When a company is in Chapter 11, can vendors be compelled to continue to do business on their usual terms, or can they demand cash up front, or perhaps decline to do further business with the company unless past debts are paid?
I understand that if you extend credit to a company in chapter 11, those bills come before those of the pre chapter 11 creditors, but can the courts compel you to continue to work on credit, or forbid you from witholding work on the grounds that the company is delinquent in paying its debts?
Perhaps the chapter 11 protection of post-filing creditors is so good that vendors continue to extend credit and do business on their usual terms?
And… I am not planning to rely on any advice on info given, just curious how it works.
The first company I worked for out of college (with my Accounting Degree) filed Chapter 11 bankruptcy one month after they hired me.
We continued, obviously, to do business with our suppliers. Some required cash deposits, some made payment due on delivery, others modified their terms and credit limits and others it was business as usual.
Most vendors continued to do business with us as this debt would not be covered under the bankruptcy filing and, I believe, would have priority over the old debt in the event of additional filings. (Take that with a grain of salt as it’s been over a decade since I’ve really had to deal with bankruptcy law.) Most also implemented other butt-covering measures (see above).
I can’t see a judge saying “You MUST produce 347 widgets next month for BrokeAss Inc. or else”. If you refuse to ship to them, you may or may not be in breach of your contract with BrokeAss, IANAL.
We have had customers file, in most cases it’s really no big deal. Our bean counters keep an eye on them, and if we eventually cut them loose, it’s usually with no hard feelings.
I worked for a company that had fired Chapter 11 while owing two suppliers buttloads of money. They couldn’t collect on the debt, but refused to do further business with us after the filing. We ended up signing an exclusive contract with a supplier with considerably inferior product & service … I was on point dealing with our customer complaints caused by that supplier’s shoddy service. An absolute nightmare.
