Chapter 11 Cases for Chinese Vendors

As soon as you learn that your customer has filed bankruptcy in the U.S., you should do certain things in the first few days. Taking swift action will significantly improve your chances of collection. Seek legal counsel immediately to help you examine the issues raised below:

Reclamation is a process by which a credit-seller can “reclaim” goods sold on credit, not yet paid for but delivered to the customer within a certain time before bankruptcy. Reclamation may give you rights (or liens) regarding the goods you sold. Alternately, the Court may give your claim other priority rights instead of a lien. Generally, if you act within 20 days after the bankruptcy was filed, you can reclaim goods delivered within 45 days before the bankruptcy. But you must give proper notice of reclamation within that 20 days or the right will be lost. There are specific requirements attached to the reclamation notice for it to be effective (i.e., the deadlines must be met and the customer must still have the goods). Even if the goods are gone or there is other interference, the notice must be sent as soon as possible. Remember, the timing (20 days after the bankruptcy filing) is critically important.

A §503(b)(9) administrative priority is granted for the “value” of goods delivered to the customer within 20 days before the bankruptcy filing. There may not be a time limit for filing this claim, but the sooner it is filed, the sooner the Court can require the customer to pay it. This administrative priority raises the importance of the claim to one that must be paid by the customer as ordered by the Court or, at worst, at the time a Plan of Reorganization is approved. Bernstein-Burkley, P.C. attorneys can help to review your claim to see what invoices fall within this protection and help you make application to the Court for immediate payment.

Creditors’ Committee participation can significantly improve your understanding of the reorganization process and may allow you to influence the progress of the case. During the first few days of a Chapter 11 case, the Office of the United States Trustee (“U.S. Trustee”) will generally ask the largest unsecured creditors to serve on a Committee of Unsecured Creditors. The invited creditors come from a list filed by the debtor. That list may be inaccurate, so the U.S. Trustee also will invite creditors who file a sworn statement of claim (Proof of Claim) before the Committee is formed. This invitation and Committee formation usually occurs within a week or so of the case filing.

The Committee has the right to hire legal counsel (paid for by the debtor, not the creditors) and you can have significant impact in this area. While many lawyers are capable of representing the Committee, Bernstein-Burkley, P.C., has experience representing Chinese creditors on Committees and has connections with various credit agents, and may therefore help assure that the interests of unsecured creditors will be represented to your liking.

When you contact a bankruptcy attorney immediately upon learning of a customer Chapter 11, he or she can discover the details of the filing and the timing of the Committee organization. Your attorney can then work to help you influence the progress of the Committee formation and activity.

It is critical to act on these three points—reclamation, §503(b)(9) administrative priority and Creditors’ Committee participation—in the first few days of a customer’s Chapter 11 case. Do not delay. If you miss the associated deadlines, you can lose valuable rights. Contact Bernstein-Burkley, P.C. as soon as you learn of a U.S. customer’s bankruptcy. 

Prepared by:
Robert S. Bernstein, Esq.
Bernstein-Burkley, P.C.
Suite 2200 Gulf Tower
Pittsburgh , PA 15219
Phone: 800-693-4013
Fax: 412-456-8135

Board-certified in Business Bankruptcy Law and Creditors’ Rights Law by the American Board of Certification

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