The US Supreme Court just ruled in a bankruptcy case, where the defaulting debtor used a corporate shell game to try to avoid paying its debt. If you’d like to read the nuances over what does and does not constitute a fraud exception to a creditor being able to gets dollars on their dollars instead of getting mere cents on the dollar for what the bankrupt debtor owes, click here.
But what I saw as the take-away was this: don’t ignore the warning bells.
Husky (the creditor) had been selling to Chrysalis (the debtor) for a good three years without being fully paid. Husky nonetheless kept shipping, and in the fourth year, Chrysalis’ owner (Ritz) began siphoning off money to other Ritz-owned companies, culminating in both Chrysalis and Ritz both filing for bankruptcy in an attempt to avoid paying back Husky what was owed.
Ding ding ding ding! Do you hear those bells and see those lights?
Husky should have asked Chrysalis for adequate assurances back in years one or two at the latest, instead of continuing to ship to a customer in years three and four who became progressively more lousy about paying its bills. Although, if Husky had, then today (thirteen years after the first shipments hit Chrysalis’ loading dock) we wouldn’t have this juicy US Supreme Court case to read about.