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Fifty Ways to Leave Your Debtor

Fifty Ways to Leave Your Debtor



Strategies for suppliers on how to leave your debtor.

Strategies for suppliers on how to leave your debtor.



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    Fifty Ways to Leave Your Debtor Fifty Ways to Leave Your Debtor Presentation Transcript

    • Fifty Ways to Leave Your Debtor: Strategies for Suppliers Deborah L. Thorne, Esq. Barnes & Thornburg LLP (312) 357-1313 [email_address]
    • Offer
      • Supply agreement
      • Purchase order
      • Purchase agreement
      • Telephone call (Parol Evidence Rule)
      • Email
      • Anything that invites acceptance by the seller
    • Acceptance
      • Action that is made in a reasonable time evidencing acceptance
      • Promise to ship by certain date
      • Shipment
      • Note: offer and acceptance may be by electronic means
    • Conflicting Terms (Battle of the Forms)
      • Written acceptance can add additional terms to contract that are different from the original offer.
      • Additional terms may not alter the terms unless expressly consented to by the parties– although conduct by the accepting party may signal acceptance of the additional terms
      • Required Terms: quantity and term
      • Other terms may remain open: exact time of contract formation and certain nonmaterial contract terms (so long as intent to form a contract is shown)
    • Terms & Conditions
      • Must be consistent on all of your company documents.
      • If internet orders accepted must agree to T&C before order is accepted.
    • Credit Application
      • May be method to slip in terms and conditions early in the relationship
      • By signing the credit application the buyer agrees to terms and conditions
    • Credit Applications
      • Know your customer
        • Gather accurate information
          • Type of entity
          • Date of organization
          • State of organization
          • Federal tax identification number
        • Ownership Details
          • Officers’ (managers’) names, titles, home address and ownership interest
        • References
          • Bank references and information
          • Certification that information is true and correct and that buyer is authorizing seller to obtain information about buyer’s credit history and to contact its references
    • Credit Applications
      • Other terms and conditions
        • Interest/Service charges
        • Attorneys’ fees
        • Jurisdiction and venue
        • Credit Reports
          • Individuals
          • Individual partners (if partnership is buyer)
    • Personal Guaranty
      • Clear delineation from the credit application
      • Guaranty should be signed without any designation of title
      • Credit application should be signed separately
    • Remedies Available to Nondefaulting Party
    • Request for Adequate Assurance (when your customer is in financial difficulty)
          • Demand Adequate Assurance of due performance
          • If Adequate Assurance is not provided, performance may be suspended
          • Uniform Commercial Code (UCC) requires a clear demand for adequate assurance and the customer must respond within 30 days
          • What are reasonable grounds for insecurity?
          • Question of fact
          • Objective factual basis must exist
    • Anticipatory Repudiation
      • To qualify for anticipatory repudiation, the performance repudiated must substantially impair the value of the contract
      • Easily satisfied in cases of non-payment under a non-requirements contract
      • In a Requirements Contract, customer may not have repudiated if it does not order its yearly requirements
      • Aggrieved supplier is better off requesting adequate assurance of performance first
    • Sellers’ Remedies Under UCC
      • Termination of Credit Terms
    • Sellers’ Remedies Under UCC
      • State Law Reclamation
        • 10 day delivery of goods
        • Demand should be in writing
          • Identify the goods by invoice number, bill of lading number
        • Send or deliver demand to those in command of buyer and those with knowledge of delivery
        • Subject to liens of secured creditors
    • Sellers’ Remedies Under UCC
      • Bankruptcy Reclamation
        • 45 day delivery of goods prior to petition date
        • Written demand required
        • Send to Debtor’s attorney, Debtor’s principal and others with knowledge of delivery
        • Subject to liens of secured creditors
        • Goods must be in existence
      • Don’t forget the 20-day administrative claim
    • Sellers’ Remedies Under UCC
      • Stoppage of Goods in Transit
        • Send, Deliver Notice to Shipper, to Buyer
        • Shipper must stop delivery and hold the goods
        • Seller will be responsible for cost of return of goods
        • This remedy is good in or outside of bankruptcy case
    • Sellers’ Remedies Under UCC
      • Identification and Salvage of Goods
    • Executory Contract Issues
      • What is an executory contract?
        • Contract under which the obligations of both the bankrupt and the other party to the contract are so far unperformed that the failure of either to complete performance would constitute a material breach excusing the performance of the other
    • General Bankruptcy Code Provisions Governing Executory Contracts
        • “ Limbo” Period
        • When can a contract be assumed or rejected?
        • What can be assumed or rejected?
        • Prerequisites for assumption
        • Assignment of executory contracts
    • Strategies for Customers with Executory Contracts
      • Customers entitled to adequate assurance of performance if contract is to be assumed plus cure
      • Assumption is good defense to preference recovery action
      • Compel rejection if customer lacks confidence in the ability of the debtor to perform
    • Strategies for Suppliers with Executory Contracts
      • If terms of contract are unsatisfactory to the supplier, urge rejection
      • If debtor customer is unlikely to be able to perform, urge rejection
      • If sales have been substantial, urge assumption (with cure of payment of past due)
      • Beware of attempts of customer debtor who tries to renegotiate terms
        • May seek extension of term
        • May seek more favorable terms
        • May seek waiver of supplier’s right to seek adequate assurance of future performance
        • May seek assumption without the cure
    • Thank You Deborah L. Thorne, Esq. Barnes & Thornburg LLP (312) 357-1313 [email_address]