Do bankrupt companies sue their vendors?
Yes. Section 547, known as the ‘preference law,’ gives the bankrupt company the right to try to get back what it paid 90 days prior to filing, in certain circumstances. Even with the 2005 amendments to the Bankruptcy Code, which strengthened vendor defenses, there is significant exposure for preference payments. The best way to protect yourself is to consistently enforce terms and not let customers slide, with all of your relationships, not just troubled ones. The threat of preference exposure may lead a company to ponder whether it should accept a payment from a troubled company in the first place. The answer is yes. There are defenses in the Bankruptcy Code. At a minimum, you will never have to give back more than 100 percent of it, and even if it is technically a preference, you can negotiate some settlement. What about doing business with a company already in bankruptcy? There are certain protections (e.g., administrative priority claims), but there are not guarantees. Chapter 11 d
