The Financially Troubled Company

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A couple of months ago I posted on the new "20 day goods" administrative claim enacted as part of the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 ("BAPCPA"). BAPCPA, which took effect in October 2005, added Section 503(b)(9) to the Bankruptcy Code giving vendors an administrative priority claim for "the value of any…

Will Price, a principal with venture capital firm Hummer Winblad, has a very interesting post called Isolating Causality: Bad Market or Bad Company. Will identifies a series of factors that can help start-up companies and their investors tease out whether a company’s financial and performance problems are company-centric or instead the result of not having…

In a recent post about a vendor’s reclamation rights, I discussed how the 2005 amendments to the bankruptcy laws, known as the Bankruptcy Abuse Prevention and Consumer Protection Act of 2005 (called "BAPCPA"), extended a vendor’s right to reclaim goods once a bankruptcy petition has been filed. This post focuses on another of BAPCPA’s important changes affecting vendors…

Although vendors sell goods to get paid, it doesn’t always work out that way. If the customer is insolvent or files bankruptcy, the vendor may be stuck with an unpaid account. To make matters worse, some customers (especially those with limited prospects for financing) may even "load up" on inventory and then file bankruptcy without paying. Regardless…

The Delaware Court of Chancery has issued another decision involving creditor claims against directors of a financially troubled corporation. In North American Catholic Educational Programming, Inc. v. Gheewalla, et al., 2006 WL 2588971 (Del. Ch. Sept. 1, 2006), Vice Chancellor Noble made two important holdings:

  • First, although derivative claims can be brought, creditors may

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Over the past few years, a number of bankruptcy and other federal courts have held that plaintiffs, often bankruptcy trustees or other bankruptcy estate representatives, could pursue a cause of action against a corporation’s directors and others for "deepening insolvency."  What has made a deepening insolvency claim so attractive to plaintiffs and troubling to defendants…

The fiduciary duties that directors owe a Delaware corporation and its shareholders are generally held to expand to include the interests of creditors when the company is insolvent or in the "zone of insolvency."  A hot topic among directors, particularly those serving on boards of troubled companies, is how best to meet their fiduciary duties…

Insolvent or nearly insolvent companies can present an attractive opportunity to purchase assets on the cheap, or at least at a significantly reduced cost.  Of course, a buyer purchasing assets from a troubled company wants to be as sure as possible that it is buying only the target’s assets – and not also taking on all of the…

It’s bad enough when you can’t collect everything you are owed because of a customer’s financial problems.  We’ve all faced that situation at one time or another.  Unfortunately, the U.S. Bankruptcy Code can add an entirely different wrinkle to the problem called a "preference."  (The word comes from the idea that your successful collection efforts enabled you…