In November 2008, Circuit City filed for bankruptcy protection. Circuit City had the same business model as Best Buy: selling electronic equipment in large retail stores. Other retailers with that business model are finding it increasingly difficult to compete with online sales from companies such as Amazon, eBay, or Walmart. Best Buy’s store sales have fallen for the last eight quarters while expenses increase. Although Best Buy has a large cash buffer, many analysts believe it is only a matter of time before Best Buy also files for bankruptcy, perhaps in 2013.
To the extent they have not already done so, companies that sell products to Best Buy should consider how their rights will be affected in a bankruptcy case and what they can do now to minimize future losses and avoid litigation. Issues that should be considered are, among others, whether to retain or change existing credit terms, how to collect on unpaid invoices, how to reclaim goods in the event of bankruptcy filing, how to stop goods in transit, how to protect rights to be paid for goods delivered in the 20 days before any bankruptcy filing, whether to file a proof of claim, whether to accelerate termination of contracts, and the impact on intellectual property rights. Companies should also review their credit insurance policies to assess potential coverage and ensure compliance with notice requirements and other conditions.