Supreme Court Overturns Important Bankruptcy Ruling

When a large corporation or company has to file for bankruptcy, the impact is far reaching. The immediate effects are felt by employees who may suddenly find themselves out of work, but suppliers all along the chain can be affected. To illustrate how this works, think about some of the large retailers who have recently had to close their doors. The sales clerks, stockroom workers, managers, and other employees are now all without jobs. And, the companies that supply goods, will also now experience a decrease in their sales. The ripple effect is that supply companies may also have to lay off workers or find creative ways to stay afloat. But most bankruptcy cases that involve businesses allow for the repayment to suppliers and other vendors, in the regular course of business. That works out fine if the bankruptcy case also works out, but what happens when a business’ bankruptcy filing hits the skids?

The US Supreme Court recently had to review this type of scenario, and the result is significant for the following reasons:

•         When a large company’s bankruptcy was dismissed, the Court allowed for repayment to certain types of creditors.

•         The repayment scheme left out other creditors, who were rightfully upset at the repayment plan.

•         Those creditors appealed the Court’s ruling regarding the proposed repayment, and won!

•         The Supreme Court decided that the agreement did not put the parties back into the positions they were in prior to the case being filed and that some creditors were put in an even better position than before. This was not a power the bankruptcy court had, according to the Supreme Court, at least not according to certain provisions of the Bankruptcy Code.

This ruling could be significant because it could alter the way companies structure their repayment in bankruptcy. It is becoming more and more common for businesses to look at some type of repayment structuring as part of their Chapter 11 bankruptcy case, and if the trend continues it will be equally as important for creditors of all classes to know how they are being treated. We know how to help if you need to file bankruptcy, or if you have been affected by a filing.

For more information about bankruptcy, contact us at www.law-ri.com. We will help by coming up with solutions that work for you and have multiple locations to meet your needs for office visits.