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Subchapter V of Chapter 11 of the Bankruptcy Code offers a streamlined and cost-effective path to reorganization specifically designed for small businesses. Unlike traditional Chapter 11 cases, Subchapter V lacks certain creditor protections, which can place creditors at a disadvantage. Key differences include the absence of a creditors’ committee, no requirement for a disclosure statement, and exclusive rights for the debtor to propose a plan. These changes aim to reduce costs and expedite the process but may limit creditors’ influence over the case outcome.

When a customer files for bankruptcy, sellers may wonder if they can stop the shipment of goods. While the Bankruptcy Code does not explicitly permit this, the Uniform Commercial Code (UCC) provides guidelines under Sections 2-702, 2-703, and 2-705. Sellers can stop shipment if the buyer is insolvent or has failed to pay for the goods on time. However, they must instruct the carrier or bailee not to release the goods, and this instruction should be in writing.

Filing an involuntary bankruptcy petition is a serious legal action that creditors must approach with caution. The requirements for such filings are strictly construed and applied, meaning that any misstep can lead to significant consequences. Creditors must meet specific statutory requirements, such as having a minimum number of petitioning creditors and holding a certain amount of eligible unsecured claims. Failure to meet these requirements can result in the dismissal of the petition, potentially leading to the creditor being ordered to pay the debtor’s reasonable attorney’s fees.

Bankruptcy provisions in contracts are often included as a safeguard against potential financial instability of a contract counterparty. However, the enforceability of these provisions in bankruptcy is not guaranteed. Key issues include bankruptcy default provisions, anti-assignment provisions, and automatic stay waivers. Bankruptcy default provisions, which trigger contract termination upon insolvency or bankruptcy filing, are generally unenforceable under Section 365(e)(1) of the Bankruptcy Code. Anti-assignment provisions, which prevent the assignment of contracts without consent, are also typically unenforceable in bankruptcy, with exceptions for personal service contracts and certain intellectual property licenses.

In a significant development since our last post, Fiserv’s application for a merchant acquirer limited purpose bank (MALPB) charter has been approved by the Georgia Department of Banking and Finance. This approval marks a pivotal moment for fintech and nonbank entities seeking direct access to card networks.

Trade creditors often find themselves categorized as “general unsecured creditors” when a customer files for bankruptcy. However, some creditors benefit from liens that have been contractually negotiated or statutorily granted, potentially elevating the priority of their claims. To secure this priority, the lien must be properly granted and perfected under applicable law before the customer files for bankruptcy, and in a manner that does not expose the lien to avoidance as a “preferential transfer.”

When a company files for bankruptcy, creditors often wonder about the likelihood of getting paid. The answer largely depends on the priority and treatment of each creditor’s claim in the bankruptcy process. The doctrines of recharacterization and equitable subordination can significantly impact the priority of a claim, potentially postponing or eliminating payment.

When a creditor files a proof of claim, it can often take months or even years before they hear anything about it. Then, suddenly, they may face an objection to their claim, potentially on multiple grounds, with a limited window to respond. This situation can prompt several important strategic considerations for crafting the most effective response.

An assignment for the benefit of creditors (ABC) is a state law-based process where a financially distressed company (assignor) transfers its assets to a third-party fiduciary (assignee) for liquidation and distribution to creditors. This process differs significantly from a bankruptcy case, with key distinctions including the lack of court supervision in certain jurisdictions, enforceability of ipso facto clauses and anti-assignment contract provisions, absence of an automatic stay, and potential nonexistence of preference claims.