D (“vendor then suppliers more likely to give D more support program”), inventory/supplies… thus, C-lender is NO longer in BUT in deficiency posture, … though, now, C-lender would have preference sufficiency posture liability (as per exception to § 547(c)(5))… BUT, if C-lender can get D to avoid filing bankruptcy for 90+ … days, then NOT (“manipulating preferential the 2-point test”)… though, if C is shown to be an insider, then subject to 1-yr. … reach-back (instead of 90 days)… AND, if discovered, C could face all sorts of liability tort, … breach of fiduciary duty, wrongful conduct, control Valuation of collateral… Assume, on 90th day before bankruptcy, debt is $10M, collateral is $6M (D possibly salvageable)… then, disaster occurs (i.e. Northridge earthquake, 9/11)… now, on date of bankruptcy, debt is still $10M, collateral is $7M… … BUT, due to intervening events, D is now unsalvageable… D would argue for (face) of collateral C owes going concern value preference liability of $1M (as per decrease in deficiency posture from $4M to $3M) C argue for (real) of collateral even though liquidation value of collateral has increased, D is NO longer a going concern value viable entity (AND, as such, customers will flake out on AR obligations) [Cs] (NOT to the prejudice of other holding unsecured claims…” “… superfluous language) value that has gone into (causing increase inventory/AR thereof, AND subsequent decrease in must have been deficiency) “derived” from other Cs Oil as collateral/inventory increase in value caused by market forces… thus, NO prejudice to other Cs Hogs as collateral/inventory if hogs are pregnant/give during 90 days, then collateral has increased in value… AND, this increase would NOT have happened w/o other Cs (i.e. feeding, vaccinating hogs)… thus, YES prejudice to other Cs
D (“vendor support program”), then suppliers more likely to give D more inventory/supplies… … thus, C-lender is NO longer in deficiency posture, BUT in sufficiency posture though, now, C-lender would have preference liability (as per exception to § 547(c)(5))… … BUT, if C-lender can get D to avoid filing bankruptcy for 90+ days, then NOT preferential (“manipulating the 2-point test”)… … though, if C is shown to be an insider, then subject to 1-yr. reach-back (instead of 90 days)… … AND, if discovered, C could face all sorts of liability tort, breach of fiduciary duty, wrongful conduct, control Valuation of collateral… Assume, on 90th day before bankruptcy, debt is $10M, collateral is $6M (D possibly salvageable)… then, disaster occurs (i.e. Northridge earthquake, 9/11)… … now, on date of bankruptcy, debt is still $10M, collateral is $7M… BUT, due to intervening events, D is now unsalvageable… D would argue for going concern (face) value of collateral C owes preference liability of $1M (as per decrease in deficiency posture from $4M to $3M) C argue for liquidation (real) value of collateral even though going concern value of collateral has increased, D is NO longer a viable entity (AND, as such, customers will flake out on AR obligations) “… to the prejudice of other [Cs] holding unsecured claims…” (NOT superfluous language) value that has gone into inventory/AR (causing increase thereof, AND subsequent decrease in deficiency) must have been “derived” from other Cs Oil as collateral/inventory increase in value caused by market forces… thus, NO prejudice to other Cs Hogs as collateral/inventory if hogs are pregnant/give during 90 days, then collateral has increased in value… AND, this increase would NOT have happened w/o other Cs (i.e. feeding, vaccinating hogs)… thus, YES prejudice to other Cs
Bankruptcy_Schechter-Fall-2009.docx