Bankruptcy Point/Counterpoint Discussion

Two of CMA’s most popular legal minds went head-to-head during the recent “Bankruptcy Update: Point/Counterpoint” teleconference, where they discussed several BAPCPA protections for trade creditors, along with the most current related case law and the administrative ambiguities that accompany some creditor
defenses. Bruce Nathan, Esq. of Lowenstein Sandler PC acted as the voice of the courts, while Wanda Borges, Esq. of Borges & Associates LLC acted as the voice of the trade creditor.

Several topics were discussed throughout the program, most notably the 503(b)(9) 20-day administrative claim and the increasing use of executory contracts among trade creditors. Speaking about the 20-day administrative claim,
Nathan noted, “This is one of the biggest amendments of the BAPCPA,” adding, “This has become a safety net for suppliers.” He then discussed how trade creditors have to go about getting the actual claim. “This 20-day priority is
not automatic,” he said. “The Bankruptcy Code requires that this priority be granted after a notice and a hearing.”

Problems arise with the 20-day administrative claim in terms of when the claim is actually supposed to be paid. “There’s nothing in the statute that talks about when this claim is paid,” said Nathan, noting that payment times
differ from district to district. “It’s the court that makes the decision.”

Borges responded with her opinion of when the claim should technically be paid. “The Code is silent, but I think it should be paid now and should be paid in full,” she said, offering advice to trade creditors when filing this claim.
“You’ve got to move, you’ve got to move fast, and you’ve got to move furious.”

Later, Borges discussed her own personal experiences with executory contracts and their idiosyncrasies. “In the last six months, I have seen more issues with executory contracts with my clients and with trade creditors,” she said. “It’s effectively a contract where something has to be done on both sides. In order to have a Chapter 11 debtor agree to stay in the executory contract, the debtor has to pay, in full, all arrearages or provide adequate insurance that you’re going to get paid.” After hearing that, trade creditors might find the prospect of an executory contract quite alluring, but Borges and Nathan discussed the other issues and prerequisites that complicate the issue.

Other topics discussed included preferences, changes in the ordinary course of business defense and issues associated with the contemporaneous exchange for new value defense.