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Practical and entertaining education for
attorneys, accountants, business owners and
executives, and investors.

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Disclaimer
The material in this webinar is for informational purposes only. It should not be considered
legal, financial or other professional advice. You should consult with an attorney or other
appropriate professional to determine what may be best for your individual needs. While
Financial Poise™ takes reasonable steps to ensure that information it publishes is accurate,
Financial Poise™ makes no guaranty in this regard.
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Meet the Faculty
MODERATOR:
Thad Wilson - King & Spalding LLP
PANELISTS:
Jonathan Friedland - Sugar Felsenthal Grais & Helsinger LLP
Laura Davis Jones - Pachulski Stang Ziehl & Jones LLP
Candice Kline - Saul Ewing Arnstein & Lehr LLP
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About This Webinar – Bad Debtor Owes Me Money!
Sometimes it begins when a client, tenant, or customer starts to slow-pay, with the result that your
accounts receivable start to accrue gradually. Other times the issue presents itself more suddenly. Either
way, you find your company owed a great deal of money that looks like it may not be collected because
your client/tenant/customer has filed bankruptcy, has commenced an assignment for the benefit of
creditors, has been put into receivership, or is otherwise just plain insolvent. What do you do? What
should you not do? The topics discussed in this webinar include the pros and cons of putting a
counterparty into involuntary bankruptcy; when and how you may be able to pursue third parties (like
guarantors, directors, or officers) for the amount owed; risks related to preference attack; pros and cons
of sitting on a “creditors’ committee” in a Chapter 11; how to negotiate for “critical vendor” protection in
Chapter 11; and practical guidance for continuing to provide goods or services to an insolvent
counterparty.
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About This Series – Restructuring, Insolvency &
Troubled Companies
Companies fail all the time, for all sorts of reasons. Some companies become distressed, or even
insolvent, because of mismanagement; others because of fraud; others for myriad other reasons- some
intrinsic to the company and some extrinsic. Regardless of the cause, failing or failed companies create a
unique set of issues, risks, and even opportunities for all involved. This area of law and finance has
become so specialized that no fewer than five (American Bankruptcy Institute; Association of Insolvency
& Restructuring Advisors; Commercial Law League of America; National Association of Federal Equity
Receivers; Turnaround Management Association) national organizations exist to help those who
specialize in the field to stay up to date on the latest developments, strategies, and tactics in the area.
Each Financial Poise Webinar is delivered in Plain English, understandable to investors, business owners, and
executives without much background in these areas, yet is of primary value to attorneys, accountants, and other
seasoned professionals. Each episode brings you into engaging, sometimes humorous, conversations designed to
entertain as it teaches. Each episode in the series is designed to be viewed independently of the other episodes so that
participants will enhance their knowledge of this area whether they attend one, some, or all episodes.
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Episodes in this Series
#1: Help, My Business is In Trouble!
Premiere date: 8/12/21
#2: Opportunity Amidst Crisis- Buying Distressed Assets,
Claims, and Securities for Fun & Profit
Premiere date: 9/23/21
#3: Bad Debtor Owes Me Money!
Premiere date: 10/21/21
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Episode #3
Bad Debtor Owes Me Money!
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Early Signs of Distress
• Financial or other covenant compliance
• Delay in delivering financial results
• Going concern from audit
• Exercise of cure rights
• Unexpected management and board changes
• Increased reliance on consultants
• Termination of material contracts
• Accounting restatement
• Data security breach
• IP infringement issues
• Cash hoarding
• Material changes in cash management system
• Change in accounting firm
• Post transaction integration issues
• Unexpected cost increases
• Unexpected customer loss
• Government investigation
• Change in regulatory environment
• Casualty, loss of key assets
• Material litigation
• Report of fraud or irregular conduct
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Preventative Measures
• Guarantees (Personal, Affiliate or Corporate Parent)
• Letters of Credit
• Collateral
• Credit Insurance
• Cash in Advance (CIA)
• Cash on Delivery (COD)
• Consignment
• Security Deposits
• Intercreditor Agreements
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Preventative Measures
• Monitor the debtor’s solvency:
✓ Several financial services firms provide credit opinions regarding commercial
companies and their ability to meet their debts as they become due.
✓ If, for instance, your company extends trade credit to a particular customer whose
business represents a significant source of your company’s revenue, it would be
prudent to request such an opinion from time to time in order to hedge against the
downside risk should that customer file for bankruptcy
✓ If the company or its debt is publicly traded, monitor securities disclosures and
reports from credit rating agencies (e.g., Moody’s, S&P, Fitch)
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Customer/Supplier Defaults — Now What?
• Creditor Remedies:
✓ Send to collections
✓ Stop performing
✓ Sue/Evict customers/guarantors
✓ Institute lawsuit
✓ Seek appointment of a Receiver
✓ Seek involuntary bankruptcy
✓ Setoff deposit or collect on LOC
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Debtor Protections
• Debtor may seek to protect itself by:
✓ Commencing Assignment for Benefit of Creditors (“ABC”)
✓ Filing for Bankruptcy
✓ Filing “pre-emptive” lawsuit
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Bankruptcy in Brief
Bankruptcy court is a unit of federal district court.
A Petition, filed with the bankruptcy court, commences case and triggers automatic stay.
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Chapter 11
Companies and
Individuals
Debtor Stays in
Possession of Assets
and Administers Case
Itself to Reorganize or
Conduct Orderly
Liquidation
Chapter 13
Individuals Only
Trustee Appointed
to Oversee Debt
Repayment Plan
Chapter 7
Companies and
Individuals
Trustee
Appointed to
Liquidate Assets
3 MOST COMMON FILINGS TYPES

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The Automatic Stay in Bankruptcy
• Upon filing for bankruptcy, the automatic stay prohibits creditors from seeking to collect
on prepetition debts or exercise remedies — i.e., an automatic injunction prohibiting
creditors from starting or continuing actions to collect debts or enforce debts against
debtor’s property.
• Allows debtor “breathing room” to make decisions in time of crisis.
• Prohibited actions include continuing litigation, enforcing or perfecting liens, setting off
mutual debts, sweeping deposits, and taking actions to obtain debtor’s property.
• Creditors who knowingly violate automatic stay likely will be liable for damages.
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Relief From the Automatic Stay
• A creditor, typically secured, can obtain relief from automatic stay
• Creditor essentially has 2 options:
✓ Prove “cause,” which may include a lack of “adequate protection” (discussed later); or
✓ Prove that:
▪ debtor has no equity in the property; and
▪ property is not necessary for an effective reorganization
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Adequate Protection
• Protects value of a secured creditor’s collateral during the bankruptcy case
• It is often applied when value of collateral is declining in value (e.g., debtor is using cash
collateral to sustain operations during bankruptcy)
• Bankruptcy Code provides three non-exclusive examples of adequate protection:
✓ Periodic or lump-sum payments to creditor with an interest in the property;
✓ Additional or replacement liens (e.g., a lien on cash proceeds of the sale of property)
✓ Other relief resulting in indubitable equivalent of the creditor’s interest in property
(e.g., reporting/inspection rights, payment of creditor’s legal/advisory fees)
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Classes of Claims in Bankruptcy
• Creditors in bankruptcy case are distinguished by types of claims they hold & priority of
payment among them
• Types of claims (in order of payment priority):
✓ Secured: creditors with a lien on debtor’s property
✓ Administrative: post-petition expenses necessary to administer bankruptcy (e.g.,
legal and advisory fees) and operate debtor’s business (e.g., wages, taxes, 503(b)(9)
and reclamation claims); often times administrative claims are “paid in full.
✓ Priority: certain pre-petition claims given priority under Bankruptcy Code (e.g., taxes,
pension obligations or wages earned within 180 days of bankruptcy)
✓ Unsecured: creditors without collateral (e.g., utilities, credit card, trade creditors,
bondholders, PBGC, tort claimants)
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Distribution Waterfall
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DIP Priming Lien
Secured Claims1
Adequate Protection Liens
General Unsecured Claims2
Equity Interests
“Carve-Out” for Professional Fees
“Surcharge” Against Collateral
1 Order of lien priority may be subject to Intercreditor Agreement (ICA)
2 Order of payment priority may be subject to ICA
Administrative Claims
Priority Unsecured Claims
DIP Superpriority Claims
Adequate Protection Claims
General Unsecured Claims
(including undersecured claims)2
Equity Interests
Priority Unsecured Claims
Administrative Claims
“Carve-Out” for Professional Fees
Secured Value Unsecured Value
• Certain Employee
Wage Claims
(up to a cap)
• Certain
contributions to
Employee Benefit
Plans (up to a cap)
• Tax Claims

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Claims of Trade Creditors
Trade creditors have 3 important ways to get (1) administrative priority, (2) the goods
returned, and/or (3) paid for all or a portion of their prepetition claims —
1. 20-Day Claims (aka “503(b)(9) Claims”): value of any goods received by debtor in the
20-day period preceding the bankruptcy and sold on an ordinary-course basis (e.g.,
invoices related to shipments delivered within 20 days of bankruptcy)
2. Reclamation Claims: right of seller to take back ordinary-course goods received by
debtor within 45 days of bankruptcy and sold on credit terms while debtor was insolvent;
provides vendor with credit protection, negotiating leverage, and ability to recover goods.
3. Critical Trade Vendor Designation: payment of prepetition claims of Critical Trade
Vendors if authorized by court order (see next slide)
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Payments to Critical Trade Vendors in
Bankruptcy
• Debtors often seek entry Critical Trade Order as part of first-day motions
• Grants debtor the authority to settle and pay specific claims of unsecured creditors
providing debtor with essential goods
• Rationale: certain trade creditors are indispensable to debtor’s capacity to stay in business
• Bankruptcy Code contains no explicit authority for this relief
✓ Some bankruptcy courts use equitable powers under the doctrine of necessity
(derived from § 105(a) of the Bankruptcy Code) to allow such payments if —
1) Vendor would cut off supplies or services absent payment of prepetition claims
2) Debtor could not operate as a going concern without vendor and would be forced to
liquidate
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Claims of Trade Creditors
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45 Days Before
Bankruptcy
20 Days Before
Bankruptcy
Goods
Received:
Critical
Vendor
Designation
Upon entry of Critical
Trade Order, debtor can
pay seller’s prepetition
claims immediately
Seller can reclaim goods
sold prepetition if
debtor received goods
while insolvent
Reclamation
Rights
Value of goods
received given
administrative priority
507 (b)
Claims

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General Unsecured Creditors
• General unsecured creditors (“GUCs”) stand behind secured creditors and priority
unsecured creditors
• General unsecured creditors often viewed as having the most to lose in Chapter 11
cases (sometimes referred to as the “fulcrum security” if parties ahead of the GUCs are
“in the money”)
• Litigation (or threatened litigation) may be only means for recovery by GUCs
• Interests typically (but not always) represented by the Official Committee of Unsecured
Creditors if one is appointed
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Official Committee of Unsecured Creditors
• Committee of Unsecured Creditors (aka the “UCC” or the “Creditors’ Committee”) ​
✓ Comprised of unsecured creditors holding the largest claims
✓ Appointed by the U.S. Trustee (DOJ “bankruptcy watchdog”)
✓ UCC = “Guardians of the Process”—central voice and opportunity to be heard for the
unsecured creditors
✓ Expenses are paid out of the Debtor’s assets and constitute administrative claims
✓ UCC gives creditors with small or de minimis claims mechanism to participate in case
(otherwise it’d be economically irrational)
✓ Usually key “opponents” to DIP loan provisions

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Official Committee of Unsecured Creditors
• General Duties of UCC and its members
✓ The UCC is considered a fiduciary body of the GUCs, therefore each member owes
fiduciary duties to all GUCs (see Neiman Marcus-Marble Ridge)
✓ Oversee and consult with Debtor concerning case administration​
✓ Investigate all aspects of the Debtor’s business
✓ Participate in formulation/negotiation of the plan​
✓ Prosecute estate causes of action (if Debtor unreasonably refuses to do so)​

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Getting Paid in Bankruptcy
• Debtor must file bankruptcy schedules and statements of financial affairs listing all
prepetition claims its records show as outstanding against it on the petition date
• BUT: if creditor’s claim is not listed in Schedules, or debtor lists incorrect amount of or
basis for claim, creditor must file Proof of Claim.
✓ Failure to file a Proof of Claim, when necessary, will result in creditor relinquishing
right to vote on plan of reorganization and/or receive distributions from bankruptcy
estate, if any are made
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Proof of Claim
• Requirements for Proof of Claim:
✓ Court has form to be filled out showing amount, basis, and other information
relating to claim
✓ Must be supported by writing & signed by authorized representative of creditor
✓ Properly filed claims presumptively valid; burden then shifts to trustee or debtor
to object to claim
✓ Filing proof of claim arguably submits a creditor to bankruptcy court jurisdiction
✓ Must provide documentation supporting the claim, unless such supporting
documentation is voluminous
• Some courts will require the filing of a “proof of claim” for Section 503(b)(9) “claim” or
for administrative expenses
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Risk of Preference Attack
• Bankruptcy Code equips debtor with the ability to avoid (i.e., clawback) certain pre-
bankruptcy transactions as “preferences” if certain conditions are met
• Elements of a “preference”
✓ Transfer made on account of pre-existing debt (i.e., debt that existed before transfer)
✓ Made while the debtor was insolvent (rebuttable presumption debtor was insolvent
throughout 90-day period before the bankruptcy)
✓ Made within 90 days of bankruptcy (or 1 year for insiders)
✓ Resulting in a greater distribution than the creditor would have received in a
liquidation
• Debtor or trustee have obligation to do “reasonable due diligence in the circumstances
of the case” and “tak[e] into account a party’s known or reasonably knowable
affirmative defenses”

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Common Defenses to Preference Claims
• The Bankruptcy Code lays out several statutory defenses to preference claims, including:
1. Ordinary Course Payment: transfers made in the ordinary course of business (i.e.,
consistent with prior transfers in timing, amount and circumstances)
✓ Note – payment “in the ordinary course” is a legal term of art that must be analyzed
with counsel before asserting such defense
✓ Note – Ordinary business terms is a second way to prove “ordinary course” defense
2. Subsequent Advance or New Value: goods or services provided to debtor on
unsecured basis after receipt of a preference (e.g., using value of goods shipped to
debtor after debtor made an otherwise preferential payment to offset liability).
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Common Defenses to Preference Claims
3. Contemporaneous Exchange of New Value: parties to transfer intended transfer to be
a contemporaneous exchange for new value given to debtor, and such transfer was
actually made contemporaneously
Example:
• Vendor and Debtor exchange emails agreeing to COD terms for shipment of goods
• Vendor delivers goods to debtor, & Debtor pays Vendor at the time of delivery
• Debtor files BK 10 days later
• The payment, despite being made during preference period, is protected as
contemporaneous exchange of new value
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About the Faculty
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About The Faculty
Thad Wilson - ThadWilson@KSLAW.com
Thad Wilson is a Partner in the Atlanta office of King & Spalding LLP and a member of its
Financial Restructuring Practice Group. Ranked by Chambers USA 2021 as a “Rising Star”
in Bankruptcy and recently recognized on the Atlanta Business Chronicle’s 2021 “40 Under
Forty” list, Thad represents a broad spectrum of clients in financial restructuring, corporate
and insolvency matters, including debtors, secured and unsecured creditors, and other parties
in interest in major Chapter 11 bankruptcy cases. He has extensive experience representing
clients in insolvency-related litigation and disputes. Thad is a member of the American
Bankruptcy Institute, the Turnaround Management Association (currently a board member of
its Atlanta chapter), and the State Bar of Georgia. In 2014, Thad was elected to the initial
class of Barristers of the W. Homer Drake, Jr. Georgia Bankruptcy American Inn of Court, of
which he is currently a member.
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About The Faculty
Jonathan Friedland - jfriedland@sfgh.com
Jonathan Friedland, a senior partner with Sugar Felsenthal Grais & Helsinger, LLP, views his
job simply: to make money for clients whenever possible and to protect their interests at every
turn. Licensed in four states, Jonathan’s transactional work focuses on representing private
funds and other owners of private businesses, and the businesses they own. He regularly
advises on M&A activities, structuring new ventures and restructuring old ones, and on other
commercial relationships. Jonathan is rated AV® Preeminent™ by Martindale-Hubbell, 10/10
by AVVO, and enjoys several other similar distinctions. Jonathan graduated from the State
University of New York at Albany, magna cum laude (in three years) and from the University
of Pennsylvania Law School. He clerked for a federal judge before entering private practice
and served for several years as an Adjunct Professor of Strategic Management at the
University of Chicago’s Graduate School of Business. Jonathan is lead author and editor of
several significant treatises, several chapters in other treatises, and scores of articles on law
and business.
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About The Faculty
Laura Davis Jones – ljones@pszjlaw.com
Laura Davis Jones is a name partner and the managing partner of the Delaware office of Pachulski, Stang, Ziehl, & Jones.
She gained national recognition as debtor’s counsel in the Continental Airlines bankruptcy case, and has represented
numerous debtors, creditors’ committees, bank groups, acquirers, and other significant constituencies in national chapter 11
cases and workout proceedings. She lectures at national bankruptcy and litigation seminars, and has authored numerous
articles. Laura was named “Deal Maker of the Year” by The American Lawyer in 2002 and has also been profiled in The
American Lawyer.
Laura has been named continuously by her peers as one of the “Best Lawyers in America” and as one of the “Best Lawyers in
Delaware.” In addition to being named a “Delaware Super Lawyer” every year since 2007, she was selected as one of the top
ten lawyers in Delaware in 2007 and 2008. She is included among Chambers USA America’s “Leading Lawyers for Business,”
and ranked among the top-tier Bankruptcy/Restructuring lawyers in Delaware. Laura has been recognized in the K&A
Restructuring Register since its inception, has been named repeatedly to the International Who’s Who of Insolvency and
Restructuring Lawyers, and has been listed among the “Lawdragon 500 Leading Lawyers in America” since 2005. She holds
an AV Preeminent Peer Rating, Martindale-Hubbell’s highest rating for ethical standards and legal ability. Laura is a graduate
of University of Delaware and received her J.D. from Dickinson School of Law, where she was on the board of editors and
business manager for the Dickinson Law Review, as well as to serve on the Appellate Moot Court Board. Laura is admitted to
practice in Delaware and the District of Columbia.
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About The Faculty
Candice Kline - candice.kline@saul.com
Candice Kline joined Saul Ewing Arnstein & Lehr LLP as a partner in its Chicago office in 2020. The firm is a full-service
national law firm with a vibrant bankruptcy group. Before turning to law, Candice earned an MBA at the University of Chicago
and worked as an experienced corporate and international banker with Citibank and JPMorgan Chase. Her banking
background informs her legal advice and commitment to client service, outstanding litigation outcomes, and practical deal
making.
Candice focuses her practice on commercial disputes, bankruptcy and insolvency matters, and general litigation. Candice has
in-depth chapter 11 experience, including preferences and fraudulent transfer actions, settlements, contract disputes, and plan
and disclosure statement related litigation. She also litigates in chapter 7 cases. Her recent representations include debtors,
trustees, creditors, and investors in cases involving fraud, breach of contract, breach of fiduciary duties, securities fraud, and
civil theft. Candice has also recently guided out of court workouts and assignments.
Candice is active in the turnaround and legal sectors. She is a former director and officer of the Turnaround Management
Association, Chicago/Midwest Chapter; chair of the Business and Securities Law Council and vice chair of the Business Advice
and Financial Planning Council of the Illinois State Bar Association; and a former co-chair and current director of the American
Constitution Society, Chicago Lawyer Chapter. Candice also serves on the advisory board of directors for the Institute for
Business & Professional Ethics at DePaul University.
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Questions or Comments?
If you have any questions about this webinar that you did not get to ask during the live
premiere, or if you are watching this webinar On Demand, please do not hesitate to email us
at info@financialpoise.com with any questions or comments you may have. Please include
the name of the webinar in your email and we will do our best to provide a timely response.
IMPORTANT NOTE: The material in this presentation is for general educational purposes
only. It has been prepared primarily for attorneys and accountants for use in the pursuit of
their continuing legal education and continuing professional education.
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About Financial Poise
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