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Offer to purchase receivable for bankrupt client

Rob Wiseltier's Profile

Need someone who understands bankruptcy law and how the creditor process works.  My company has an old open receivable for 132k for a company which filed for bankruptcy 18 months ago - we are an unsecured creditor.  I have been receiving correspondence from several capital financing companies offering to purchase this receivable.  Early offers were for 20 cents on the dollar but have been going up.  Last week i received 2 seperate offers to puchase the account for 50 cents on the dollar.  Contemplating doing this but at the same time wondering if they know something i do not regarding the judgement.  Why are the offers going up and should I hold out?  Any information would be appreciated.

Answers

dick nealy
Title: Trusted Advisor
Company: Family Office services
(Trusted Advisor, Family Office services) |

this is an interesting question and I hope someone offers some information

Mark Stokes
Title: CFO
Company: Private
(CFO, Private) |

No bankruptcy law needed. This is quite common, actually as there are firms who do nothing other than receivables collection and you bet they closely follow bankruptcy proceedings across the country. Many bankruptcies follow one of two paths. Path 1: can't restructure, winddown (chapter 7/ABC). This typically results in a relatively quick winddown where entities get paid out to the extent possible (first secured, then unsecured) and that's all. Path 2: can restructure and does so, with an approved route to emerging and paying down of some negotiated set of liabilities.

In either case, the court or trustee (and frequently the beleagured company) goes down a path of discovery and resolution. The discovery process is all about who is owed what and what can the entity pay on its way to death or survival. As this process unfolds, the folks watching from the sidelines are essentially taking bets as to what will get paid off. Some of them try to arbitrage the result.

They usually start low, e.g. twenty cents on the dollar or less, because risk is very high at the front end of one of these processes. Nobody, not the court or the company, really knows where it will all end up at the end of the day. So this is where the greatest variance in outcomes is experienced and thus lowball offers for your receivable. As the process moves forward, there is progress towards resolution in either direction. As this happens, greater clarity is obtained either from the court or via direct requests for information into the company in default. If things are going completely out the window you will see offers for receivables disappear. However, if things are moving towards resolution you will frequently see your recievable increase in value. These "brokers" are hoping you will find it easier and more expedient to take their offer of "some cash now" and let them have the upside. Depending on where you are as a creditor you will either take their offer or hang on and wait for your own outcome. Your actions totally depend on your particular situation.

Ray Calabrese
Title: Treasurer
Company: Interim Treasurer
(Treasurer, Interim Treasurer) |

Mark's assessment is right on; each situation is different. You can get information from the court that the debt is required to provide and you may be able to see why the offers are going up. Also, you relationship with your formwer customer should also be helpful, if anyone is still around.

Richard Schwalbe
Title: CEO
Company:
(CEO, ) |

I am a former bankruptcy trustee and previously sold bankruptcy claims for a larger multinational. It is common for claims to be traded for very large companies in bankruptcy; it is rare for small companies. Most traded claims are for companies in Chapter 11 (reorganization) rather than Chapter 7 (liquidation). I suspect your real issue is valuation. You will usually be at an information disadvantage with professional buyers. Court records are usually old news by the time they are filed. If this is a Chapter 11, focus on the monthly operation reports which can be found on line by your attorney or by you if you set up a PACER account (www.PACER.org) for a nominal fee. Note: PACER is not easy to use for the untrained. Often pricing is based on buyout rumors/plans, sometimes by the buyers of the claims, which you probably won't have access to. My advice is to get a half dozen bids and have a second round by informing the lower bidders of the highest bid. There is a lot of low-balling in this business. If I knew the name of the company, I might be able to provide more information on valuation and/or likely high bidders.

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