A debtor may seek authority to pay claims incurred prior to the bankruptcy filing owed to “critical vendors” that supply goods and services by filing motions early in the bankruptcy case. The debtor will argue that absent granting of these motions, these vendors will cease doing business with the debtor, and therefore jeopardize its ability to successfully reorganize.
This is an extraordinary measure the debtor must take to ensure its economic survival. But critical vendor treatment can be the answer to your prayers if you’re a creditor who finds itself owed a significant amount of money by a chapter 11 debtor.
Want to learn more? Read Dealing with Corporate Distress 08: Preventing Forest Fires with First Day Motions in Chapter 11 by Jonathan Friedland, Jack O’Connor and Hajar Jouglaf.
Hajar is an associate with Much Shelist in both its Business Transactions Group and its Restructuring & Insolvency Group.