Imagine this: an important customer with a substantial balance files a petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code.

This filing can lead to creditor concern and doubt about when and if the debts will be paid. If the debtor is still operating, though, the debtor may try to entice continued extension of trade credit by designating certain creditors as “critical vendors.” This designation is often coveted because a creditor’s pre-bankruptcy claim gets paid, in whole or in part, right away. But the trade-off is that the creditor must continue to extend credit to the Chapter 11 debtor, which involves additional risk.

In addition, most debtors will seek to have the creditor sign a detailed “Trade Vendor Agreement” or “Critical Vendor Agreement,” which often have hidden traps for the unwary creditor.

KMK attorneys have a long history of experience with critical vendor arrangements and know the traps to avoid and key protections to incorporate into agreements, including expanded protection and considerations for 20-day administrative claims, also known as 503(b)(9) claims. KMK's Business & Financial Services attorneys take a proactive role in the process to protect the interests and claims of a critical vendor to ensure maximum payment at the outset, and maximum protection if the Chapter 11 case takes a turn for the worse.

Contact KMK and we’ll get started right away helping you navigate these issues.