by Lara Shipkovitz, Esq.

An interesting article on the effect preferences and state law fraud statutes can have on recovery for the estate through analysis of the Madoff bankruptcy.

The Madoff trustee, Irving H. Picard, had sought to recover fictional profits paid out in the six years before the collapse, citing provisions of New York State law that allow for a six-year recovery window. The judge also threw out the trustee’s bid to recover so-called preference claims, the cash paid out to the NY Met’s owners in the final 90 days of the fraud.
 
By reducing the time window and eliminating preference claims ­ actions that lawyers said would most likely apply to all the lawsuits the trustee has pending in Federal Bankruptcy Court in Manhattan ­ the decision still “has significant potential ramifications that could affect recoveries as well as distributions” in the legal efforts to unwind Mr. Madoff’s Ponzi scheme, Mr. Picard said in a written statement released on Thursday.
 
Read the details of this action at:
http://www.nytimes.com/2011/09/30/business/madoff-trustee-says-mets-ruling-wont-be-as-bad-as-first-thought.html?_r=1
and
http://tech.mit.edu/V131/N41/long4.html

Many bankruptcy attorneys are concerned about the efficiency of their process. By definition, at least the debtor has limited funds to pay for an engagement. This impacts the creditors who may not see a full recovery on their claim. As a result, many bankruptcy practitioners are leery of spending any resources on electronic discovery. This podcast was created to share the experiences of Bob Bernstein, a bankrupcty practitioner in Pittsburgh, PA with Bernstein Law Firm and Jeffrey Ritter, an electronic discovery consultant from the Waters Edge who has just written a book on electronic discovery and the bankruptcy process called Discovering the Digital Record-The Questions for Examination. 

Click link to listen to Podcast: http://www.esibytes.com/?p=718

by Scott Schuster

In 2005, a record number of debtors filed bankruptcy prior to the effective date of the amendments to avoid the amendments to the bankruptcy code that made it more difficult for debtors to file bankruptcy. After the amendments took effect, the number of bankruptcies being filed nosedived. Many people attributed the lower number of filings to the new amendments. Those “in the know” realized that the shortage in bankrutpcy filings was a result of the high number of bankruptcies filed just before the amendments took effect. We all believed that the new amendments, while more budensome for debtors, would not significantly lower the number of bankruptcy filings in the long term.

Not surprisingly, according to the United States Trustee’s office, bankruptcies are once again on the rise at near record levels. See http://www.uscourts.gov/bnkrpctystats/bankruptcystats.htm. Of course, with the economy in a deep recession, this news is not unexpected. With the rise in bankruptcies, here are a few things to keep in mind as a creditor:

First, debtors are finding themselves overextended with credit cards, lines of credit and other unsecured loans. If a debtor comes to you asking for credit, it is extremely important in these times to do your homework to make sure that the debtor is able to repay any credit you extend. That means more than just asking for paystubs or bank account information. Often, Debtors with high income levels have high expenses. It’s important to check both before extending credit.

Second, now more than ever, cash up front is a creditor’s best friend. If you don’t extend credit, or only extend minimum credit amounts, you’re less likely to get burned by a debtor filing bankruptcy. Right now, it may be better to turn down a sale than to sell product that ultimately is never paid for.

Finally, preference actions are on the rise. In the past few months, our office has seen a significant increase in the number of preference actions being filed against creditors. As a creditor, its important to know that you may have valid expenses that can reduce or even eliminate your preference exposure. If you find yourself on the wrong end of a preference action, experienced bankruptcy counsel might be able to help.

Bob Bernstein’s Get P.A.I.D. book has a lot of helpful tips for managing your business in a struggling economy. The economy is something that we all have to deal with and it appears that only the strong will survive. Have a plan, be prepared, and you too can survive these trying times.

“Credit” is the topic of so many discussions these days.  From the $85 billion “loan” the US is giving AIG to the effect the credit “markets” have on business, to the impact of the mortgage (credit) crisis.

An area getting less focus (and more deserving of attention) is the importance of credit granting practices of businesses.  From micro-business to multi-national, businesses must be looking more carefully at their lending policies now.  I say “lending,” because your selling on credit is making a loan to your customer.  If it wasn’t you making the loan, the customer would have to go to a bank or other lender.

On the one hand, it is a matter of how well the borrower can handle the credit (cash flow, assets, business plan, etc.).  On the other hand, how well can the lender/seller can handle the loan?  What is the credit availability for the business to meet its obligations?  What is the profit margin on the sale as compared to the expected repayment terms.  In my book, Get P.A.I.D. A Guide to Getting Paid Faster, I talk about the “The Payment Gap” and the “Red Zone.”

The Payment Gap is the time it takes the customer to pay, measured from the sale.  If your costs of credit extension (Finance costs, Opportunity costs, Collection costs, Relationship costs, Replacement costs) are too great and if your customer is delinquent, it can not only eat into your profit, but can eat up your profit.  At that point, you would have been better off not making the sale in the first place.

My point is that too many businesses don’t think enough about making the right sale (from a credit perspective) and just think about making any sale!

Today, more than any time in the last 20 years, owners and managers must think about these issues and, more importantly, do something about how their business goes about the business of extending credit.