain favorable court rulings on important issues for trade creditors. Bruce will discuss issues which have arisen in the Sports Authority case in particular, and what consignment creditors should do to obtain priority rights in their consigned goods. Bruce and Lowell Citron are also presenting "Mind Your Ts and Cs," a seminar that focuses on the importance of developing favorable terms and conditions as part of the contract between a company and its customers.

Bruce Nathan and Lowell Citron will present "Mind Your T's and C's," a seminar focusing on the importance of developing favorable terms and conditions as part of the contract between a company and its customers.

Bruce S. Nathan and Lowell A. Citron will present "Mind Your T's and C's," a seminar focusing on the importance of developing favorable terms and conditions as part of the contract between a company and its customers. The program is sponsored by the National Business Credit Exchange.

Bruce NathanLowell Citron, and Jason Teele will present "Risk Mitigation Tools When Unsecured Open Account Terms Are Too Risky" at the seminar sponsored by ABC-Amega Inc. The program will discuss credit insurance, accounts receivable puts, letters of credit, purchase money and other security interests, and consignments and guarantees as risk mitigation tools that could be used to allow a credit executive to say yes when confronted with a financially distressed customer at risk of filing bankruptcy.

Bruce Nathan and Chris Loeber will present a seminar entitled "Demystifying Credit Insurance: A Guide to Understanding and Negotiating Your Credit Insurance Policy." Bruce will also present "Loose Lips Sink Ships" and "A View from the Bench and the Bar: A Discussion of Current Hot Bankruptcy Issues Facing Trade Creditors and the Future of Chapter 11 following BAPCPA's Tenth Anniversary on June 14." Bruce and Chris will be joined the evening of June 13 by Ken RosenJeffrey Prol, and David Banker as they host a private dinner for referral sources and contacts during the conference. Bruce will also lead a seminar with J.C. Barone, Executive Director of J.P. Morgan Securities, "Using Risk Mitigation Tools to Say Yes When Unsecured Open Account Terms are Too Risky."

Ken RosenBruce Nathan, and Mary Seymour will present "The Impact of Increased Private Equity and Hedge Fund Activity on Creditors' Rights in the Chemical Industry: The New Normal?" The program focuses on the increased use of prepackaged and pre-negotiated Chapter 11 plans and section 363 sales, loan to own and credit bidding issues, and the increased frequency of make-whole and prepayment penalty protections in favor of secured noteholders that have raised the risk of a de minimis or no recovery to trade creditors, and the resulting heightened importance of an unsecured creditors' committee to maximize trade creditor recoveries. The speakers will also discuss the unique warning signs of a distressed company controlled by private equity or a hedge fund and the disposition of preference claims in such cases.

Bruce Nathan will co-present with Wanda Borges, Borges & Associates, "The Anatomy of a Liquidating Chapter 11 Case." Sponsored by the Federation of Credit & Financial Professionals, the program will present a case study based on a hypothetical liquidating Chapter 11 case where the ending is not yet known. The study begins with the organization of a pre-petition ad hoc unsecured creditors' committee whose members had unpaid unsecured trade claims against the debtor. Shortly afterward, certain members of the ad hoc committee joined in the filing of an involuntary Chapter 7 case that eventually converted to Chapter 11. The speakers will discuss what motivated the creditors to join in the involuntary bankruptcy filing and the pros and cons of filing involuntary petitions. There will then be a discussion of the official creditors' committee's investigation of the validity and perfection of the debtor's lender's pre-petition secured claim, as well as of preference or fraudulent transfer claims against the secured lender. They will also discuss the insider transactions involving the debtor's principals and related entities exposing them to fraudulent transfer and Director and Officer Liability claims, as well as the sale of debtor's assets.

Bruce Nathan and Philip Gross presented "Is Your Ship Stranded at Sea? Demystifying Chapter 15 of the Bankruptcy Code and Recent Cross-Border Insolvency Developments," on March 17, 2017. Sponsored by NACM Northwest, the program demystified Bankruptcy Code Chapter 15's complexities, discussing how Chapter 15 works, what Chapter 15 filings are being used to accomplish, and practical advice for trade creditors when a foreign debtor files a Chapter 15 case. 

Bruce Nathan and Philip Gross presented "Is Your Ship Stranded at Sea? Demystifying Chapter 15 of the Bankruptcy Code and Recent Cross-Border Insolvency Developments," as a webinar to the Finance, Credit & International Business Association on March 2, 2017. 

Ken Rosen, Bruce Nathan and Philip Gross presented a seminar on bankruptcy and creditors' rights issues to the Northeast CORE (Chief Officers Reaching Excellence) Group sponsored by the International Housewares Association, on December 7, 2016 in Fort Lee, NJ. Phil addressed cross-border insolvency issues raised in the Hanjin Shipping Chapter 15 case.

Bruce Nathan and Wanda Borges, Borges & Associates, will present "Bankruptcy: A View from the Bench and Bar," a review of the extensive changes to the Bankruptcy Code introduced in BAPCPA ten years ago. Practitioners have tackled a myriad of issues where debtors and creditors have sought to obtain rulings in their respective favors. There have been significant rulings on goods sellers' priority claims for the goods a debtor had received within 20 days of bankruptcy and on defenses to preference claims. Chapter 11 cases have also undergone a dramatic transformation over the past 10 years. This program will focus on current cases, the ongoing legal battles being waged in these cases and the latest hot issues of interest to trade creditors. Bruce will also present "Spotting and Reacting to the Financially Distressed Customer: Dodging the Bankruptcy Bullet," which focuses on the early warning signs characterizing troubled companies at risk of a future bankruptcy filing and the available sources of information from which credit executives can learn of these warning signs. Recent case studies will be presented to show how all these warning signs accumulate and point toward the inevitable. There will also be a review of the questions to ask and information to obtain from what might be financially distressed private companies. Credit executives will then learn how they can use this information to negotiate for protection from the risk of nonpayment or otherwise utilize the multiple available legal and risk mitigation tools that would enable them to reduce or terminate terms and enhance the likelihood of claims payment from struggling customers.

Bruce S. Nathan will speak at the 2018 All-South Credit Conference, scheduled for October 21-23, 2018. This conference is a regional convention where members will broaden their knowledge from educational programs targeted to the credit professional, network with other credit professionals during brainstorming sessions, and meet vendors of interest that can benefit them and their companies.

Bruce S. Nathan joins speakers to discuss A View From The Bench And Bar: 
A Discussion Of Current Hot Bankruptcy Issues Facing Trade Creditors. 

Twelve years have elapsed since the passage of the Bankruptcy Abuse Prevention and Consumer Protection Act (BAPCPA) which introduced extensive changes to the Bankruptcy Code. Since then, practitioners have tackled a myriad of issues where debtors and creditors have sought to obtain rulings in their respective favors.

The speakers will first discuss the risk of doing business with a debtor in chapter 11 that has not obtained bankruptcy court approval of financing or use of the cash proceeds of a secured lender’s collateral as a result of the 11th Circuit Court of Appeals decision in the Delco Oil case. There will also be a discussion of the significant rulings on goods sellers’ reclamation rights, priority claims for the value of the goods a debtor had received within 20 days of bankruptcy, and defenses to preference claims. The issues arising with respect to involuntary bankruptcy petitions and the pro’s and con’s of joining in an involuntary petition will also be discussed.

The speakers will then discuss the Midland Funding vs Johnson case, where the United States Supreme Court will be deciding whether a debt collector violates the Fair Debt Collection Practices Act by filing a proof of claim for an unenforceable claim based on the passage of the statute of limitations. Next, the speakers will tackle the recent litigation over consignment claims in the Sports Authority chapter 11 case. The speakers will also discuss the impact of the local Bankruptcy Court rules on trade creditor rights, such as the ability to be approved as a critical vendor, as well as other hot issues of interest to trade creditors. This session promises to be lively, and participation from the audience will be encouraged.

Panelists:

  • Bruce S. NathanPartner, Lowenstein Sandler LLP
  • Hon. Catherine Peek McEwen, United States Bankruptcy Judge, Middle District of Florida-Tampa Divison
  • Wanda Borges, Principle Member, Borges & Associates LLC.

Following a flurry of retail chapter 11 bankruptcy filings in 2017 continuing into 2018, the retail sector remains in transition and distress. This program focuses on the reasons for ongoing distress in the retail sector, warning signs of an impending retail bankruptcy, and the importance of the credit department in managing financial exposure to retailers in distress and in bankruptcy. The speakers will discuss the disastrous 2017 Toys ‘R’ Us 4 of 7 bankruptcy, and the events leading to it, as a cautionary tale in dealing with troubled retailers both before and after they file for bankruptcy protection, including the risk of extending credit to retailers in chapter 11 and strategies for minimizing risk of non-payment of claims.

Speakers:

Location:
Sheraton Grand at Wild Horse Pass, 5594 W Wildhorse Pass Boulevard, Phoenix, AZ

Most states have enacted mechanic’s liens in favor of creditors that provide goods and/or services on construction projects. Some states have also enacted, and parties in the construction supply chain can agree to, trust fund protection in amounts owing to  general contractors and subcontractors. This program focuses on a creditor’s ability to maintain and enforce its mechanic’s lien and construction or builders trust fund rights where a customer in the construction supply chain files for bankruptcy. The speakers will discuss the impact of the automatic bankruptcy stay and other provisions of the Bankruptcy Code on mechanic’s lien rights. The speakers  will then discuss the impact of the local mechanic’s lien statute on a creditor’s ability to maintain and enforce its mechanic’s lien rights in its customer’s bankruptcy case. Also, there will be a discussion of the superior status conferred upon the beneficiaries of a construction or builders trust fund that increases the likelihood of payment of their claims. Finally, creditors’ ability to invoke their lien or trust fund status as a defense to preference claims will be discussed.

Speakers:

  • Bruce S. Nathan, Partner, Lowenstein Sandler LLP
  • Chris Ring, National Sales Representative, Secured Transaction Services, National Association of Credit Management

 

U.S. trade policy and tariffs, in particular, have become a hot topic for credit providers. This program will cover the Trump administration trade actions and Congressional legislation that have affected credit decisions. That includes a discussion of tariffs, targeted sanctions programs, the impact of the United States-Mexico-Canada (USMCA) Free Trade Agreement (NAFTA 2.0), the changes to the Committee on Foreign Investment in the United States (CFIUS), and new export controls on emerging technologies. These actions have increased attention on supply chain management, country of origin issues, foreign ownership, and scrutiny of potential deal partners as they may lead to problematic foreign ownership or control over U.S. emerging technologies or economic sanctions violations. Ultimately, these issues affect everything from component purchases to future investment opportunities. Moreover, increased enforcement is affecting audit plans, leading to more external reviews and creating a better understanding of how these issues affect management decisions.

Topics that will be addressed during the program:

  • How to navigate legitimately through and around tariffs, including identifying tariff exclusions, and developing a strategy for and identifying the risks of passing tariff costs onto customers
  • What to be paying attention to as an importer or exporter in 2019
  • Impact of tariffs on customers in or approaching financial distress
  • How to identify if your products are controlled technologies

 Speakers:

  • Doreen M. Edelman, Partner; Chair, Global Trade & Policy, Lowenstein Sandler LLP
  • Bruce S. Nathan, Partner, Bankruptcy, Financial Reorganization & Creditors' Rights, Lowenstein Sandler LLP

Webinar access:

Instructions to join the webinar will be sent to the main registrant's email address the day before. Please log in at least 15 minutes prior to the webinar commencing to ensure ample time for technical assistance if needed.

Join Lowenstein partners Doreen M. Edelman and Bruce S. Nathan at the NCCA September Quarterly Meeting as they speak on a panel titled "Reducing Trade and Compliance Risks in a Volatile 2019."

Panelists:

Location: Omni Charlotte Hotel, 132 E Trade St, Charlotte, NC 28202

With the spigot of virtually free money flowing into lenders’ coffers for the better part of a decade, corporate borrowers have been able not only to roll over their existing debt, but also to borrow a lot more. Commentators have sounded doomsday alarms of an impending “wall” of corporate debt maturities for most of the last decade. During that period, the debt-maturity time bomb has been kicked further down the road, but they simultaneously enabled the problem to roughly double in size. With hundreds of billions of dollars of corporate debt maturing in the next two years, the long-predicted day of balance sheet reckoning may finally be upon us. Join Bruce S. Nathan and Andrew David Behlmann as they present a webinar that focuses on how to prepare for and deal with the upcoming corporate debt crisis.

This program will delve into:

  • Modern corporate capital structures and their characteristics, including the increasingly debt-heavy balance sheets plaguing corporate America, that can intensify or accelerate companies’ distress and make restructuring more difficult
  • Other factors, such as tariffs, that are fueling concerns of an upcoming slowdown or recession
  • Warning signs to help identify customers most at risk from the burgeoning corporate debt crisis,
  • Tools you can start using now to help mitigate the risks of eventual defaults and restructurings.

Time: 3-4:30 p.m.

Companies are facing unprecedented challenges in responding to the coronavirus pandemic. This crisis is having a direct and immediate impact on the workforce, financing, corporate governance, insurance, the supply chain, and data security.

Join us for a webinar to address the issues arising from coronavirus fallout. Our panel of leaders from a broad-range of practices will give an overview of critical points on which corporate leadership needs immediate guidance.

Topics will include:

  • Employees: how should companies handle employment issues such as confidentiality, exempt/non-exempt issues, paid (and unpaid) time off, salary reductions, furlough, and layoffs?
  • Insurance: what coverage is available, and looking around the corner, what renewal considerations should companies be thinking about?
  • Vendors and Suppliers: Force majeure in contracts, and identifying warning signs of a financially distressed customer and risk mitigation tools
  • Credit Facilities: Availability of funds, notification requirements, financial reporting, financial covenant compliance and communicating with lenders
  • IT and Data Security: Possible fraud and cyber threats especially with remote working
  • Corporate governance: What should boards of directors be doing?

Our attorneys are fielding myriad questions from clients and friends of the firm on how to navigate the unprecedented challenges presented by COVID-19. Dealing with work-from-home (WFH), balancing employee confidentiality with protecting workforce health, interacting with lenders, being vigilant against cyber fraud, and making sure our boards of directors are engaged and discharging their duty of care, are among the many topics that the panel will discuss and respond to questions. We are very much looking forward to an interactive discussion and strongly encourage you to submit questions here in advance of our program.

Program timing: 11:30 a.m. - 1:00 p.m. EST

Lowenstein lawyers from a broad array of practice areas address the key legal and business issues arising from the Coronavirus/COVID-19 crisis. Our speaker provide an overview of critical points on which corporate leadership needs immediate guidance.

Topics include:

  • Employment & HR Issues
  • Insurance
  • Customer/Supplier Financial Distress
  • Credit Agreements
  • Data Security
  • Boards of Directors Concerns

 

Lowenstein Sandler partners Lowell A. Citron, Bruce S. Nathan, and Jeffrey D. Prol provided a series of webinars to the Credit Research Foundation (CRF) to address the following topics related to the coronavirus's impact on credit risk management.

Please click on each title above to view the respective webinar.

Credit professionals are confronting a growing trend of customers either demanding extended trade terms or simply engaging in self-help and stretching payments beyond – often way beyond – existing terms.  The speakers will discuss the reasons why customers seeking extended credit terms is a growing trend, how to evaluate whether a customer’s efforts to obtain extended terms are a sign of financial distress or merely an attempt to obtain “free” working capital (or both), and strategies for responding to customers’ extended terms requests/demands, particularly during the COVID-19 pandemic.

Presenters:


Time:
1-2 p.m. EDT

To see our other material related to the pandemic, please visit the Coronavirus/COVID-19: Facts, Insights & Resources page of our website by clicking here.

In light of the numerous recent major bankruptcy filings, particularly in retail, the speakers will provide valuable information on what to expect, and how credit professionals can protect themselves against the onslaught of bankruptcy filings expected in the wake of COVID-19.

Speakers:

  • Bruce S. Nathan, Partner, Bankruptcy, Financial Reorganization & Creditors' Rights
  • Andrew BehlmannPartner, Bankruptcy, Financial Reorganization & Creditors' Rights
  • Michael Papandrea, Associate, Bankruptcy, Financial Reorganization & Creditors' Rights

Timing: 1-2 p.m. EDT

Bruce S. Nathan, Partner, Bankruptcy, Financial Reorganization & Creditors' Rights, and Mary J. Hildebrand CIPP/US/EPartner; Founder and Chair, Privacy & Cybersecurity, are featured speakers in prerecorded webinars produced for the National Association of Credit Management's 2020 Credit Congress & Expo: Online Showcase

Access is available June 15-August 31, 2020.

29040. Data Privacy & Cybersecurity in the Post-Pandemic Era 
Speakers: Val Venable, CCE and Mary J. Hildebrand, Esq., Lowenstein Sandler

This session examines the privacy and cyber impact of COVID-19 on the credit industry, along with applicable laws and best practices.

29064. Cutting-Edge Bankruptcy Training: The Follow-up to Bankruptcy Bootcamp - Part 1 
Speakers: Wanda Borges, Esq., Borges & Associates, LLC and Bruce S. Nathan, Esq., Lowenstein Sandler LLP

Whether you attended Bankruptcy Bootcamp at Credit Congress 2019 or have gained basic bankruptcy knowledge elsewhere or on the job, this program has been prepared to take you to the next level of knowledge. As we see more bankruptcy cases building a nest egg from preference recoveries, the best practices to defend preferences and understanding the nuances of building that preference defense, sometimes with unique “tricks” will be imperative for the next several years. The speakers will discuss the recent changes to the Bankruptcy Code concerning preference claims; recent litigated issues concerning preference claims and defenses, the section 503(b)(9) priority claim in favor of goods sellers, reclamation claims, consignment claims, and involuntary bankruptcy petitions; and the recent amendment to the Bankruptcy Code concerning small business debtors. Also, chapter 11 Plans to best protect your company from the risk of third party releases and the strategy behind opposing such plans will be discussed. The speakers will share the important role that creditors’ committees play in assisting trade creditors that do business with chapter 11 debtors and enhancing trade creditor recoveries.

29074. Cutting-Edge Bankruptcy Training: The Follow-up to Bankruptcy Bootcamp - Part 2 
Speakers: Wanda Borges, Esq., Borges & Associates, LLC and Bruce S. Nathan, Esq., Lowenstein Sandler LLP

Whether you attended Bankruptcy Bootcamp held at NACM’s 2019 Credit Congress or have gained your basic bankruptcy knowledge elsewhere or on the job, this program has been prepared to take you to the next level of knowledge. As we see more bankruptcy cases building a nest egg from preference recoveries, the best practices to defend preferences and understanding the nuances of building that preference defense, sometimes with unique “tricks” will be imperative for the next several years. The speakers will also discuss the recent changes to the Bankruptcy Code concerning preference claims; recent litigated issues concerning preference claims and defenses, the Section 503(b)(9) priority claim in favor of goods sellers, reclamation claims, consignment claims, and involuntary bankruptcy petitions; and the recent amendment to the Bankruptcy Code concerning small business debtors. The speakers will also be dissecting Chapter 11 Plans to best protect your company from the risk of third-party releases and discuss the strategy behind opposing such plans. Finally, the speakers will discuss the important role that creditors’ committees play in assisting trade creditors that do business with Chapter 11 debtors and enhancing trade creditor recoveries.

Program notes:

The 2020 Credit Congress education sessions will now be presented in an online format. Registered delegates can earn up to 1.3 CEUs and have access to all available content until August 31, 2020. Instructions and a launch date will be sent to delegates.

Registered delegates will have access to:

  • Sessions via webinar (recorded and live)
  • The ability to listen and learn from unlimited presenters
  • CEUs (continuing education units) and CCE recertification points
  • Expo Showcase, highlighting the vital products and services from our Expo partners
  • Plus free bonus content

Access is available June 15-August 31, 2020.



Professional Associations


  • New York State Bar Association
  • American Bar Association

    • Commercial Financial Services Committee
    • Business Bankruptcy Committee

  • American Bankruptcy Institute

    • Former Member, Board of Directors
    • Former Chair, Unsecured Trade Creditor Committee
    • Regular Contributor to American Bankruptcy Institute Journal's "Last in Line" Column
    • Speaker at 2007 Annual Spring Meeting: "Fifty Ways to Leave Your Debtor: Lesser Known Remedies For Jilted Creditors"
    • Panelist at "Chapter 11 At The Crossroads:  Does Reorganization Need Reform?" A Symposium on the Past, Present and Future of U.S. Corporate Restructuring," on November 16-17, 2009, sponsored by ABI and co-sponsored by Georgetown University Law Center
    • Participated in the Great Debates at ABI's Annual Spring Meeting held on April 30, 2010 on whether Congress should eliminate the special BAPCPA protections for providers of goods and lessors (arguing against repeal)
    • Task Force on Preferences
    • Chair, Task Force on Reclamations
    • Uniform Commercial Code Committee and Task Force - Revised Article 9 Primer

  • American Bankruptcy Institute's Commission to Study the Reform of Chapter 11

    • Co-chair, Avoiding Powers Advisory Committee

  • Commercial Law League of America
  • Association of Commercial Finance Attorneys
  • National Association of Credit Management

    • Contributor to Business Credit - National Association of Credit Management Magazine
    • National Bankruptcy and Insolvency Group
    • Lecturer, National Association of Credit Management and Affiliates and Credit Groups on Bankruptcy, UCC Article 9, Consignments, Letter of Credit law and other credit-related issues

  • Member of FCIB, an Association of Executives in Finance, Credit and International Business. Presented at The 4th China International Credit and Risk Management Conference, Shenzhen, China, September 21, 2007, and FCIB Teleconference, December 13, 2007, on key provisions of People’s Republic of China’s 2006 Law on Enterprise Bankruptcy, similarities to and differences with the U.S. Bankruptcy Code, and upcoming implementation challenges
  • Media Financial Management Association

    • Member
    • Frequent Lecturer
    • Contributor to "The Financial Manager" on Creditors' Rights Issues

  • Lecturer, Executive Enterprises Inc. the Bank Lending Institute and the Banking Law Institute on Commercial Loan Workouts & UCC Issues
  • Past Contributor

    • Credit Today
    • National Credit News

Professional Activities and Experience

Accolades
  • MFM-BCCA’s Rainmaker Award (Nathan)
  • New York Super Lawyers - (2012-2017) - Bruce Nathan

Articles

When Financial Stress Turns to Distress–Restructuring Tools to Avoid Disaster Parts 1 and 2: Chapter 11 Checklist and What Else Is in the Toolbox
Lowenstein Sandler LLP, April 2020

When Financial Stress Turns to Distress–Restructuring Tools to Avoid Disaster Parts 1 and 2: Chapter 11 Checklist and What Else Is in the Toolbox In this Client Alert series, Lowenstein’s Bankruptcy, Financial Reorganization & Creditors’ Rights Department will introduce the various restructuring tools available to help businesses avoid financial catastrophe in the current environment...

Impact of Cross-Border Court-to-Court Communications on U.S. Creditors' Rights
Lowenstein Sandler LLP, July 2017

As U.S. businesses have gone global, so have their customers. U.S. companies selling abroad have been confronted with customers that have filed for relief under their country’s insolvency law. If the customer has a business or assets here in the U.S., he or she might then file either a Chapter 11 or Chapter 15 case in a U.S. bankruptcy court. Unlike a Chapter 11 case, a Chapter 15 case is not necessarily the “main event.” Yet, even in Chapter 15 cases, U.S...

Jevic: Supreme Court Invalidates Non-Consensual “Structured Dismissals”, But Critical Vendor Orders, First-Day Wage Orders, DIP Financing Roll-Ups, Interim Settlement Distributions Remain Undisturbed
Lowenstein Sandler LLP, March 2017

In a 6-2 decision in Czyzewski v. Jevic Holding Corp. (“Jevic”), the Supreme Court put an end to the increasingly popular practice in the bankruptcy world known as “structured dismissals”, at least on a non-consensual basis. A “structured dismissal” typically occurs following a sale of all or substantially all of a Chapter 11 debtor’s assets during a bankruptcy case...

Additional Articles

On its face, Section 503(b)(9) of the Bankruptcy Code looks deceptively easy to apply. It grants a goods seller an administrative priority claim for the value of goods sold to the debtor in the ordinary course of its business that the debtor had received within 20 days of its bankruptcy filing. However, there has been extensive litigation over various aspects of Section 503(b)(9), particularly over the meaning of the term “received.” Success or failure in these litigations has greatly impacted trade creditor recoveries because creditors have a greater likelihood of obtaining full payment of their Section 503(b) (9) priority claims in comparison to their far less valuable general unsecured claims, in which recovery prospects are oftentimes dim to nonexistent.


The United States Court of Appeals for the Third Circuit, in In re World Imports Ltd., recently became the first United States Court of Appeals to address the meaning of “received” in the context of Section 503(b) (9) administrative priority claims. The Third Circuit, which includes Delaware (the venue where many large Chapter 11 cases are filed), New Jersey and Pennsylvania, held that a debtor receives goods when the debtor or its agent takes physical possession of them, instead of when title or risk of loss passes to the debtor, which might occur earlier. This decision could lead to an increase in allowed Section 503(b)(9) priority claims, particularly for creditors manufacturing and then delivering goods from outside the United States.


Then, just a few days later, the United States Bankruptcy Court for the District of Delaware, in SRC Liquidation LLC, formerly known as Standard Register Company (“Standard Register”), relied on the World Imports decision to resolve another issue: whether a creditor’s claim for goods “drop-shipped” directly to a debtor’s customer is eligible for administrative priority status under Section 503(b)(9). The SRC Liquidation court denied Section 503(b)(9) administrative priority status to the claim of a goods seller that drop-shipped goods to the debtor’s customer based on the court’s determination that neither the debtor nor its agent took physical possession of the goods. This ruling could have devastating consequences to trade creditors that sell on drop-ship terms.


You win some and you lose some!

The United States Court of Appeals for the 3rd Circuit, in In re World Imports Ltd., recently held that a debtor, World Imports, had received goods when the debtor or its agent physically received the goods, not when the goods were delivered to a common carrier for shipment. This decision was made in conjunction with determining the allowed amount of trade creditors’ Section 503(b)(9) administrative priority claims for goods purportedly received by World Imports within 20 days of its bankruptcy filing.

Article 2 of the Uniform Commercial Code (“UCC”) grants unpaid goods sellers the right to stop delivery of goods or reclaim goods sold to a financially distressed customer, depending on whether the customer had received the goods. However, reclamation rights have been eviscerated as a result of the enactment of the 2005 amendments to the Bankruptcy Code and prior and subsequent court decisions that have subordinated reclamation rights to a secured lender’s floating inventory lien.


A seller’s stoppage of delivery rights can be far more potent than the more problematic reclamation rights. A recent decision by the United States Bankruptcy Court for the District of Delaware, in O2Cool, LLC v. TSA Stores, Inc., et al., continues to tip the scales in favor of an unpaid seller’s stoppage of delivery rights. The court held that a goods seller’s proper exercise of its stoppage of delivery rights may trump a secured lender’s floating lien on inventory because stoppage of delivery rights—unlike reclamation rights—are not subordinate to a floating lien on a debtor’s inventory.

This article was inspired by "Singapore-Delaware Courts Adopt Cross-Border Insolvency Guidelines,” which appeared in FCIB’s Week in Review in February 2017.


As U.S. businesses have gone global, so have their customers. U.S. companies selling abroad have been confronted with customers that have filed for relief under their country’s insolvency law. If the customer has a business or assets here in the U.S., he or she might then file either a Chapter 11 or Chapter 15 case in a U.S. bankruptcy court.


Unlike a Chapter 11 case, a Chapter 15 case is not necessarily the “main event.” Yet, even in Chapter 15 cases, U.S. judges still have critical roles to play with respect to, among other things, administering a foreign debtor’s U.S. assets and ensuring U.S. creditors’ rights are fairly and adequately protected. One way to protect the interests of U.S. creditors is pursuant to Section 1525 of the Bankruptcy Code, which encourages communication and cooperation among the courts involved in crossborder proceedings and authorizes U.S. courts to communicate directly with foreign courts.

Most states have enacted statutes that allow creditors providing goods and/or services to a contractor on a construction job to file a "mechanics' lien" or "construction lien" directly against a third-party owned construction project in which (a) the creditor provided goods and/or services to the contractor, (b) the contractor used the goods and/or services on the construction project, and (c) the contractor had not paid for the materials or services. Under certain circumstances, the creditor might also be able to benefit from its lien rights by stepping into the contractor's shoes and directly collecting the project owner's indebtedness to the contractor.

Preference claims continue to be a thorn in the side of trade creditors' efforts to minimize their losses from a customer's bankruptcy filing. Creditors mitigate their losses by frequently relying on the subsequent new value defense.

Trade creditors oftentimes have great difficulty collecting their general unsecured claims against financially distressed customers. Creditors should, therefore, take advantage of any rights that can enhance their recoveries.

When purchasing TCI, a creditor should negotiate for the inclusion of policy provisions that grant the broadest possible protection from the risk of nonpayment of its accounts receivable and bankruptcy preference liability. Consulting with the right broker and attorney could be the difference between obtaining extensive, minimal, or no preference coverage.


A creditor purchases Trade Credit Insurance (TCI) to protect against the risk of a customer’s nonpayment of accounts payable owing to the creditor. This risk materializes upon a customer’s protracted nonpayment of invoices or bankruptcy filing. A creditor whose customer has filed for bankruptcy is stayed from collecting its prepetition claim and faces the prospect of a diminished or no recovery on its claim.

As a general rule, the automatic stay in a debtor’s bankruptcy case bars creditors from taking action to collect their claims against the debtor. However, in very limited circumstances, courts have extended the stay to enjoin non-debtor third-party collection efforts, such as lawsuits against guarantors of a debtor’s obligations. In a recent decision, the United States Bankruptcy Court for the Northern District of Iowa (the “Bankruptcy Court”), in In re Bailey Ridge Partners, LLC, took the unusual step of staying two litigations against non-debtors, one to enforce claims against guarantors of a debtor’s obligations and the other to enforce a claim against a nondebtor co-obligor. The Bankruptcy Court concluded that: (a) the debtor was likely to successfully reorganize and emerge from bankruptcy; (b) the guarantors and co-obligor were critical to the success of the reorganization based on the financial and other support they had provided and committed to provide to the debtor; and (c) the creditor suing the non-debtor guarantors was fully secured by the debtor’s assets.

The courts have reached conflicting decisions over whether a debtor’s Chapter 11 lender trumps a trade creditor’s reclamation rights where the lender is secured by the debtor’s inventory and its loan is used to pay off a pre-petition loan also secured by the debtor’s inventory. The United States Bankruptcy Court for the Southern District of Indiana, in In re hhgregg, Inc., recently denied relief on a reclamation claim based on it being subordinate to, and rendered valueless by, the debtors’ Chapter 11 loan secured by the debtors’ inventory. The hhgregg court relied on the rulings of the United States Bankruptcy Court for the Southern District of New York, in the Dairy Mart and Dana Corporation cases, that denied relief on reclamation claims because the debtors’ Chapter 11 lenders’ security interest in the goods subject to reclamation trumped the rights of the reclaiming creditors in the goods. Both courts relied on the debtors’ use of the proceeds of the Chapter 11 loans secured by the debtors’ inventory to repay the debtors’ pre-petition loans also secured by the debtors’ inventory. The courts regarded the debtors’ pre-petition and Chapter 11 secured loans as one transaction that related back to the inception of the pre-petition secured loan when there were no reclamation claims.

Trade creditors enter into consignment arrangements with their financially distressed customers to increase the likelihood of payment of their claims. The best practice for a consignment goods seller, known as the consignor, is to satisfy all the requirements contained in Article 9 of the Uniform Commercial Code (“UCC”) governing consignments. A consignor that “dots its i’s and crosses its t’s” by satisfying these requirements obtains a first and prior interest in its consigned goods. A noncompliant consignor risks being treated as a general unsecured creditor.


However, consignors that fail to comply with UCC Article 9 can take much comfort from the 2017 decision of the United States Bankruptcy Court in Delaware, in In re TSAWD Holdings, Inc., formerly known as Sports Authority. The bankruptcy court refused to grant judgment in favor of Sports Authority’s secured lender, Wilmington Savings Fund Society, FSB (“WSFS”), which had sought a declaration that it had a prior perfected security interest in Sports Authority’s inventory, senior to the rights of a consignor that had failed to file a UCC financing statement describing its consigned goods. The court denied WSFS’ motion and permitted the litigation to continue. The court found an issue of fact existed over whether the consignment arrangement was a true consignment not governed by UCC Article 9, and not requiring the consignor to file a UCC financing statement.


This decision opens the door for consignors that fail to follow UCC Article 9’s consignment requirements to obtain at least some recovery on their consignment claims.

If there is one pill tougher for a creditor to swallow than being owed significant indebtedness by a financially distressed customer that has filed a bankruptcy case, it is collecting outstanding invoices from its customer only to later find out those payments are subject to turnover as a preference after its customer’s bankruptcy filing. Preference claims continue to plague trade creditors who received payments from a customer within 90 days of the customer’s bankruptcy filing because the Bankruptcy Code provides that these payments are subject to disgorgement.


Creditors can reduce their exposure by asserting an array of preference defenses. However, the recent decision of the United States Court of Appeals for the Third Circuit (the “Third Circuit”), in Burtch v. Prudential Real Estate & Relocation Services, Inc., et al. (“Prudential”), illustrates how a trade creditor’s prudent collection efforts ultimately precluded the creditor from proving one of these preference defenses, the ordinary course of business defense, that would have mitigated its preference liability.

Trade creditors should take notice when any United States Court of Appeals rules on the applicability of a preference defense. Well, the United States Court of Appeals for the Third Circuit is no exception, particularly because the United States Bankruptcy Court in Delaware, where many large commercial Chapter 11 cases are filed, is in the Third Circuit.


The Third Circuit’s recent ruling, in Burtch v. Prudential Real Estate & Relocation Services, Inc., et al., provides important guidance to trade creditors, seeking to mitigate their preference risk, on the applicability of the ordinary course of business (“OCB”) and subsequent new value (“SNV”) defenses. Bottom line: while a creditor’s efforts to collect its past due claim, such as by changing terms, imposing a credit hold, and/or applying other collection pressure, might increase the likelihood of collection, these actions might also have the unintended consequence of frustrating the creditor’s ability to prove the OCB defense (and increasing the creditor’s preference liability) for payments that might have otherwise been regarded as ordinary course transactions.

The courts have reached conflicting holdings over the validity of nonconsensual releases of claims against non-debtors in Chapter 11 bankruptcy cases. However, the courts have been more inclined to approve nonconsensual releases of claims against non-debtors in Chapter 15 bankruptcy cases. This most recently occurred in the Chapter 15 case of In re Avanti Communications Group PLC (Avanti), pending in the United States Bankruptcy Court for the Southern District of New York (the Bankruptcy Court). The Avanti decision illustrates the willingness of United States courts to approve nonconsensual releases of claims against non-debtors in Chapter 15 cases that these same U.S. courts would not necessarily approve if those same releases were sought in Chapter 11 cases. However, even in Chapter 15 cases, there are limits to a court’s willingness to grant such nonconsensual non-debtor releases.

Goods sellers had previously relied on reclamation rights when customers were unable or unwilling to pay for goods delivered on credit terms. The enactment of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (BAPCPA) limited the reclamation rights of goods sellers by curtailing the available remedies. There have been post-BAPCPA court decisions that have denied relief on reclamation claims.


As a result, creditors asserting reclamation claims have continued to face significant obstacles in either securing the return of their goods or receiving a distribution on account of their claim. However, a few courts have ruled in favor of reclamation creditors. As a result, despite the unfavorable holdings, creditors seeking to increase their recoveries should continue to assert their reclamation rights. This article provides an overview of the issues reclamation creditors have litigated and how they have fared since BAPCPA’s passage.

Creditors dread spending the time and expense necessary to defend preference claims. Fortunately, creditors can take solace from the array of defenses that can reduce their preference liability. One of the more frequently invoked preference defenses is the new value defense in Bankruptcy Code Section 547(c)(4). A hotly contested issue is whether the new value defense includes both paid and unpaid new value, or is limited to just unpaid new value?


On August 14, 2018, the United States Court of Appeals for the Eleventh Circuit, in William S. Kaye, Trustee of BFW Liquidating Trust v. Blue Bell Creameries Inc., joined four other U.S. Circuit Courts of Appeal in ruling that the new value defense includes both paid and unpaid new value. This issue is critically important to trade creditors as their ability to include paid, as well as unpaid, new value in support of their new value defense can significantly reduce their preference liability.

Prudent trade creditors may rightly be wary of continuing to sell goods or provide services on credit to distressed customers that are headed toward bankruptcy. The risk of nonpayment is worrisome enough, but the added risk of having to return payments, received after painstaking collection efforts, as a preference is simply unpalatable.


Luckily, trade creditors can take comfort from a recent decision by the United States Court of Appeals for the Eleventh Circuit (the “Eleventh Circuit”), In re BFW Liquidation, LLC (“BFW”), that allowed paid as well as unpaid new value as a defense to a preference claim. The Eleventh Circuit’s holding will likely significantly reduce preference risk in many cases and is a solid win for the trade!

Trade creditors face the risk of preference liability in too many bankruptcy cases. The Bankruptcy Code provides the subsequent new value, ordinary course of business and contemporaneous exchange defenses to preference liability. However, that has not stopped creditors from thinking outside of the box and asserting novel defenses to reduce their preference risk.


In a recent case, a creditor/preference defendant asserted a full defense to a preference claim based on the creditor’s status as a “critical vendor,” whose pre-petition claim was paid pursuant to an order approved by the bankruptcy court. The United States Bankruptcy Court for the Eastern District of New York, in In re Personal Communications Devices, LLC, rejected this novel “critical vendor defense.” The court relied on the absence of a waiver of preference claims in the order approving the payment of the vendor’s pre-petition claim. The court also rejected the creditor’s creative “hindsight” argument that the bankruptcy court would have approved, as part of the critical vendor arrangement, the debtor’s post-petition payment of the creditor’s pre-petition invoices that were paid by the alleged preference payments if the debtor had not made these payments.

Introduction
As the commercial world continues moving business processes and transactions to mobile devices and the web, the legal world continues working—and often struggling— to adapt traditional contract principles to an ever-evolving electronic paradigm. The recent ruling of the United States District Court for the Northern District of California, in Rushing v. Viacom, where the court grappled with the enforceability of an arbitration clause of a website user agreement, should serve as a warning for companies considering entering into online agreements with their customers. The Rushing v. Viacom decision illustrates that a party seeking to create an enforceable electronic contract with its customers must provide clear and explicit, notice of the contract’s terms and conditions, and a mechanism for confirming its customers’ acceptance of such terms and conditions, or face the risk that a court will not enforce the electronic contract.

A trade creditor whose financially distressed customer has filed for bankruptcy is frequently looking for ways to maximize recovery on its claim. Setoff is one such risk mitigation tool that allows a creditor to net out its claim against its customer on a dollar- for-dollar basis to reduce the creditor’s indebtedness to that customer.


Triangular setoff expands setoff rights by contract to permit affiliated entities to setoff the obligation of one of the affiliates to a debtor to reduce the debtor’s indebtedness owing to another affiliate. Unfortunately for the creditor, triangular setoff rights are not necessarily enforceable in bankruptcy, despite being enforceable under state law.

Trade and other unsecured creditors may consider joining an involuntary bankruptcy petition as a means to obtain payment of their claims. However, they should carefully weigh their decision and consider section 303(b)(1) of the Bankruptcy Code, which conditions a creditor’s eligibility to join an involuntary petition on its claim not being subject to a bona fide dispute as to liability or amount. 


A recent decision by the United States District Court for the District of Nevada, in State of Montana Department of Revenue v. Blixseth (the “Blixseth Court”), has fleshed out the meaning of a bona fide dispute as to the amount of a petitioning creditor’s claim and serves as a stark warning to creditors contemplating joining an involuntary bankruptcy petition. The Blixseth Court upheld the dismissal of an involuntary petition based on the disqualification of two petitioning creditors whose claims were found to be subject to a bona fide dispute as to amount because they were partially disputed. Bottom line, this decision raises the bar for creditors filing an involuntary bankruptcy petition. Creditors should make sure their claims are wholly undisputed or risk dismissal of the petition that can expose them to sanctions.

A trade creditor can mitigate the risk of dealing with a financially distressed customer by entering into a consignment agreement with its customer. A creditor that “dots its i’s and crosses its t’s” and satisfies all of the requirements for consignment contained in Article 9 of the Uniform Commercial Code (“UCC”) obtains a first and prior interest in its consigned goods. On the other hand, a creditor that fails to satisfy the UCC’s requirements for consignment risks losing its superior interest in its consigned goods and being relegated to holding a low priority general unsecured claim.


That said, certain creditors that fail to follow UCC Article 9’s consignment requirements can invoke a recent decision of the United States Bankruptcy Court in Delaware in the Sports Authority Chapter 11 case, TSA Stores, Inc. v. Performance Apparel Corp. (In re TSAWD Holdings, Inc.), as support for enforcing their consignment rights. The bankruptcy court held that a creditor who had allowed its UCC financing statement to lapse still retained a superior interest in its consigned goods that prevailed over the blanket security interest of Sports Authority’s secured lenders. The court relied on the secured lenders’ actual knowledge of the consignment arrangement when the lenders had made their loans to Sports Authority.

Trade and other unsecured creditors concerned about a debtor’s nonpayment of their claims may consider joining an involuntary bankruptcy petition against that debtor. However, a petitioning creditor’s eligibility to join in an involuntary bankruptcy is conditioned on its claim not being subject to a bona fide dispute.


The meaning of “bona fide dispute” has long been the subject of controversy. One of the more recently litigated issues over the meaning of bona fide dispute is whether a creditor’s partially disputed claim is subject to a bona fide dispute that would disqualify the creditor from joining an involuntary petition.

Trade creditors dealing with a financially distressed customer must be vigilant when deciding whether to sell product or provide services on unsecured credit terms. There is obviously a material risk of nonpayment if the customer defaults and files bankruptcy. However, perhaps even more concerning, a bankruptcy trustee may seek to recover, as a preference, sums that the creditor had received from the customer during the 90 days prior to the bankruptcy filing.


Fortunately, trade creditors can assert numerous defenses to reduce their preference liability. These defenses include the “subsequent new value” defense, which has received renewed attention by the courts over the last several years. The courts have grappled over whether the subsequent new value defense includes both paid and unpaid new value, or is limited to just unpaid new value. Bottom line, the extent of a trade creditor’s preference exposure depends on whether a court allows both paid and unpaid new value or just unpaid new value, which in turn, can vary based on where its customer files its bankruptcy case.

A financially distressed customer’s request for trade credit is a tough ask for a creditor to accept in light of the significant risk of nonpayment. That ask is made even tougher as the customer is approaching bankruptcy where a creditor is facing—in addition to the risk of nonpayment—an increased risk that, even if the customer does make payments to the creditor, the payments prior to bankruptcy may later be clawed back as a preference.


The Bankruptcy Code prescribes several defenses to mitigate preference risk. Notably, the “subsequent new value” defense grants a creditor a dollar-for-dollar reduction in preference exposure where the creditor had provided new value in the form of goods sold and/or services provided on credit terms to the debtor after receiving an alleged preference payment.

Trade creditors dealing with financially troubled customers often have difficulty collecting their claims. Unpaid sellers and service providers must refrain from collection efforts against a buyer that files for bankruptcy unless specifically authorized to take action by the bankruptcy court or the Bankruptcy Code. Instead, they frequently have a general unsecured claim against the buyer in bankruptcy with the right to file a proof of claim with the bankruptcy court. Trade creditors usually obtain little or no recovery on their unsecured claims because the value of the debtor’s assets is frequently significantly reduced when they are liquidated in bankruptcy. In addition, the Bankruptcy Code’s priority rules require the full payment of more senior secured and administrative priority claims before any distribution can be made to holders of general unsecured claims. Further, due to the inherent delays in administering a typical bankruptcy case, any dividend will likely only be received long after a bankruptcy case is filed.

Trade creditors enter into consignment agreements with their customers for various reasons. Some do so as a matter of standard practice in industries where a consignment arrangement will help the customer avoid burdensome working capital needs due to the high costs associate with the relevant product (such as petroleum). Others use consignment arrangements as a means of protecting themselves when supplying goods to financially distressed customers. In any event, a consignment seller (known as a consignor) provides goods to its customer (known as a consignee) with the expectation that the consignor retains an ownership interest— and, therefore, will maintain a priority interest—in the consigned goods.


A consignor should “dot its i’s and cross its t’s” by satisfying all of the requirements contained in Article 9 of the Uniform Commercial Code (“UCC”) governing consignments as a matter of best practice. This will ensure that the consignor will enjoy prior rights to its consigned goods over the rights of a secured lender with a blanket security interest in the consignee’s goods and the rights of a bankruptcy trustee as a judgment lien creditor under the Bankruptcy Code. However, a consignor that fails to satisfy the UCC’s perfection requirements risks being treated as a general unsecured creditor in the event the consignee files for bankruptcy.

A trade creditor seeking to mitigate the risk of nonpayment of its claim may opt to enter into a consignment arrangement with a distressed customer. A creditor that satisfies all of the requirements for consignment contained in Article 9 of the Uniform Commercial Code (“UCC”) obtains a first and prior interest in its consigned goods. A creditor that fails to satisfy the UCC’s consignment requirements risks forfeiting any prior rights to its consigned goods and being relegated to asserting a low priority general unsecured claim against its customer.


The Chapter 11 bankruptcy cases of The Sports Authority Holdings, Inc. and its affiliated debtors (collectively, “Sports Authority”) have provided numerous examples of how consignment-related disputes ultimately play out when litigated before a bankruptcy court. Recently, on April 12, 2019, the United States Bankruptcy Court for the District of Delaware, in TSA Stores, Inc. et al. v. Sports Dimension Inc. a/k/a Body Glove (“Sports Dimension”), ruled against one of Sports Authority’s trade vendors that had failed to timely perfect its consignment interest. The court’s decision illustrates the many hurdles and pitfalls facing a non-compliant consignor that fails to “dot its i’s and cross its t’s” when selling goods on consignment.

Material and service providers dealing with a financially distressed subcontractor on a construction project frequently use a joint check agreement as a risk mitigation tool. The holding of the United States District Court for the Eastern District of Virginia (the “Court”), in Myers Controlled Power, LLC v. H. Jason Gold, in his capacity as trustee for The Truland Group, Inc., et al. (In re The Truland Group, Inc., et al.) (the “Truland Case”), is a cautionary tale about the utility of a joint check arrangement that was entered into during the 90-day preference period.


Truland Walker Seal Transportation Inc. (“TWST”), a subcontractor on a largescale construction project, chose Myers Controlled Power, LLC (“Myers”) to supply certain electrical equipment and switches. The Court held that a joint check, issued by the general contractor on the project and payable to Myers and TWST pursuant to a joint check agreement, that Myers had received shortly before TWST had filed its bankruptcy case, was recoverable as a preference. The Court relied on TWST’s entry into the joint check agreement during the 90-day preference period, which subjected Bottom line, while Myers thought it was mitigating its risk by entering into a joint check agreement and collecting the proceeds of a joint check, Myers instead found itself embroiled in, and then losing, a very expensive and time-consuming preference litigation. And, this unfortunate result was avoidable (no pun intended)!

A trade creditor can obtain a security interest in its customer’s property to increase the likelihood of payment of the creditor’s claim. A creditor seeking a valid and perfected security interest in its customer’s personal property, with priority over future security interests in the same property, must properly identify its collateral in both (i) the security agreement executed by its customer, and, just as importantly, (ii) the financing statement that was publicly filed pursuant to the Uniform Commercial Code (the “UCC”).

SAFE Banking Act, if enacted, would provide a safe harbor for financial institutions that provide services to plant-touching businesses and non-plant touching suppliers of goods or services to the cannabis industry. The bill, if enacted, will prohibit Federal regulators from penalizing, discouraging or taking adverse action against these firms.

Trade and other unsecured creditors con­cerned about a debtor’s nonpayment of their claims may consider joining in the filing of an involuntary bankruptcy petition against that debtor. A petitioning creditor whose claim is not subject to a “bona fide dispute as to liability or amount” has standing to file an involuntary bankruptcy petition pursuant to Section 303(b) of the Bankruptcy Code.


Conflicting interpretations of the “bona fide dispute” limitation on a petitioning credi­tor’s standing to join an involuntary petition have been the subject of much litigation, as the courts have recently been grappling with how the “bona fide dispute” limitation applies to creditors holding partially dis­puted claims. A growing number of courts have held that a petitioning creditor’s par­tially disputed claim is subject to a “bona fide dispute as to liability or amount, ” which disqualifies the creditor from joining an involuntary petition. Other courts have held that the undisputed portion of a creditor’s partially disputed claim is not subject to a “bona fide dispute” and that, therefore, a creditor holding a partially disputed claim is not barred from being a petitioning creditor.

Trade creditors are constantly seeking to mitigate risk in the event that a financially distressed customer files for bankruptcy. One way a creditor can do so is by setting off its claim against the customer, dollar-for-dollar, against any indebtedness owed by the creditor to the customer.


State and bankruptcy law each condition a creditor’s exercise of “setoff” rights upon the existence of mutual obligations owing between the creditor and debtor. Creditors have sought to satisfy this mutuality requirement by negotiating “triangular” setoff arrangements where their contracts permit affiliated entities to setoff the claims of one of the affiliates against indebtedness owed by another affiliate to the debtor.

Nothing is more frustrating to a trade creditor saddled with a large unpaid balance owed by a debtor in bankruptcy than being subject to the risk of having to remit back to the debtor’s estate “preference” payments received from the debtor prior to the commencement of the bankruptcy case. Pursuant to section 547(b) of the Bankruptcy Code, a debtor in possession or trustee can seek the recovery of alleged preference payments made within 90 days of the bankruptcy filing date.


This is the harsh reality faced by the approximately 750 trade creditors (and counting) who have recently been sued in the Sears Chapter 11 case for the recovery of payments they had received within 90 days of Sears’ bankruptcy filing date. The policy behind the preference statute is to treat creditors equitably and level the playing field by requiring preferred creditors to share their recovery with all other creditors. Unfortunately, the reality is that preference recoveries are used to pay higher priority claims, such as the unpaid Chapter 11 administrative expense claims owing by Sears that must be paid as part of Sears’ Chapter 11 plan. And creditors defending preference lawsuits would more likely characterize the complaints for recovery of “preference” payments as punishment for continuing to do business with a financially distressed customer.

So, what should a creditor do when it first receives a preference demand letter and is then subsequently sued? What defenses can a creditor assert to rebut a preference claim? How should a creditor go about responding to, defending and/ or settling a preference claim? This article answers these questions by providing a step-by-step checklist of the actions a creditor should take starting from the date that a customer files for bankruptcy (the “Petition Date”) through the resolution of a preference litigation. A creditor is far better off spending the time compiling and presenting proof of its potential defenses to a preference demand than simply paying the amount demanded.

Introduction


Consignment is a business arrangement between a vendor (known as the consignor) and a customer (known as the consignee). Consignees include retailers that specialize in a particular type of consumer product, such as clothing, shoes, athletic equipment and gear, as well as other customers in the business of selling consigned goods. Alternatively, customers can use the consigned goods in their possession in the production of finished goods and defer payment until after usage.


Customers that enter into consignment arrangements may benefit from the ability to offer a wider range of products, potentially drawing in new business and higher profits. The customer’s operational financial risk is also greatly reduced compared to wholesalers and retailers that pre-purchase their entire inventory in the hopes of then selling the goods to retail consumers. Customers may also benefit from payment timing and cash flow because the purchase price of the consigned inventory is not paid for until the inventory is actually sold to the retail consumer.


Similarly, consignors may benefit from a consignment arrangement by obtaining higher visibility of their new product brands and gaining additional sales channels for proven products. The consignment arrangement may also significantly reduce the consignor’s product storage costs by transferring the physical possession of the consigned goods to the consignee pending sale to consumers. Consignors may also enjoy the protections that Article 9 of the Uniform Commercial Code (UCC) provides to consignors that properly document, perfect and provide advance notice with respect to their consignment arrangements. So, what happens when a consignor does not “dot its Is” and “cross its Ts”, by failing to comply with UCC Article 9’s consignment requirements?


UCC Article 9 governs most consignment transactions and generally requires vendors to satisfy specific requirements in order to retain a superior interest in the consigned inventory. When vendors diligently complete the steps required by the UCC, they will gain priority over prior creditors with a blanket security interest in the customer’s inventory and maintain priority over subsequent creditors with a security interest in the customer’s inventory and unsecured creditors. However, vendors that fail to comply with the UCC Article 9’s consignment requirements, including timely filing a UCC-1 financing statement in the appropriate jurisdiction, and providing the requisite advance notice of the consignment arrangement to all secured parties with a prior blanket security interest in the customer’s inventory, risk forfeiting their superior rights in the consigned inventory and being relegated to holding a low priority general unsecured claim.


The enforceability of a vendor’s consignment rights is often tested once a customer files for bankruptcy. The vendor’s due diligence, preparation of the proper documentation for execution by the customer, perfection by filing a UCC-1 financing statement and advance notification of the consignment arrangement to existing creditors with a blanket inventory lien, as well as prompt actions the vendor should take to enforce its consignment rights following the filing of its customer’s bankruptcy case, will often determine the extent of the consignor’s recovery.


This article reviews three relatively recent decisions from the U.S. Bankruptcy Court for the District of Delaware arising from the Chapter 11 bankruptcy case of The Sports Authority Holdings, Inc. (“Sports Authority”). These decisions provide insightful guidance concerning the consequences of failing to properly perfect a consignor’s rights and provide the required notice under the UCC, as well as some creative arguments consignors have raised in the absence of compliance with the UCC’s filing and notification requirements in seeking recovery of its consigned goods and recovery on its consignment claim.

Trade creditors of financially distressed customers that filed for bankruptcy relief can assert reclamation rights as part of their recovery toolkit. However, the Bankruptcy Code restricts reclamation rights by explicitly subjecting them to the prior rights of a secured creditor with a blanket security interest in the debtor’s inventory (which includes goods subject to reclamation).


Courts have issued conflicting opinions as to whether a lender providing Chapter 11 financing with a blanket lien in the debtor’s inventory has priority over a reclamation creditor where the post-petition loan is used to pay off a prepetition loan secured by a blanket security interest in the debtor’s inventory. In the Chapter 11 cases of In re hhgregg, Inc., the United States Court of Appeals for the Seventh Circuit (the “Seventh Circuit”) recently concurred with other courts in ruling in favor of the post-petition lenders where the debtors had obtained the bankruptcy court’s approval of Chapter 11 financing granting the post-petition lenders a prior security interest in all of the debtors’ inventory. The Seventh Circuit concluded the post-petition secured lenders had retained a prior interest in the goods subject to reclamation rights because the “lien chain” between the prepetition and post-petition secured lenders had not been broken.

It is common practice for a company that files for bankruptcy protection to immedi­ately seek, in its “first day” motions, authority to pay the prepetition claims of certain ven­dors that the debtor deems to be critical to the success of its bankruptcy case. A debtor seeks this authority on the premise that its business would be irreparably disrupted and its efforts to maximize value for its estate and creditors would be severely impaired if these “critical vendors” refuse to provide goods and services post-petition.

Competition and the Antitrust Laws


Competition creates significant consumer benefits including increased innovation, increased efficiency of companies making and selling products and services, greater variety and higher quality of goods and services, and lower prices.


The competitive process, left free of interference, makes life harder for businesses by increasing their uncertainty. That uncertainty forces suppliers to be more efficient and more creative to avoid losing business to competitors that are more efficient and more creative. 


Antitrust laws protect consumers by protecting the competitive process from interference either by companies acting together to avoid having to compete or by individual companies with substantial market power of their own taking improper actions in order to avoid having to compete.


Antitrust Laws and Enforcement


Federal antitrust laws are enforced by both the Antitrust Division of the U.S. Department of Justice (DOJ) and the Federal Trade Commission (FTC).


The DOJ enforces antitrust laws by bringing both civil and criminal antitrust cases in federal courts against companies and individuals violating federal antitrust statutes. The FTC enforces the same federal statutes by bringing civil actions either in federal courts or before the agency itself; the FTC has no authority to bring criminal cases. In addition to its authority to file cases in federal courts, the FTC includes a branch that brings cases and a separate group of five commissioners who can decide cases brought before them and impose certain civil measures such as injunctions. The FTC also has a consumer protection mandate under which it enforces laws and regulations relating to privacy, deception, fraud, and unfair business practices.


In addition to the federal antitrust laws, each state and the District of Columbia has its own antitrust statutes, which are usually similar–but not identical–to federal antitrust statutes. Because the state laws are not identical, they can, and do, make illegal certain conduct that is not necessarily illegal under federal law. State antitrust laws are enforced by state attorneys general, who can file both civil and criminal antitrust actions in state courts. State attorneys general also can file federal antitrust claims on behalf of citizens of their states.


Finally, private parties also can bring antitrust actions. Both consumers and competing businesses that believe they have been harmed by anticompetitive conduct can bring civil antitrust cases seeking to enforce both federal and state antitrust laws and to recover money for the damages they have suffered.

The claims trading market provides a useful avenue for creditors who seek to quickly monetize their prepetition claims in bankruptcy cases. Rather than waiting out the bankruptcy process with the hope of obtaining a recovery from the bankruptcy estate, creditors may obtain an immediate recovery by selling their claims at a discount. Claims buyers are willing to purchase claims for less than the claims’ face value for a number of reasons. They may expect that the bankruptcy estate’s eventual distribution on account of the purchased claims will exceed the price they paid for the claims. Alternatively, they may believe there is an opportunity to receive equity in the reorganized debtor, or they may seek to influence a debtor’s reorganization by obtaining a significant portion of the debtor’s capital structure.


While a claims buyer purchases the right to receive whatever distribution is made on the purchased claim, the claims buyer also bears the risk that it will receive less than anticipated with respect to the purchased claim or that the purchased claim will be disallowed entirely. This risk has been exacerbated by a recent decision of the United States Bankruptcy Court for the Southern District of New York—a very active jurisdiction for claims trading—in the Chapter 11 cases of In re Firestar Diamond, Inc. In Firestar, the bankruptcy court rejected a prior decision by the United States District Court for the Southern District of New York and joined the growing majority of courts that have held that a purchased claim may be disallowed under Bankruptcy Code Section 502(d) where the claim seller had received, and had not returned, an avoidable transfer (such as a preference or fraudulent transfer).


WSG's members are independent firms and are not affiliated in the joint practice of professional services. Each member exercises its own individual judgments on all client matters.

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