As has been reported and rumored for many weeks, the bankruptcy filing for either GM or Chrysler, or both companies, is clearly one of the potential destinations on the road ahead. For certain parts suppliers who can take advantage of guarantees under the Auto Supplier Support Program recently announced by the U.S. Treasury Department, the news of a bankruptcy filing may feel somewhat less dire, except with respect to the likely disruption and fall off of future business.
For the remaining parts suppliers who are not eligible for the Auto Supplier Support Program, the possibility of such a filing has likely resulted in many sleepless nights. While we cannot offer a remedy for the peaceful night of sleep, we can advise suppliers to make the effort to carefully organize, understand and analyze documents and transactions with the bankrupt debtor which will make an expeditious and accurate response to the bankruptcy filing somewhat less agonizing.
- Prepare Yourself in Advance.
On our previous Risk Management Update in December, 2008, we recommended suggestions for actions to take if your auto related customer is in distress or in breach under your various agreements. If you have not done so already we urge you to begin gathering, organizing and reviewing all documents governing the relationship between your company and GM or Chrysler, including contracts and purchase orders. The options available to you in the event of a bankruptcy, the rights that can be asserted, as well as the obligations to be performed, will be dictated by these agreements. In that regard, you should confirm that you have a current and complete copy of the underlying agreements with Chrysler and GM. In addition, there will likely be supplemental terms and conditions, order amendments, releases, and emails that will all need to be examined.
Determine Identity of the Customer.
Please note that while you may believe you are doing business directly with GM or Chrysler, in fact, the actual contracts may indicate you are dealing with one of any number of subsidiaries or affiliates. It may be that the party with whom you are dealing may not be included in the bankruptcy proceeding. In addition, some of these subsidiaries may be outside of the U.S. Having accurate account balances and shipment delivery information will make the filing of claims easier.
Monitor Recent Shipments, Payments and Releases.
Following the filing of a bankruptcy petition, reclamation claims should be made and done in strict compliance with statutory time limitations. Knowing the exact shipment dates will facilitate the determination of whether these claims can be asserted in a timely fashion.
Monitor Due Dates for Payment.
Keeping an accurate record of invoice dates, payment due dates and payment receipts prior to a possible bankruptcy filing will permit a quick analysis of what efforts can be made to pursue aggressive collection for payments while lowering the risk of voidable bankruptcy preference claims later being asserted against you.
- Check Tooling Issues to Determine Ownership and the Rights to Tooling Possession and Use.
One possibility resulting from a bankruptcy filing is that your customer may want to resource business currently placed with your company. Do you have the records in your possession which clearly establish who owns the tooling? To the extent that you own the tooling, you certainly do not want to be caught in a dispute with the bankruptcy debtor over who owns the tooling and whether your customer is entitled to the tooling because of poor documentation. Similarly, even if the tooling is owned by the customer, do you have all of the documentation available to assert a lien in the tooling relating to amounts still due to make the tooling or for parts which have been made with that tooling? You certainly do not want to release the tooling until all tooling payments are paid. Likewise, if you have a customer who files bankruptcy which is in possession of your tooling, do you have the documentation in place that will establish that you own the tooling and which will allow you to convince the bankruptcy court and other creditors which may have a security interest in tooling that you should be permitted to repossess that tooling?
Carefully preparing in advance for foreseeable bankruptcy filings resulting in your ability to take action immediately may not guarantee you a good night’s sleep, but may go a long way towards maximizing your recovery and minimizing potential risks.