Did you know that a shark's natural instinct to hunt and kill is very similar to how conmen commit crimes? Sharks feed to live and conmen live to feed. When bitten by either you feel the pain.
Sharks and thieves are motivated by an incessant hunger that is forever unsatisfied. Neither ever rest; they are forever on the hunt. Sharks like criminals are hyper vigilant always seeking their next opportunity to kill. A shark can smell one drop of blood in a million drops of water and conmen have an ability to sense when best to strike at victims with unnatural accuracy. Both prey upon the weak or the old, and both have been known to eat their own when necessary, or just because they were in the way! While sharks are considered to be the ocean's perfect predator having evolved over 400 million years developing stealth like super-abilities, criminal's are constantly adapting to their surroundings and are equally deadly. Sharks kill with jaws strong enough to crush steel and serrated teeth that can shred virtually anything, even whales. Conmen out-whit and out-smart unsuspecting victims and their jaws can take down the largest of corporate titans, Just ask Bernie!
PRINTING INDUSTRY CREDIT BUREAU'S
SHARK BITE PREVENTION SYSTEM TEACHES YOU TO BITE BACK!
B: BE AWARE OF POTENTIALLY HARMFUL SITUATIONS &
I : IDENTIFY THOSE PROBLEMS BEFORE EXTENDING CREDIT
T: TAKE PRO-ACTIVE ACTIONS TO PREVENT FRAUD, &
E: ELIMINATE LOSS BY EMPLOYING GOOD CREDIT POLICIES
For more information visit us on the web at www.picb-us.com or contact us at (847)265-0400
ORIGINAL ARTWORK BY MARC.ART, INC.
BANKRUPTCY: WHAT YOU NEED TO KNOW!
IS FILING AN INVOLUNTARY BANKRUPTCY PETITION AGAINST YOUR DEBTOR A GOOD IDEA?
Unsecured creditors often consider filing an involuntary bankruptcy petition against debtors who owe them money. While this may initially seem like an attractive alternative to collections proceedings, and because there are a number of potential pitfalls in pursuing this path, creditors should proceed cautiously before commencing, or joining an involuntary petition.
DEBT REQUIREMENTS OF AN INVOLUNTARY PETITION
Generally, when there are 12 or more creditors of a debtor, any three unsecured creditors holding claims that are "not contingent as to liability or the subject of a bona fide dispute" and aggregating at least $14,425 may participate in the involuntary petition. Where there are fewer than 12 creditors, a single unsecured creditor may file an involuntary provided the claim is not subject to a bona fide dispute and aggregates at least $14,425.
BENEFITS OF FILING AN INVOLUNTARY PETITION
The two primary benefits of forcing an involuntary bankruptcy are 1) the ability to recover preferential transfers and fraudulent transfers and, 2) where the debtor is in selling its assets, the ability to require the debtor to conduct the sale in an open process, for hopefully a higher and better price.
If an order for relief [bankruptcy petition] becomes final against the debtor, the trustee (a term that is synonymous with "debtor in possession" under chapter 11) can reach back from the date that the involuntary is filed to recover preferential transfers or fraudulent conveyances. The 'look back' period for preferential transfers is 90 to non-insiders, and one year to insiders. The trustee can also reach back up to 2 years under the bankruptcy code to recover fraudulent conveyances, and reach back for even longer periods under certain state laws.
An involuntary bankruptcy may also create the opportunity to obtain appointment of a trustee under either Chapter 7 or Chapter 11.
RISKS OF AN INVOLUNTARY
Successful Involuntary bankruptcy petitions are uncommon. The debtor you seek to put into bankruptcy may contest the involuntary, which will force the Court to conduct a hearing on whether the debtor is paying its debts as they become due and/or whether the debts are subject to a bona fide dispute. The burden of proof is on the creditors and defeating the debtor's challenges can often be a difficult and expensive.
The Court may also require the creditors to file a bond to indemnify the debtor from damages, including the debtor's attorney fees. Should it rule in the debtor's favor and dismiss the involuntary petition, the actual creditors involved -- and not their lawyers -- may be required to reimburse the debtor for both its attorneys' fees and costs, and punitive damages, if the Court determines the involuntary was not brought in "good faith". If the Court determines that the involuntary petition was filed to harass a debtor or as a substitute for state-law remedies, or is a two-party dispute that is better brought in another forum, it will likely dismiss the petition and impose a judgment against the petitioning creditors.
WHEN IS AN INVOLUNTARY BANKRUPTCY APPROPRIATE?
Despite the risks there still are circumstances when creditors should consider forcing an involuntary bankruptcy, such as:
- The debtor is transferring unsecured assets to a third party, or an insider in a secretive manner or for less than fair market value of the assets.
- The debtor is transferring assets to a creditor in consideration of an existing a debt, and leaving insufficient funds to pay its other creditors.
- The debtor is transferring most, or all of its assets to a successor company.
- The debtor is only paying debts that have been guaranteed by its principals, or paying only debts owed to other "insiders".
- The debtor's lenders have obtained additional collateral within the past 90 days to better secure their positions.
- An involuntary bankruptcy provides creditors with a powerful remedy that properly used, can provide substantial benefits. The dangers to the petitioning creditors of filing an involuntary bankruptcy cannot be ignored, however. Petitioning creditors are urged to consult with competent legal counsel before undertaking an involuntary bankruptcy petition to fully evaluate the risks of an involuntary petition, or whether some other remedy is more appropriate.
Scott N. Schreiber
Stahl Cowen Crowley Addis LLC
BANKRUPTCY PREFERENCE CLAIMS BY TRUSTEE
"I want to keep my money"
You have received payment from your customer and your file and relationship is now closed. Or is it? Several months later your customer files bankruptcy. You hear about it and feel lucky because you were paid and obviously many others weren't. Then, sometime later, you receive a letter from your customer's Bankruptcy Trustee, demanding return of the payment, claiming it was a preference. Now, what do you do?
First, it is necessary to understand what a preference is. In simple terms, it is a payment on account for a past due debt made within 90 days of the filing of the bankruptcy, or within one year if the debtor is a related concern. Often, the demand letter will relate not only the amount claimed, but the reason why the trustee believes it is a preference. At that point, you should do two things immediately. First, gather all your records regarding your past relationship with your customer. Second, contact your collection agency and/or your attorney to analyze the situation and try to resolve it quickly.
There are a number of exceptions that make potential preferences not avoidable and which can be used to negotiate a settlement or defend a lawsuit. First, if the payment was made contemporaneously for new value, it is not a preference. Second, if the payment was made in the ordinary course of business, it is not a preference. This is a subjective standard, and someone with experience must review the business records regarding your business relationship with your customer to present the best arguments to prevail. Third, if you provided new value to the customer after the alleged preferential payments, in other words, you provided additional goods or services after receiving payment for past due goods or services, this may offset some or all of the claimed preference. There are some other miscellaneous exceptions and defenses that rarely apply that will be considered by the person reviewing your particular situation.
In summary, dealing with and defending a preference is the same as collecting an account. Time is of the essence. Do not ignore initial demand correspondence and wait for a lawsuit to be filed. Defending a preference claim is generally done on an hourly basis rather than a contingency fee basis. Therefore, the more quickly it is dealt with, especially if the Trustee does not file a lawsuit, the more economical and probably more successful the defense and settlement can be.
As an aside, the earlier and quicker you collect your accounts, the better chance you have to be outside the 90 day preference period, and you may avoid this issue altogether.
William A. Rinehart
Rinehart, Scaffidi & Mathews
DISCLAIMER: This article is not intended and should not be relied upon as legal advice. You should consult competent legal counsel of your own choosing before undertaking any legal action.
ASK AN ATTORNEY
Q: Can we ask for detailed financial information on our credit agreements? If so what questions would you believe to be the most important and how do we get banks and other lenders to respond?
A: Several of the principal objectives in entering into credit agreements with prospective clients is to a) ensure that the client has the ability to pay for the services provided, and b) ensure that in the event of default, there is information that will promote the collection of the delinquent account. Hence, yes, detailed financial information can and should be secured to the extent reasonable. At the end of the day, it is all about making sure you are paid for your services. Information that would be useful include: credit history, status of accounts payable, existence of security interests or UCC-1s, disclosure of bank accounts, bank account transaction history (i.e., adequate inflow of deposits and payment of accounts and no history of bounced checks) and whether client is delinquent or subject to collection efforts. Additionally, it might be useful to be able to have the prospective client provide the names of 2 or 3 of its vendors to verify that it timely pays its bills.
Banks and lenders will only provide information when authorized by the prospective client, and given recent changes in banking regulations, banks may be hypersensitive to the release of such information. However, an appropriate authorization and cooperation by the prospective client should permit you to access some of the information identified above. If a guarantee can be obtained from principals of the prospective client that is even better as it amplifies the necessity of the client paying its bills. Certainly, depending on scope of work to be performed, all of this information may not be retrievable. As always, there is the balance between developing business and discouraging prospective clients because of extensive requests for financial information. You have to decide where that balance is for your business model.
Christopher D. Curzon, Attorney
Smith, Gardner, Slusky, Lazer, Pohren & Rogers, LLP
A: The response to your question, of course, is that indeed as detailed financial information as the credit agreement can engender is quite desirable. But as regards the most important information, it would indeed be the identity of the customer's banking relationships, including of course account numbers, branch locations, length of the relationship, average balances, specific individuals at debtor's bank familiar with debtor's account, in short, as much information as possible. Clearly in the legal context, we can subpoena the bank and while we request specific information, often many of the banks, particularly the larger ones, will respond with a simple rubber stamp "No Account" and or even where there is an account they will provide at best the account number, the holder of the account, and in some limited circumstances, the account's Federal Tax ID number. I might suggest that for investigative purposes client also require its applicant's for credit to provide their Federal Tax ID number, which can also be quite helpful post-judgment.
Lester P. Taroff, Esq.
Roe Taroff Taitz & Portman, LLP
A: Assuming we are limiting this response to commercial credit transactions, the answer is "yes" the creditor/lender can ask for as much detailed financial information as the creditor/lender wants. Depending upon the industry, deep levels of diligence may not be possible. Due to competition, some customers (debtors) will not have to tolerate deep probing of finances. For the rest, I would counsel my client to have a detailed financial section as part of the application process. In a perfect world, the prospective client should produce (1) articles of incorporation (if a corporate entity) or its operating agreement (if a LLC), (2) a current cash flow statement and/or profit and loss statement, (3) bank account locations and bank officer information and permission to discuss those relationships with the bank officers (so that account ratings, daily balances, NSF history, etc. may be obtained), and (4) the identity of at least three other vendors and permission to discuss relationship and financial history with them (so that inquiries may be made to those vendors).
It's a fact of life that a certain percentage of accounts will go bad, for whatever reason. It's sometimes difficult to know on the front end what accounts those will be, and that is the job of the underwriter (or whomever is charged with reducing risk/exposure/bad debt at the client). For those bad accounts that do make it through, this detailed financial information will sometimes mean the difference between counsel collecting the file and counsel getting a writ returned with "no funds." It also helps us determine very quickly the answer to our very first question: "Who did you do business with?" You may already know this, but in a fair number of our cases, the creditor is unclear of the structure of its customer/debtor (i.e. corporation, LLC, individual, etc.).
John D. Guerrini
The Guerrini Law Firm
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