Protecting Your Business from the Near Bankrupt

You hear rumors that your customer may file bankruptcy but you have just shipped parts to them under a past purchase order and more parts are being ordered. If they file bankruptcy, will you get paid for the parts you just shipped? Can you stop making the parts currently being ordered and renege on the current contract? Can you ask for better terms to protect yourself against an anticipated bankruptcy, even though you already have a signed contract or a purchase order to deliver? Yes, there are some very unique things you can do to reduce the risk of your customer’s bankruptcy.

As you may know, many near bankrupt companies stop paying their unsecured creditors, like parts suppliers, and favor the secured creditors, such as their lending institutions. When the bankruptcy is filed and if reorganization occurs through the debtor-in-possession, often those due money for work performed before the bankruptcy filing wait years only to receive cents on the dollar in final payment. However, those supplying materials and services immediately after the bankruptcy are paid timely in an effort by the debtor to keep the materials and services flowing. Moreover, even though bankruptcy is filed, a supplier’s contract with the debtor is not automatically terminated. What weapons do you have to counter these tactics? Many of them are found within the Uniform Commercial Code which has been adopted in Ohio and governs the sale of goods and certain commercial transactions...