Committee Meeting at 2004 Winter Leadership Conference
The Unsecured Trade Creditors Committee Committee will hold a meeting on Saturday, Dec. 4, at the 2004 Winter Leadership Conference. The committee will present a dynamic program that will feature the “Reclamation Team” that challenged Fleming and successfully negotiated the Reclamation Creditors Trust, which is now in the process of evaluating both preference exposure and reclamation claims of the reclamation claimants. The panel participants will include the credit managers, attorneys and financial advisors, all of whom worked as a team to achieve this unusual outcome. The session should provide insight into how a group of creditors worked together to reshape the plan which was ultimately confirmed by the Delaware bankruptcy court.
Preferences Are “In the Eyes of the Beholder”
by Douglas G. Fox, Bosch Rexroth Corporation; Lehigh Valley, Pa.
One of the problems facing trade credit managers is that efforts to help a troubled debtor may backfire later due to preference issues. This is often the case where the sale is taking place on unsecured terms, as does the majority of commerce in America.
Generally speaking, when a debtor stops making payments on time, most trade credit managers known to the author place the debtor on shipping hold. The concept is fairly simple. If the debtor is unable to pay its bills on time at a certain dollar level, why incur greater cost (and thereby become an unwilling source of often free working capital) and increased risk of financial loss (possible bankruptcy) at a higher level of credit extended?
Avoiding Personal Liability When the Corporation Is in the “Zone of Insolvency”: A Guide for Directors and Officers
by Alan D. Lasko & Associates P.C., Certified Public Accountants; Chicago
Who owns a corporation? When the corporation is in the black, the shareholders own it and it is the duty of the directors to manage the company in the best interests of the shareholders. By contrast, once a corporation becomes insolvent or approaches insolvency, the ownership interest and the duties of directors are radically altered.
As long as a corporation is financially sound, its creditors have no additional protection beyond legal enforceability of the terms of their contracts with the corporation. As a corporation approaches insolvency, however, the shareholders’ equity interests decline in value and may eventually become worthless. As this happens, creditors obtain an equitable interest in the corporation’s assets as the ultimate source of the recovery of the debt owed to them.
Contract & Lease Assumption: How Far Do You Go?
by David B. Wheeler, Moore & Van Allen PLLC; Charleston, S.C.
A lease & contract assumption by the debtor is supposed to return the counter-party to “square one”, right? The First Circuit Court of Appeals has determined the answer to this inquiry to be “not necessarily”. Rejecting the 1997 Ninth Circuit decision, In re Claremont Acquisition Corp., 113 F.3d 1029, the First Circuit recently ruled that the cure obligation under §365(b) is limited to monetary default. In the case of Eagle Ins. Co. v. BankVest Capital Corp. (In re BankVest Capital Corp.), 2004 US App. LEXIS 4810 (March 15, 2004), the circuit court took on the issue of whether §365(b)(2)(D) permits a debtor-in-possession (DIP) to assume an unexpired equipment lease without first curing non-monetary defaults. Pre-petition, BankVest agreed to lease 190 pieces of computer equipment to Eagle Insurance and another insurance company for a term of 48 months. Some of the equipment, however, was unavailable from the manufacturer at the onset of the lease term, and therefore “loaner equipment” was agreed to be provided until such time as the manufacturer would be in a position to deliver the equipment specified in the leases. BankVest was the subject of an involuntary petition for bankruptcy, and ultimately an order for relief was issued. Needless to say, the involuntary petition was awarded before the “loaner equipment” could be replaced. The insurance companies continued to use the equipment but suspended their lease payments, accumulating an arrearage under the lease in excess of $1 million!