Future business with a customer that files Chapter 11
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  1. #1
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    Default Future business with a customer that files Chapter 11

    Have a long time customer (25+years)that is filing CH 11
    Just received a mailing(small book) listing my rights if owed anything.
    Fortunately for me they're net 30 always meant I had a check by day 31 and I have no open invoices.
    I want to keep them as a customer, but what can I expect or better yet what should they expect of me?

    I'm inclined to test their restructuring payment ability, or I could just change their terms to payment prior to shipment
    Typical invoice is $800.00

    Mike

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    There might be rules WRT changing terms while under court supervision.

    It is a dicey question, could be they are fine but got screwed by a big customer, or maybe they spent the rent on booze and cheap hookers

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    Quote Originally Posted by mjk View Post
    I want to keep them as a customer, but what can I expect or better yet what should they expect of me?
    Played roulette recently ?

    If you know anyone inside, see what you can find out but most likely won't be honest ... either you'll get scrinched out of an invoice (two would be a no-no for me) or you will earn their undying affection for sticking by them in a tough time, and get more work from them in the future.

    Flip a coin ?

    Judgement call ....

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    Switch them to COD. Wait til the Chap 11 finishes up, then decide if you want to go back to terms.

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    How good is your relationship with them? Maybe talk with them about this.

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    All previous advice.

    But go to them.
    No matter the size of the company, the bill payers and the accountants and the buyers are almost always happy to talk to you.
    When You dont yet have an issue.
    Have about 300 cases experience in 2 countries(+) and languages.

    The clients people are happy to receive You, and happy to explain and suggest their pov.
    Practically always.

    I believe, but may be wrong, that under ch11 they are not allowed to default on any bill presented after the proceedings.
    And think they face heavy penalties even being late on payment, once in ch11.

    And there is a court appointed official independent rep. like a special master in the uk, whom you can call for any delay in payment.
    I would probably try to sell them more at a higher price.
    If at all possible, that they can use more of your widgets.

    I would try to sell the 800$ widgets at 960$ net 60.
    Call it what You will, like a new quote, materials surcharge, whatever.
    They would probably accept, and you would be making more than 100% / year in extra interest.

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    Fine just get paid up front... no credit, if not walk away...Phil

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    Quote Originally Posted by hanermo View Post

    I believe, but may be wrong, that under ch11 they are not allowed to default on any bill presented after the proceedings.
    And think they face heavy penalties even being late on payment, once in ch11.

    .
    I got stiffed for $18,000 when parent company of customer filed chapter 11. No warning from parent to my customer. They were just as pissed as I was. Eventually were able to divest themselves from parent. Still do some work for them.

    Wound up getting one share of parent company.stock Worth about $2.50 today. Costs more to mail me annual report than stock is worth.

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    Hard to tell.
    A customer went 11 and I had over $250,000 open invoices. I was oh-shit and surely in panic mode as I could not float this.
    In time I got paid every penny bit I think that not the norm.

    Other case one went and I got 10 cents on the dollar but a much smaller tab.
    Here I got scammed as the newer customer bought over two years worth of tooling on one PO. Thought it strange but took that order.

    Do you have contacts inside that can talk off the record or in the bar with some liquid fun?
    Bob

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    Quite some time ago, a good customer asked for invoices on anything that was going to
    shipped within the next week or so. Kind of weird, but.. Whatever...

    Got a check a few days later, even for some things that weren't shipped yet.
    That was really weird.. Whatever, I got money.

    The next check that came from them was "Debtor in Possession".


    I'd talk to somebody, even if its the purchasing agent you deal with.
    Is this to get out from under something specific,(trying to avoid a
    lawsuit or debt from a contract they never got paid for)
    or are they going out forever.

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    There are circumstances where other creditors can claw back payments made to you from the filing company, the creditors can claim that you were paid out of turn and they should have received those monies instead. Can''t remember the particulars, but understand it's not unusual so having received the money doesn't necessarily mean you get to keep the money.

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    What happens depends on what the court decides. The judge can order a chapter 7. Also believe it or not a bankruptcy court can demand you return C.O.D. payments if it is decided you were given preferential treatment over and above other creditors that legally should have been paid before you were. You are considered an unsecured creditor. During the 2008 recession a customer started paying slower and slower so I put them on C.O.D. and forced them to make up the past dues. I had leverage as my products were pretty much the last thing installed on the limousines and competitors products weren't as user friendly and more expensive to boot. They tried to re-organize and the judge ended up forcing them into Chapter 7. I end up getting a letter from the law firm running the bankruptcy that I was paid something like $5,000 that should have went to secured creditors first, and with the available pool of money remaining for unsecured creditors I get 10 cents on the dollar. Then they tell me I need to send them a cashiers check for $4500 or I will be in violation of a court order, blah, blah, blah.

    The recession had pretty much killed that business anyway, they were one of the last remaining customers. After reading the letter and the pages and pages of financial accounting I went to the bank and closed my accounts and also went to the county and officially closed the business. Of course I then could not help calling the law offices of Dumber & Dumber just to taunt them. Since they were in New Jersey and I was in Cali I told them to come and get me. Not sure if bankruptcy laws are the same then as now, and for the record after I told that law firm to pound sand I never heard from them again.

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    Quote Originally Posted by Mud View Post
    There are circumstances where other creditors can claw back payments made to you from the filing company, the creditors can claim that you were paid out of turn and they should have received those monies instead. Can''t remember the particulars, but understand it's not unusual so having received the money doesn't necessarily mean you get to keep the money.
    Yikes, even with COD in your terms? What if you cant afford to pay it back? Lawyers fight it out, and the little guy loses?

    edit...dualkit pretty much answered my question while i was typing it

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    Quote Originally Posted by Mud View Post
    There are circumstances where other creditors can claw back payments made to you from the filing company, the creditors can claim that you were paid out of turn and they should have received those monies instead. Can''t remember the particulars, but understand it's not unusual so having received the money doesn't necessarily mean you get to keep the money.
    I was typing the same time as you, I forgot what they called it. Not sure if things have changed in 12 years or how hard they tried to get the money back as I never heard another word. Not sure if it was distance or the fact I closed the business caused the silence.

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    Just to clarify/confirm a few things
    I provide spare parts and consumables for a special piece of machinery I build, a niche within a niche.
    Not impossible, but hard for them to go somewhere else.
    They don't owe me any money, or do they have any pending or blanket orders

    But the dollar amount in the "book" they sent implied 750 million in debt with a proposed 75 million restructure. Someone lost a lot of money, even if its on paper.

    I think a phone call to my contact will be in order, if nothing more I may need to hear a good story

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    Mud said: "There are circumstances where other creditors can claw back payments made to you from the filing company, the creditors can claim that you were paid out of turn and they should have received those monies instead."

    A couple points. First, when they are under the supervision of a bankruptcy trustee, you are in the best shape you'll ever be for getting paid. You will get paid, basically guaranteed by the court. No need to change your terms. When/if they emerge for Ch 11, then you should re-examine your risk tolerance for whatever terms you offer.

    Second, a story. I was not a machine shop, but we made and sold recycled plastic resin. Fairly large company went Ch 11 on us TWICE, separated by maybe 5 years. The second time, I was in the same position as you, they owed us nothing, and we had been paid for the previous invoice in "normal" terms, terms they had paid all along (about 45 days with agreed 30 day terms). Invoices were about $25K each.

    Maybe 6 months after the second Ch 11 I get a call from a Chicago lawyer, and he says "we think you got paid preferentially, and we're going to sue you to get that back." I explain that's BS, we were paid normally, faxed him all the records. He calls back and says "you're probably right, but I will get paid one way or the other, and either you send me $12.5K in the next 7 days or I'll sue you and you'll have to hire a lawyer in Chicago (I was in Pittsburgh) and defend yourself. You'll probably win. But it'll cost you a lot more than $12.5K, and I'll get paid to do it either way." And people wonder why we hate lawyers. I poured myself a stiff drink and wrote the check.

    There is clearly societal benefits to the bankruptcy process, but don't ever think there isn't a lot of collateral damage.

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    Quote Originally Posted by Jeff_M_PA View Post
    Mud said: "There are circumstances where other creditors can claw back payments made to you from the filing company, the creditors can claim that you were paid out of turn and they should have received those monies instead."

    A couple points. First, when they are under the supervision of a bankruptcy trustee, you are in the best shape you'll ever be for getting paid. You will get paid, basically guaranteed by the court. No need to change your terms. When/if they emerge for Ch 11, then you should re-examine your risk tolerance for whatever terms you offer.

    Second, a story. I was not a machine shop, but we made and sold recycled plastic resin. Fairly large company went Ch 11 on us TWICE, separated by maybe 5 years. The second time, I was in the same position as you, they owed us nothing, and we had been paid for the previous invoice in "normal" terms, terms they had paid all along (about 45 days with agreed 30 day terms). Invoices were about $25K each.

    Maybe 6 months after the second Ch 11 I get a call from a Chicago lawyer, and he says "we think you got paid preferentially, and we're going to sue you to get that back." I explain that's BS, we were paid normally, faxed him all the records. He calls back and says "you're probably right, but I will get paid one way or the other, and either you send me $12.5K in the next 7 days or I'll sue you and you'll have to hire a lawyer in Chicago (I was in Pittsburgh) and defend yourself. You'll probably win. But it'll cost you a lot more than $12.5K, and I'll get paid to do it either way." And people wonder why we hate lawyers. I poured myself a stiff drink and wrote the check.

    There is clearly societal benefits to the bankruptcy process, but don't ever think there isn't a lot of collateral damage.
    I can't believe you wrote that check without a fight, lawyers will lie out their ass trying to collect money for clients. They prey on people that are afraid of them. I don't understand how he could sue you in Chicago unless you had a presence in that state.

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    I was wondering about needing a Chicago lawyer also...I know I'd at least call my local guy before going along with it.

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    Quote Originally Posted by gustafson View Post
    ...or maybe they spent the rent on booze and cheap hookers
    Gus, this ^^^ establishes your machine-shop-owner bona fides beyond all doubt. But why cheap hookers?

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    My story was obviously the Cliff Notes version. The company was headquartered in Chicago, and the Bankruptcy was being handled by a Chicago court. And of course I talked to my lawyer about it, and he looked at the situation and said they would indeed be able to attempt to claw back the money and I should pay the extortion because it would be cheaper then defending, even if we won. Trust me, it made me insanely angry but I paid and moved on. Life isn't always fair.

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