Insights

New York—August 4, 2021: Crowell & Moring has expanded its Corporate Group in New York with the addition of partner Frederick “Rick” Hyman, a highly regarded financial restructuring and insolvency lawyer.

There are few things as daunting to a vendor or supplier as its counterparty’s bankruptcy. The likelihood of a significantly discounted recovery for goods and services provided and potential loss of a customer may have long-lasted impacts on profitability.  Even worse, however, is the prospect that payments received in good faith prior to a debtor’s bankruptcy filing may be at risk of recoupment. In this alert, we address the risk that such payments are voidable as preferential transfers. Section 547 of the Bankruptcy Code codifies the power of the debtor to recover payments that were made within the 90 days preceding the filing. Very generally, a debtor (or trustee) may recover any transfer that is (i) made to or for the benefit of a creditor (e.g., a payment or grant of lien), (ii) on account of antecedent debt (i.e., a debt already incurred), (iii) made while the debtor was insolvent, (iv) within the 90 days prior to the petition date (or one year for insiders), and (v) that enables the creditor to receive more that it would have in a liquidation. The parties’ respective intent is irrelevant.

All too often, vendors and suppliers are paralyzed by a customer’s bankruptcy filing (that is, if they are even aware of it in a timely manner). The lack of action, or awareness, could wind up costing these creditors valuable recovery. In this alert, we discuss administrative claims under Section 503(b)(9) of the Bankruptcy Code. Section 503(b)(9) was added to the Bankruptcy Code in connection with the comprehensive amendments of 2005 and provides a creditor with an administrative claim for the value of any goods sold in the ordinary course and received by the debtor within 20 days before the petition date (i.e., the filing date). The intent is to incentivize parties to continue to provide goods to their distressed customers, better preserving the opportunity to reorganize. As a result of this status, vendors are entitled to payment in full, in cash for the value of such goods (if the debtor ultimately confirms a plan of reorganization). Creditors must affirmatively assert this claim, providing copies of relevant invoices and evidence of the dates of receipt by their debtor counterparties, among other things. Those creditors that do not may be missing out on meaningful recoveries, instead settling for treatment of such amounts as general unsecured claims, sometimes entitled to only pennies on the dollar. Below we highlight a number of issues to consider in connection with Section 503(b)(9) claims.

In June, the crypto world saw the first signs of concern as cryptocurrency exchange Cred filed for bankruptcy. Since then, Crowell’s Digital Assets and Bankruptcy, Restructuring, and Insolvency teams have worked together counseling parties on their relative rights in these bankruptcy cases as well as assisting buyer and sellers of related claims. The news has only snowballed, and our Crypto Digest Blog has tracked the fast-moving crypto winter. In addition to client questions, our team has been quoted in The Wall Street Journal, Yahoo Finance, MarketWatch, CoinDesk, protocol, and The Journal of Bankruptcy Law.