Dore Law - January 2021

Dore Law - January 2021

THE D

or É R eport

D ore L aw . com

JANUARY 2021

TOP 10 THINGS TO DO

WHEN YOUR CUSTOMER FILES BANKRUPTCY

1. STOP TRYING TO COLLECT OUTSTANDING BILLS DIRECTLY WITH YOUR CUSTOMER. Bankruptcy law creates an “automatic stay” when your customer files bankruptcy. The stay prohibits all creditors from continuing efforts to collect outside of the bankruptcy court. Your employees must know that the penalties are severe for continuing collection communications with the customer. Even if you are contacted by the customer, you must be careful and make certain any agreements are approved by the court. 2. EVALUATE YOUR CLAIM AND GET ADVICE BEFORE DECIDING THE BEST COURSE OF ACTION. Your company must gather all the documents related to your claims (MSAs, purchase agreements, job orders, bills of lading, acceptance tickets, repair records, etc.). The petition and motions filed in the bankruptcy court must be reviewed and evaluated to determine how your claims are situated, i.e., assets in the bankruptcy, other creditor claims, and the likelihood of getting paid some or all of your claims. Advice from an attorney experienced in handling trade claims in bankruptcy should inform your business decisions. 3. IMMEDIATELY FILE ALL POSSIBLE LIENS. Bankruptcy laws do not stop creditors from continuing to file security interests such as mineral liens, mechanic and materialmen’s liens, and liens allowed by the Uniform Commercial Code. Deadlines are not changed

by the bankruptcy filing, so it is crucial to quickly perfect all liens that may not have been time-barred. The difference between the amount of recovery for secured and unsecured creditors can be huge. 4. FILE A NOTICE OF APPEARANCE AND A PROOF OF CLAIM WITH THE BANKRUPTCY COURT. Make certain that you timely file your proof of claim and include all the monies that your company may be owed by the customer whether contested or not. All deadlines related to your claims should be added to your business calendar. Attend the initial creditors’ meeting and consider joining the Creditors’ Committee if your claim is large. There may be opportunities to reduce the expense of experienced legal counsel, such as joint representation with other creditors. 5. STOP DELIVERY OF GOODS AND SERVICES INCLUDING GOODS-IN-TRANSIT, BUT BE CAREFUL WITH CONTRACTS THAT YOU HAVE PARTIALLY PERFORMED. Generally, sales made prior to the bankruptcy filing can be stopped if the services have not been performed or the goods have not been delivered. Your company can refuse to complete the sale until “adequate assurance” of payment is provided pursuant to a cash collateral order from the bankruptcy court. However, you may be required to continue to perform on contracts partially completed at the time the bankruptcy was filed. Seek legal guidance.

6. BE CAREFUL WITH ANY CUSTOMER PROPERTY OR EQUIPMENT IN YOUR POSSESSION. Without permission from the bankruptcy court, a creditor cannot keep or sell the property of the bankrupt customer to satisfy claims you are owed. However, a creditor may have setoff rights for the customer property it holds. Where a creditor has recently delivered goods, there is the possibility of an administrative claim or reclamation rights in the bankruptcy. 7. LOOK FOR POTENTIAL PREFERENCE CLAIMS THAT COULD BE BROUGHT AGAINST YOUR COMPANY. The bankruptcy trustee can bring “preference

claims” to recover monies collected by creditors in the 90 days before the

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2020 WANTS YOU TO THINK LIFE ISN’T FAIR “That’s not fair” — it’s a phrase everyone hears and says far too often. And, it’s just as often followed by the retort, “Well, life’s not fair.” The concept of “fair” is very misguided, and the year 2020 took it to a whole new level. Nowadays, saying “life isn’t fair” feels like the best scapegoat for everything we’ve been through this year. But fairness is often like luck: It’s better to be fair or have a little luck on your side, but most of the time, how fair life is or how much luck you have is a product of your own creation. In life and especially in business, human beings get stepped on and pushed down by others. That’s just in our nature, as it always has been. We get upset with people who aren’t treating us fairly, and when we don’t get our way, we throw a fit. And then, the next time we get any power of our own, we oppress someone else, who then reacts the same way. You might think you’ve never oppressed anyone, but everyone has done it in some way or another, even if they may not realize it. However, there’s a bright side to this topic, and it’s that entrepreneurs always have an opportunity to make their world a better place. Every morning when you wake up, you can decide what kind of boss you want to be and what kind of business you want. You can run one filled with concern for others that goes beyond enriching just your own life. You can decide to not keep every marble from the business for yourself and instead use some of your gains to help others. You can

build a culture in your company that doesn’t allow oppression. You can create an environment where there’s no reason to say, “That’s not fair!”

Many entrepreneurs are focused on what’s in it for them, and as an entrepreneur, you absolutely should be rewarded for your hard work and risk. But you don’t have to be rewarded while someone else gets punished. You don’t have to make them feel like their life is “just unfair.”

As you head into operating your business in 2021, it’s crucial to remember two things:

1. Culture trumps strategy every day of the week.

2. Happy employees make happy customers, and happy customers make a happy bottom line.

If you focus on the people in your business this year, you’ll find all your marketing efforts and business dealings to be fairer, no matter how unfair life has seemed lately. Because the reality is that life can always be as fair as we decide to make it.

WHAT’S BEEN HAPPENING?

The last few months have kept colleagues apart working from home as well as limiting visits between clients and their attorneys to the phone. It’s been easy to lose touch with what’s happened in 2020. Doré Rothberg McKay has grown in the past year with new lawyers, paralegals, and administrative staff joining the team. You are invited to look at their bios on the website DoreLaw.com. Our professionals have presented webinars and offered online advice to help OFS companies with collections and bankruptcies. Videos can be viewed on YouTube.com at the Dore Law channel. In addition to this newsletter, the Firm sends a special email Bankruptcy Alert to persons who have subscribed to this free service. If you would like to be among the first to be notified every time a new oil and gas bankruptcy is filed, along with details like the largest creditors, just send an email request to our managing partner, Carl Doré, at [email protected] .

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10. CAREFULLY REVIEW ANY PROPOSED REPAYMENT PLAN FROM THE BANKRUPT CUSTOMER AND MAKE NECESSARY OBJECTIONS. Make certain that your claims are given the correct priority, i.e., you are a “secured creditor” when you have priority liens against valuable property. Often, the major bank creditors have “blanket” security interests and ignore other creditors even when the facts give you lien priority over certain property. You must file objections in court when your claim is not treated properly. Finally, repayment plans should not release third parties against whom you have claims, such as other interest owners subject to your mineral lien. In the wake of any customer bankruptcy, there is an opportunity to improve. Your credit policies must evolve to learn from your mistakes and experience. Legal counsel can recommend changes to documents and operating procedures to give you better protection in the future.

bankruptcy was filed. Your company might have to repay amounts you collected for debts that you were legally owed. However, there are defenses to preference claims that may be available to you. As with most bankruptcy actions, the amount to settle the claims from both sides is often negotiated. 8. DO NOT AUTOMATICALLY AGREE TO CONTINUE TO DO BUSINESS WITH THE CUSTOMER WITHOUT CAREFULLY CONSIDERING THE TERMS. Often, it is a safe risk to do business with the bankrupt customer once a budget is filed and approved by the court. The bankrupt customer can get court approval to pay the debts owed “critical vendors” that are necessary to continue to operate the business. However, such payments may come with conditions that could cost your company in the future, such as extended credit terms. Also, it may be in your interest to negotiate other things involved in the bankruptcy, such as a waiver of possible

preference claims against your company, before agreeing to continuing to provide goods or services. 9. BE CAUTIOUS WITH SETTLEMENT OFFERS, ESPECIALLY FROM THIRD PARTIES. In some bankruptcies, third-party investors make offers to buy your claims, seeking to take advantage of creditors who do not understand the likelihood of recovery or who cannot wait for their money. Be aware that many of these offers are “full recourse,” meaning if the buyer doesn’t receive at least the buyout amount, you may have to pay the difference but you still lose any upside. The bankruptcy trustee or other people representing the bankrupt customer may try to negotiate a settlement of your claims. While selling or settling may be a sound business decision, it is important for you to have all the information you can find (inside and outside the bankruptcy court) before you make the decision.

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What Should You Do When Your Customer Files Bankruptcy?

Creating Fairness as an Entrepreneur

What’s Been Happening?

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Business Budgeting for 2021

BUSINESS BUDGETING FOR 2021

This is the time of year when businesses would usually be looking at their budget and planning for the coming year. But COVID-19 has made the future entirely unpredictable, which makes properly planning your budget difficult. But all is not lost — there are some basic budgeting tactics you can implement to face 2021 with confidence.

CREATE A FORECAST

to 2020, like staffing changes and Paycheck Protection Program loans. Take stock of what’s new and different for your business this year and include it in your budget plan.

If you’re not entirely confident in your ability to forecast sales for 2021, you’re not alone. But you do still have options. If 2020 went great, perhaps try setting your sights up 10% from last year. If you want to play it safe, keep your forecast on par with 2020. If even that doesn’t feel reliable, then jump back to 2019 and use it as a base for creating your budget. You can ramp up 10% or 20% from there. Don’t just forecast this year blindly — use >Page 1 Page 2 Page 3 Page 4

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