Warner Norcross + Judd LLP Partner Dennis Loughlin discussed supply chain bankruptcies in the Automotive News article “Auto suppliers’ latest tool in renegotiating contracts: bankruptcy.”
Geopolitical tension, inflation, soaring raw material costs and shipping disruptions are just a few of the factors driving supply chain volatility and higher cost of doing business. Suppliers are resorting to bankruptcy – or at least the threat of it – to get pricing relief in what Automotive News calls a “high-stakes game of chicken” with customers.
“One of the most powerful tools that any Chapter 11 debtor has is the ability to reject executory contracts, which in the context of auto supply would be unfavorable purchase orders. It gives [suppliers] the opportunity if they just want to exit that unprofitable business, they can just flat out exit, or they can use it as a tool to renegotiate pricing with their customer,” Loughlin said.
The article also discussed the rise in Subchapter V filings. Created in 2019 through the Small Business Reorganization Act, Subchapter V essentially acts as a hybrid between Chapter 11 bankruptcy and individual bankruptcy to create a streamlined process that does not require an unsecured creditors committee.
Loughlin said that Subchapter V provides protection at a fraction of the cost and in half the time of a traditional Chapter 11. “If you don’t have a committee, you just reduced the potential expenses to the debtor dramatically,” he said.
Automotive News subscribers can read the full article here.
Loughlin focuses his practices on both general corporate law and counseling secured and unsecured creditors across the U.S. in all phases of restructuring and insolvency proceedings, creditors’ rights and commercial disputes. His insolvency experience includes traditional bankruptcy work, but also receiverships and out-of-court loan workouts, and particular experience as these relate to Commercial Mortgage-Backed Securities (CMBS). Learn more about his practice here.
