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COPYRIGHT 2001 National Association of Credit Management
Dealing With a Major Customer's Second Chapter 11 Filing
After much negotiation, you finally have an allowed administrative claim for your reclamation claim, as your major customer's Chapter 11 plan of reorganization is finally confirmed. The plan of reorganization helps the customer to continue to operate, albeit with significantly less debt. Your administrative claim comes at a price, as you agree to ship on credit to the "reorganized" debtor post-confirmation. Your company anticipates resuming significant sales to the reorganized debtor and supports resumption of credit terms. The payment on your reclamation claim is over time--based on the reorganized debtor's cash flow. Payment on a percentage of your mid-six figure claim is also to be over time. Your company also receives stock in the reorganized debtor in exchange for its prepetition claim.
Notwithstanding all of the projections prepared by the debtor's accountants to confirm the plan of reorganization demonstrating the debtor would be profitable, it is not. Projections are missed, and the debtor fails to pay on your administrative claim. The debtor also fails to pay on your post-confirmation credit sales. The debtor is chased by creditors and files a second Chapter 11 bankruptcy. How can this be? May a company file a second Chapter 11, also referred to as a Chapter 22? Your major customer had spent two years in Chapter 11 and several million dollars on its attorneys, accountants and investment bankers to assist in paring down creditors' pre-bankruptcy debts, disposing of certain assets and repositioning itself in the marketplace.
Your customer had circulated a hundred-plus page disclosure statement...
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