SELLING TO TROUBLED SUPPLIERS V4_3 (2)

SELLING TO TROUBLED SUPPLIERS

- AVOIDING LITIGATION –

Sean M. Walsh

Giarmarco, Mullins &Horton

SHOULD YOU ALWAYS AVOID LITIGATION?

1. If Possible

2. Minimize The Pain

3. Arbitration Is Not The Answer

Presented by Giarmarco, Mullins & Horton, P.C. Copyright 2005

THE BUYER’S LIFECYCLE

1. Performance Slips

2. Failing or Insolvent

3. Bankruptcy


PERFORMANCE SLIPS

1. Ounce of Prevention = Pound of Litigation

2. The Fine Print Now Matters

3. Stay One Step Ahead


AN OUNCE OF PREVENTION

1. Avoid Troubled Buyers

2. Don’t Get Surprised

3. Un-Paid Sales Are Worse Than No Sale


KNOW YOUR BUYER

1. Why is Performance Slipping?

2. Should You Keep Them?

3. Can You Reduce Your Risk?


MANAGE YOUR CONTRACTS

1. Maintain Accurate Contract Files

2. Audit The Terms & Conditions

3. Include The Plant

4. Anticipate Need For Change


ACT NOW

1. Be Creative

2. Assess Commitments to the Buyer

3. Expect the Worst

4. Don’t Become “Preferred”


PROVEN SOLUTIONS

1. Shorter Credit Terms

2. Other Peoples’ Money

3. Security

4. Solve The Buyer’s Problem


WHAT’S THE DEAL?

1. Is There a Blanket P.O.?

2. Existing Releases?

3. Can You Modify or Terminate?


DON’T MAKE IT WORSE

1. Watch for New Terms

2. Reject Early & Often

3. Counter With Your Own Terms


EXPECT THE WORST

1. Create Flexible Contracts

2. Consider Terminating

3. Perfect Liens

4. Once Again, Be Creative


SOME COMMON LIENS

1. Plastic Parts– Molder’s Lien– Mold-Builder’s Lien

2. Metal Parts– Special Tool Builder’s Lien– Special Tool User’s Lien


DON’T BECOME “PREFERRED”

1. What is an “Avoidable Preference”?

2. What is Not?

3. Should You Take The Payment?


WHAT A PREFERENCE ISN’T

1. Contemporaneous Exchanges

2. Payments in the Ordinary Course

3. Payments in Exchange for Shipment

4. Purchase Money Security Interest


REAL SOLUTIONS

1.Don’t Deliver Until You Get Paid

2.Demand C.O.D. or C.I.A.

3.Shorten Credit Terms Early

4.Demand Security


THE BUYER IS INSOLVENT

1. Stop Delivery of Goods in Transit

2. Demand Return of Goods

3. Demand Adequate Assurances

4. Stop Shipping


WHEN TO STOP SHIPMENTS

1. Buyer Is Insolvent

2. Buyer Threatens to Breach

3. Buyer Fails to Pay on Time

4. No Adequate Assurances


RECLAIM YOUR GOODS

1. Written Demand Within 10 Days of Delivery

2. Senior Secured Parties

3. Good Faith Purchasers

4. Goods are Already Incorporated


DEMAND ASSURANCES

1. In Writing, But No Magic Words

2. “Reasonable Grounds for Insecurity”

3. Adequate Assurance of Payment Within “Reasonable” Time


WHY BOTHER?

1. You May Get What You Ask For

2. Creates Flexibility

3. Prepare For Bankruptcy


BANKRUPTCY

1.Do You Have Parts In Transit?

2.Did You Recently Deliver Parts?

3.Must You Continue to Ship?

4.Will You Get Paid?


THE BUYER’S LEVERAGE

1.The Automatic Stay

2.The Power to Enforce Contracts

3.The Broad Power of The Court


PARTS IN TRANSIT?

1. Stop Shipment

“[M]ay withhold or stop in transit the delivery of the goods…until and unless [seller] is assured of the buyer's payment in cash upon delivery…”

“…stoppage in transit -- need not be preceded by a grant of relief from the automatic stay.”

In re: National Sugar Refining Co.


DELIVERED PARTS?

1.Reclaim Them!

2.You Won’t Get The Parts Back

3.So, What Do You Get?


WHAT’S AN ADMINISTRATIVE CLAIM?

1.Front of Payment Line

2.Get Paid Sooner

3.Good Chance of Full Payment


PAST DUE INVOICES?

1. Unsecured, Non-Priority Claim

2. Better Alternatives?


CRITICAL VENDOR

1.Are You Really Critical?

2.Favorable Terms?

3.Convince The Debtor


GET THE BUYER TO ASSUME

1. Buyer May Assume or Reject

2. If Assumed, Buyer Must Pay

3. May Need to Force The Issue


IN THE MEANTIMECAN YOU STOP SHIPPING?

1. Is The Buyer Really The Buyer?

2. Is Your Contract Really Executory?

3. If So, Buyer May Enforce In Limbo


CONTRACTS IN LIMBO

“During the post-petition and pre-acceptanceperiod, an executory contract remains inexistence and is enforceable by, but not againstthe debtor-in-possession.”

Interstate Gas Supply v. Wheeling Pittsburgh Steel Corp.


GETTING PAID IN LIMBO

1. Demand Adequate Assurances

“Non-debtor…may only either seek relief fromautomatic stay…to permit it to terminate theexecutory contract or…request the court to fix atime within which the debtor would be required toaccept or reject the contract…”

In re Pac. Gas And Elec. Co.


GETTING PAID, CONT.

2. “First Day Orders”

3. Negotiated COD or CIA Terms

4. Administrative Claim

5. Security


THE MORAL OF THE STORY

1. Actively Manage Your Customers

2. You Can Reduce Risk If You Act

3. Use Leverage, Not Fear


Documents

SELLING TO TROUBLED SUPPLIERS V4_3 (2)