New NACM Publication Quotes CMA Adjustments’ Molly Froschauer


CMA Adjustments General Manager Molly Froschauer has contributed to NACM’s recent the Manual of Credit and Commercial Laws. The publication updates an older version that was available previously.

In the Manual, Froschauer discusses alternatives to bankruptcy, a topic she regularly consults CMA members and their creditors on. The latest version of the Manual of Credit and Commercial Laws now comprises four volumes that either may standalone or continue to serve as a cohesive and comprehensive set.

Volume IV includes:

• Reclamation, Stoppage in Transit, New Administrative Claim in Favor of Good Suppliers, and other Return of Goods Remedies
• A Creditor’s Guide to the Bankruptcy Process
• Alternatives to Forcing a Financially Distressed Debtor into Bankruptcy

For more information on the Manual, or to order a copy, visit http://my.nacm.org/net/ItemDetail?iProductCode=LEGALENV50&Category=LEGAL 

For more information on CMA Adjustments, visit www.CMAAdjustments.com

New Webinar Series Helps Credit Professionals Understand Bankruptcy

As a risk manager, you know that bankruptcy by your customers is one of the biggest threats to try to avoid. But what happens when your good customer files bankruptcy? CMA has put together a series of webinars addressing bankruptcy and what you can do to understand the process in order to help your company get paid.

These sessions will guide you to:

  • Understand the difference between the major types of corporate bankruptcy, and what happens to outstanding debts when your customers file.
  • How anti-trust laws can affect a bankruptcy.
  • Learn about your company’s rights when your customer files bankruptcy.

Webinars are:

Sign up for these and other events at http://www.anscers.com/upcomingevents.aspx or contact CMA Member Relations, at 800-541-2622.

CMA Adds Commercial Real Estate Sales to Liquidation Services

By Molly Froschauer

Credit Management Association (CMA) Adjustments exists to help serve the creditors in the bankruptcy process by ethically handling assets and distributions in a cost-effective manner. As many businesses know, once a company files bankruptcy, the process can be so costly that the creditors lose out. As CMA Adjustments prides itself on being a full-service solution to companies looking to maximize their assets for their creditors in an alternative to bankruptcy, it has added real estate to its capabilities.

Once a company is out of business, the rules for payments, collections and distributions all transform and often require a third party to handle assets to ensure fairness to creditors. Often these third parties are attorneys or financial analysts whose services cost an enormous amount due to the expertise required. At CMA, we have handled all kinds of commercial assets for more than 130 years, and we have been cognizant that many times, recovery will come from the sale of real estate. We believe that the creditors will benefit by adding these assets to the liquidation processes.

Whether the funds come from collecting rents, managing properties or liquidating buildings, CMA manages the funds of insolvent estates with the creditors in mind. CMA is also available as a resource for companies to ask questions about any part of this process. For example, many creditor managers run property records as part of the credit application and have questions about real estate’s impact on the creditors’ right to recovery. With this new expertise, CMA has expanded its ability to help companies drill down on any asset that affects their recovery.

I’d love to talk to you in more detail about this program if you have any questions. Please feel free to call me at 818-972-5300 or email me at molly@cmaadjustments.com.

About CMA Adjustments

Frequently, a company suffering from the effects of diminished cash flow seeks relief from its debts through a bankruptcy proceeding. CMA Adjustments offers effective alternatives to bankruptcy. CMA’s fully developed and tested programs reorganize debt and rehabilitate insolvent companies at a fraction of the costs and none of notoriety that bankruptcy carries.

Through CMA’s out-of-court workouts management can work informally with creditors to reorganize debt or position a company for merger, acquisition or new investment. If liquidation is appropriate, CMA has extensive experience as assignee under an assignment for the benefit of creditors for most types of businesses.

Molly Froschauer is the General Manager of CMA Adjustments. She received her J.D. cum laude from Pepperdine University and her Bachelors from Claremont McKenna College. Before joining CMA, her practice was centered around bankruptcy and other out-of-court debt issues. She’s a member of the Bankruptcy Inn of Court, Los Angeles Bankruptcy Forum, and the Turnaround Management Association.

What Can You Expect When You Instruct Your Collection Agency to ‘Go Legal’ Against Your Former Customer, by Sam Fensterstock

Let’s say that you have placed your former customer for collection and your agency demands, as well as the local attorney, demands have not been successful. Your agency along with your attorney believe that litigation is your only option in hopes of being paid, provided that the amount due falls above your suit parameters. Had the former customer filed for bankruptcy, you can forget about a lawsuit and write off the receivable. In this situation, if you want to have any chance of collecting, your agency along with your attorney will review all documentation supplied along with a review of their internal efforts and investigation and make a recommendation to you regarding the filing of a lawsuit in the debtor’s locale.

SOME THINGS TO CONSIDER BEFORE FILING

Upon agreeing to litigate, your agency will then provide your attorney all of the information they have on your claim including amount due, principal and interest; debtor’s contact and phone number; nature of your business; details of any dispute and creditor’s response with copies of memos and correspondence. Additionally, they will provide the attorney with any documentation they have including: credit agreement; contracts, leases, personal guarantees, promissory notes, and NSF checks; purchase orders, delivery receipts, invoices, and statements of account; etc. The attorney will use this information during the legal demand process to try to bring the debtor to the table as well as use to substantiate their pleadings if suit is filed.

If the attorney has exhausted all their demands with no positive result, the next step is to consider a lawsuit. Before bringing a lawsuit, you want to be very sure that you have a good chance of winning. It is going to cost you some upfront money to file a lawsuit, and it would be silly to spend it if the debtor is out of business and you have no personal guarantee or if it is a highly contested debt and debtor has a good chance of successfully defending it. If you are going to file a lawsuit, you need to determine whether any of the following debtor defenses are possible:

• Could the debtor claim a prior payment?
• Is the amount due an offset?
• Does the debtor have a basis for a counterclaim?
• Is the debtor disputing the balance and has documentation to back it up?
• Is payment barred by the statute of limitations?
• Were the goods and/or services provided deemed inferior by the debtor?

If any of these defenses, and there are more, is possible then you may want to think twice before filing a lawsuit, because if you have to go to court the suit may become expensive, and there is a chance you might lose, thereby increasing your cost with no reward. Also remember, having a personal guarantee always helps. Furthermore, if a defense is expected, can you supply a witness at trial? Keep in mind the expense of travel as well as time your witness may need to be deposed or attend and testify at trial.

Many times a lawsuit will bring your debtor to the table to negotiate a payout or settlement. Also, keep in mind that at any time during the process, the debtor can file bankruptcy, which will immediately halt any legal proceedings or they can simply go out of business.

COURT COSTS AND FEES

Your agency will provide you with the attorney’s contingent fee requirement as well as any non-contingent fee requirement.

Court Costs

Filing a lawsuit costs money. Included in the suit costs will be:

• The cost of filing a summons and complaint

• The cost of serving the debtor

• Costs for various required attorney actions during the course of the lawsuit.

The attorney will require, in advance, their estimated costs for filing a suit and obtaining a judgment. The amount required will vary based upon jurisdiction and the venue where the lawsuit is filed. In addition, these fees are not negotiable as these costs are set by the courts.

These costs, however, most times are non-contingent and may not be lost. If you win, the court costs in connection with the lawsuit may be recovered from the debtor and you are entitled to a full return of the costs advanced if the debtor is required to pay costs as part of the judgment. .

Attorney Suit Fees

Essentially, these fall into two classes –contingent and non-contingent. Contingent suite fees, i.e., a fee based on the amount of the account as well as the amount collected. In addition to the contingency fees already applied to any monies collected, suit fees may also be charged. In essence, the suit fee is an additional fee the attorney earns for filing suit, no matter if you are successful in collecting.

The attorney may require a non-contingent fee to handle the case. This is a portion of the fee which attorney will earn upon the filing of suit. The non-contingent suit fees be applied towards the total suit fee the attorney earns which normally does not exceed a total of 10%.

HOW LONG WILL THE AVERAGE CASE TAKE?

If everything goes the attorney’s way and you get a default or no acceptable defense judgment, you can figure on six to nine months. However, every case is different and if the debtor puts up a fight it could take several years before a resolution is reached. The “wheels of justice move slowly” and creditors right litigation is no different.

COLLECTING A JUDGMENT

You have won your case and received a judgement from the court against your former customer, now all you have to do is collect the money due. If the debtor is located in the jurisdiction that the suit was filed then garnishments, marshal/sheriff levies, i.e., direct action against the debtor is possible. However, collecting a judgement can be a complicated matter. The lawsuit should always be filed in the jurisdiction where the debtors and their assets are located. Using a national agency that has the experience as well as database of local attorneys who specialize in collection litigation is a plus. A national collection agency has highly trained staff members who are familiar with the various laws of each state and their expertise affords them the opportunity to “quarterback” your attorney. Their goal is the same as yours, to conclude the matter as quickly and professionally as possible and maximize the money that is recovered. Some of the benefits of using your agency to handle your lawsuits:

• The agency can employ local attorneys who are bonded and insured to move the case as quickly and expeditiously as the local courts will allow.

• The agency can act as an effective conduit between you and the local attorney, thereby collecting the maximum amount in the shortest possible time while protecting your interests.

• The agency has more expertise, in collecting debtor judgments, in terms of volume of accounts and trained and available staff than any law firm. It is their business and their only business.

CONCLUSION

In the event that an account that you submit to your collection agency winds up with an attorney for litigation, before filing a lawsuit, carefully evaluate your chances of winning before you throw good money after bad. However, many times a lawsuit is your best and only chance of collecting.
Sam Fensterstock is Senior Vice President, Business Development, for AGA, a leading commercial collection agency based in Melville, NY. He can be reached at (631) 425-8800 or samf@agaltd.com.

Commercial Bankruptcy Filings Climb 29 Percent for the First Half of 2016

According to the American Bankruptcy Institute (ABI) data that was provided by Epiq Systems Inc. , total commercial filings during the first six months of the year (Jan. 1-June 30) increased 29 percent to 19,470 over the 15,071 total commercial filings during the same period in 2015. Commercial Chapter 11 filings also rose during the first half of 2016 as the 3,220 filings represented a 25 percent increase over the 2,575 commercial chapter 11 filings during the first six months of 2015.

“Data like this underscores the importance of regularly attending Industry Credit Group meetings and keeping up on alerts and RFIs on anscers,” said CMA President and CEO Mike Mitchell. “Our members have identified the trouble signs of companies big and small and have taken steps to regularly discuss troubled or slow-paying customers and have repeatedly had the upper hand on some of these accounts months before they filed.”

Fortunately, the members of one of our industry trade groups saw some warning signs several months ago and took action. They made this account a permanent one for meeting review, meaning it showed up as an RFI every month automatically. They monitored newspaper stories and internet reports and had their group facilitator distribute. They made it a regular account clearance on all conference calls, shared any information they received and individually took action to reduce their company’s exposure. A conservative estimate shows them being 3-5 months ahead in identifying trends than non-members.

“The business insolvency world has been slow for awhile, with sporadic, larger bankruptcies affecting our members,” said Molly Froschauer, general manager of CMA’s Adjustment Bureau, which provides innovative alternative solutions to creditors and distressed businesses. “At CMA Adjustments, we’re seeing business pick up but don’t yet know if the historically slow bankruptcy numbers are going to return to the normal level or if it’s a market blip. As we see businesses shutting their doors, our members’ rights should be protected and, whether it’s to put you in touch with an experienced bankruptcy attorney or to give you simple advice, we’re here for our members and to offer guidance should businesses begin to file many more bankruptcies.”

For more information on the study, click here.

Goodbye to Another Old Friend, by Larry Convoy

It seems that each month, a different industry feels the pain of losing one or more of their big players. It started in the Electronics industry a few years with Circuit City, moved over to the Grocery chains, department stores and last month it hit the Sporting Goods industry with 2 majors closing their doors. Besides having an impact on those who are losing their jobs, the amount of revenue these Big Box dealers generated may have been the only thing keeping some manufacturers profitable.

Fortunately, the members of one of our industry trade groups saw some warning signs several months ago and took action. They made this account a permanent one for meeting review, meaning it showed up as an RFI every month automatically. They monitored newspaper stories and internet reports and had their group facilitator distribute. They made it a regular account clearance on all conference calls, shared any information they received and individually took action to reduce their company’s exposure. A conservative estimate shows them being 3-5 months ahead in identifying trends than non-members.

As a result, they are in a better position to absorb any potential loss, certainly in a better position than some non-group members who have large exposures because they were not involved in the discussions over the last several months.

Many times when we approach a potential group member, their response is: “I only extend credit to Fortune 500 companies.” I am sure that those dealing with A&P, Haggens Food, Circuit City, Sport Chalet, Sports Authority, Blockbuster, Borders and Radio Shack to name a few all felt that they had a good handle on it.

We congratulate our industry group that identified a potential problem and took steps early to reduce their pain. The small financial investment they made in joining and participating in a group has paid off handsomely.

As we start a new “group year” with our new fiscal year beginning May 1, we encourage you to use all the tools CMA has to make sure you have the most current information on your customers, large and small.

Thanks for reading!

Why Out-of-Court Insolvency Pays Off, by Molly Froschauer

When facing a company showing signs of distress, we often hear credit managers afraid of the “big B,” bankruptcy. Well, while closing the doors of a company is never a pleasant thing, there might be another way to shut down without the many legal pitfalls for creditors in bankruptcy. The legal world fully embraces any sort of out-of-court resolution, with mediation and arbitration being considered preferable to courtroom solutions. In the business world, contracts often have an arbitration decision or disputes are resolved in mediation. Employing any alternative dispute resolution has many advantages, and mirror those provided by the business insolvency services at CMA.

Handling issues out of court is less expensive, less time-consuming, and considerably more private. The same can be said about the assignment (“ABC”) process, but ABCs are still a relatively little-known alternative to business bankruptcies. Normally, a business that has decided to close its doors would consult with an attorney to either wind down operations with legal advice from corporate counsel, or, it would file a Chapter 7.

The decision to file the Chapter 7 is complicated and should be taken with care and advice of counsel. However, if attaining finality for the closure of the business is the goal, an out-of-court option is available. Assignments for the benefit of creditors have all of the same advantages of alternative dispute resolution but in a bankruptcy context. For example, instead of obtaining judge approval to dispose of assets, CMA, as assignee can handle immediately. Also, as actions are not handled on a public docket, it’s a less visible process. As assignment can be done very quickly as well, creating a feeling of closure for everyone involved.

Alternatives to bankruptcy offer the same benefits as those in litigation and should be an important part of the legal landscape in the future. It’s important, when winding down, to know all options. Every situation is treated differently and the team at CMA can be very flexible with the specifics of any business. The easiest way to determine whether the alternatives discussed here are right for you is to call CMA. We appreciate the uniqueness of each business and are happy to discuss the particularities in detail.

Molly Froschauer is CMA’s Insolvency Services Manager. A bankruptcy attorney licensed to practice in California, she can be reached at 818-972-5315.

Do You Know of a Company On the Verge of Bankruptcy?

Working in conjunction with the business and its creditors, CMA Business Credit Services provides a struggling business with the opportunity to re-establish its financial credibility through time and planning, or to assist in ceasing its existence while minimizing losses to its creditors. As an efficient bankruptcy alternative, CMA provides all of the services necessary to wind down operations of a distressed business while avoiding both the administrative expense and paperwork associated with bankruptcy court. These alternatives are often less cumbersome for all involved and are less expensive, which means more return to creditors and more money left in the business to regain its footing.

If you know of a struggling company looking for bankruptcy alternatives refer them to:

Molly Froschauer, CMA Adjustment Bureau
Expertise in: Bankruptcy, Preferences, Reclamation, Proof of Claims, Creditor Committee, Chapter 7, Chapter  11,  Bankruptcy Alternatives
Phone: 800-541-2622

Not The Top Ten List You Want To Be On, by Larry Convoy

With due respect to David Letterman and Sports Center’s nightly “Top 10” lists, there are some lists that you would be better off not being on.  One that directly affects you and your company is “The Top 20 Creditors in a Bankruptcy Case,” a document that is easily obtainable by accessing Pacer. No company likes to see their losses published for all to see.

CMA Industry Group Leader Larry Convoy
CMA Industry Group Leader Larry Convoy

However, this document of doom will now be turned into an excellent prospect list for any industry credit group (ICG). Whenever you post an alert of a Chapter 11 in your industry, CMA will run a list of the top 20 creditors. These companies could be competitors of yours, or they are at least selling into the same market as you and have just taken what could be a major hit. A phone call from a group member informing them about the group, and mentioning that the group was aware of the problem and therefore had minimal exposure, could get the group a new member very easily.

Therefore, effective with the next Chapter 11 alert posted on anscers, the ICG department will forward this list of names to the group chairmen and group facilitator. There will probably be some banks, factors or lending companies that would not fit but you should be able to identify some HOT prospects. Tell them that the best way to avoid the next BK is through membership in your credit group.

Thank you for your support throughout 2014, and we wish you and your family a Happy and Healthy Holiday Season and a Prosperous 2015.

Larry Convoy
Lead Group Facilitator
lconvoy@emailcma.org

Give and Take; Trying to Find the Right Balance – Michael Dennis, CBF

Give & Take

First and foremost, I am very grateful for the work done by official unsecured Creditors Committees in Chapter 11 bankruptcies.  Having served on two Committees, in my opinion what members of the committee give to the creditor community is far more than they are likely to take from serving on a Committee.

A former student of mine called recently about serving on a Creditors Committee.  She explained that she was asked to serve, and believed joining a Committee would provide her with insights about why some customers file for bankruptcy protection.  Her plan was to use these insights to help her to avoid bad debt write offs in the future.

I responded that I did not recall a time when a Committee that I served focused on what went wrong in the debtor company.  Why?  We were too busy monitoring the debtor’s progress, or commenting on the proposed Plan of Reorganization, and discussing preferential transfers among many other tasks.  I told her that Committee membership requires a significant and lengthy time commitment.  I cautioned her that her own work would probably pile up while she attended offsite meetings or participated in lengthy conference calls with other Committee members and legal counsel.

Recognizing her goal was to become better at spotting customers in financial trouble, I suggested that she consider continuing her professional development by preparing for and taking the CCE Exam as an alternative to serving on the

Michael Dennis, CBF

Committee.  I am not sure whether she took my advice, but I am sure I will find out when she reads this Blog.

What are your thoughts?  Was my advice ‘on the mark’ or way off base?  Comments and constructive criticism is always welcomed.

Michael Dennis’ Covering Credit Commentary. Michael’s website is  www.coveringcredit.com

The opinions presented are those of the author.  The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors.  Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.

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Don’t Get Stuck Between a Rock and a Hard Place – Michael Dennis, CBF

Don't Get Stuck

Sooner or later, every credit professional will be asked this question by their boss: “What credit limit do you recommend we assign to this customer or applicant — the one with the deficit net worth?”

Customers with a deficit net worth are technically insolvent, and insolvent companies have a nasty habit of filing for bankruptcy protection. There is no good or right answer to this question. The answer depends on your company’s tolerance for credit risk. However, the fact that your manager is asking you for a recommendation suggests that s/he believes the customer should be given open account terms at some dollar level.

I use one of two approaches to address this problem. The first involves rephrasing the question this way: “If you are asking how much credit I would extend to a company that is technically bankrupt, the answer is that I would not recommend open account terms.” This response is honest and direct, and makes your position crystal clear.

The other approach involves explaining that your experience does not provide you with any guidelines relating to recommending credit limits for customers with a deficit net worth, and that you would appreciate their help. Ask for their guidance about what process they would use to determine how much money your company is willing to risk on this type of customer. Done correctly, this can become a useful training tool for the credit decision-maker.

Both approaches might cause your manager to question your willingness to make tough decisions. The good news is that you may be able to avoid the problem altogether by updating your Policies and Procedures Manual. If you develop a Credit Policy that addresses who has the authority to extend credit to the highest risk companies, and what facts and factors that credit decision will be based on, you can avoid being caught between a rock and a hard place.

Michael Dennis, CBF

I am always interested in hearing your opinions. Please let me know how you have handled this challenge effectively.

Michael Dennis’ Covering Credit Commentary. Michael’s website is  www.coveringcredit.com

The opinions presented are those of the author.  The opinions and recommendations do not necessarily reflect the views of CMA, or their Officers and Directors.  Readers are encouraged to evaluate any suggestions or recommendations made, and accept and adopt only those concepts that make sense to them.

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