This year’s NACM Credit Congress had a lock on bankruptcy-focused sessions, offering both practical and academic looks at how creditors can stay ahead of their struggling debtors.
Veteran bankruptcy expert Hal Schaefer, CCE, CEW started the day off with “A Best Practice Guide to Managing Bankruptcies – Before and After the Filing.” His relaxed, conversational presentation stressed the importance of consistency in successfully navigating any debtor’s bankruptcy filing. “A policies and procedures manual is so important because it will come back to that,” said Schaefer.
“You will find that you may be in the position where you have opened yourself wide open for a preference action,” he said, adding that the timing of certain security measures that creditors take to protect themselves from a debtor default and subsequent preference action could raise some eyebrows. “Timing is a major factor. If you get a standby letter of credit and you get it nine months prior to the filing, it’s fine,” said Schaefer. “If you get it during the 90-day preference period, some red flags are going to go up.” Securitizing certain sales during that 90-day period will make it harder for creditors to eventually use the ordinary course of business defense, should a preference action come up.
Schaefer also noted that he greatly encourages credit professionals to serve on creditors’ committees, but he added that they should be prepared for some upper management pushback. “Always remember you have a fiduciary responsibility to all trade creditors, not just your company,
he cautioned. “The strangest thing can happen when you’re sitting on the creditors’ committee and someone asks if we should go after preferences,” he noted, saying that often times some companies will want to avoid chasing these items if possible. “It does not make you a hero of the company and it’s a tough call but it’s well worth it.”
The two-part “Bulletproofing Your Credit Department” session was led by Val Venable, CCE, Bruce Nathan, Esq. and Wanda Borges, Esq., and made a solid case for why “Be prepared” should be the motto for credit professionals in addition to the Boy Scouts.
Venable and her attorney panelists offered a look at what signals a creditor can look for in a potential bankruptcy; not signals that predict bankruptcy in a month or two, but years in advance. “If you suddenly start getting trade references from your customers, it could mean that they’ve been cut off and could be looking for other suppliers,” said Venable. Another tip for spotting a potential filing down the road relates back to the advent of companies holding secured debt. “Multiple tranches of secured debt is now becoming the norm,” said Nathan. “You look at the bond debt or their bank debt and a warning signal could be an upcoming bond maturity date.”
“These warning signals are not warning signals of a bankruptcy two months from now, but a bankruptcy two years from now,” he added.
Credit Congress continues in Nashville, TN, at the Gaylord Opryland Hotel and Resort. Check NACM’s Blog for other prior updates.
Jacob Barron, NACM staff writer