eNews October 25, 2018

E-Invoicing Saves Time and Money

“Online bill pay is the best thing since sliced bread.” Many buyers in the consumer world think this is true. Swipe a card, pay for it later and don’t worry about wasting a stamp, envelope, check or additional savings to make an invoice payment. Many sectors including health care and consumer credit cards have implemented the online bill pay portal for customers to submit payment. Everything has to start somewhere; the business world is often a step or two behind that of the consumer, but businesses and governments are catching up.

The governments of Australia and New Zealand (A-NZ) are joining together to ease business invoice processing and form a trans-Tasman electronic invoicing (e-invoicing) solution. According to a discussion paper released by both governments, A-NZ businesses process roughly 1.3 billion invoices per year.

“E-invoicing is an important tool to modernise the way we do business, and increase efficiency and productivity,” said Assistant Treasurer the Hon. Stuart Robert MP last week in a release from the Australian Treasury. “We have a clear opportunity to realise the benefits of going digital, and that’s why we are committed to supporting this initiative.”

The idea behind this transformation to the digital world is to continue the process of the Single Economic Market (SEM) and create a seamless trans-Tasman business environment. The Trans-Tasman e-Invoicing Interoperability Framework will build off the current Digital Business Council in Australia, which is used for e-invoicing standards and policies as well as to minimize businesses’ cost for implementing software. Lower business costs and the ease of doing business are among the benefits already established by the SEM.

“The benefits of e-invoicing are significant for small businesses—it means quicker payments and reduced administration costs,” said Australian Small Business and Family Enterprise Ombudsman Kate Carnell in a release. According to the discussion paper, e-invoicing could save both countries $30 billion over 10 years.

Switching from paper and manual invoicing has many benefits besides quicker payment and reducing costs. The transition also reduces chances of human error. “e-Invoicing is a clear opportunity to streamline business-to-business transactions, improving efficiency and reducing error handling, saving businesses time and money,” states the governments’ paper.

“Research shows it costs $30.87 to process a paper invoice; $27.97 per PDF invoice and only $9.18 per e-invoice; a significant saving,” explained Carnell. “[A]round 20% of invoices today are sent to the wrong person and 30% contain incorrect information—delaying payment,” she added.

The A-NZ governments are asking for public feedback by Nov. 16 on the trans-Tasman e-invoicing collaboration as outlined in the discussion paper.

—Michael Miller, managing editor


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Teaching an Old Dog New Tricks: The Spearin Doctrine and Design-Build Projects, Part I

The United States District Court for the Southern District of California has now held that the Spearin doctrine applies to design-build subcontractors where the subcontractor is expected to design a portion of their work. The case is United States for the Use and Benefit of Bonita Pipeline, Inc., et al. v. Balfour Beatty Construction, LLC, et al. (“Bonita Pipeline”) (Case No. 3:16-cv-00983-H-AGS).

In Bonita Pipeline, a subcontractor sued the general contractor and its sureties alleging breach of contract, breach of implied warranty, declaratory relief and recovery under the Miller Act. The subcontractor then filed a motion for partial summary judgment against the general contractor on its declaratory relief cause of action, seeking a finding that the general contractor could not shift legal responsibility for its defective plans and specifications to the subcontractor.

The evidence presented in support and opposition of the motion showed that the general contractor provided incomplete design documents to the subcontractor at the bid stage, and expressly stated they were incomplete. The subcontractor was ultimately awarded the bid, which included design-build structural steel, metal decking and other amenities. The parties admitted the plans and specifications could be refined with further design, whereby the subcontract contained language stating the subcontractor would assume risk of further change (“refinement”) of the plans and specifications. Further, the subcontract stated the subcontractor was not entitled to additive change orders or an increase in its bid price for “refinements” resulting from the design-build process. Instead, the subcontractor would only be entitled to additional compensation for enhancements requested by the owner.

During the project, the subcontractor sought additional compensation for design errors and changes, with the court noting 93 requests for information and 37 change order requests. The subcontractor also finished its work 290 days late.

The Spearin doctrine (named after United States v. Spearin (1918) (248 U.S. 132) generally holds that an owner (or here, general contractor) impliedly warrants the information, plans and specifications it provides to the general contractor (or here, subcontractor). Citing case law that state law controls the interpretation of Miller Act subcontracts to which the United States is not a party, the Bonita Pipeline court noted the California Supreme Court approved and applied the Spearin doctrine, citing Souza & McCue Constr. Co. v. Superior Court of San Benito County (1962) 57 Cal.2d 508, 510 and E.H. Morrill Co. v. State (1967) 65 Cal.2d 787, 792-793. Citing Coleman Eng’g Co. v. N. Am. Aviation, Inc. (1966) 65 Cal.2d 396, 404, the Bonita Pipeline court also noted the California Supreme Court has extended application of the Spearin doctrine to construction contracts even where there is no government entity involved.

The general contractor argued the Spearin doctrine did not apply because the project was one of design-build, and the parties expressly acknowledged the plans and specifications were incomplete at the time of bidding. The subcontractor, in turn, argued that it acknowledged it assumed the risk that the plans and specifications would be “refined,” but the general contractor nonetheless still impliedly warranted the plans and specifications provided would be correct, even if incomplete.

Reprinted with permission.

Find out more about the case and its results in Part II in next week’s eNews on Nov. 1.

John Castro is an associate in Gordon Rees Scully Mansukhani LLP’s construction group.  He represents developers, contractors, and design professionals in all facets of construction law.


Credit Congress

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The National Association of Credit Management will hold its 123rd Credit Congress & Exposition at the brand new Gaylord Rockies in Aurora, Colorado, from May 19-22, 2019. This is a one-of-a-kind opportunity for you and more than a thousand business credit and financial management professionals to gather and share experiences, learn from experts and one another and remember why what you do matters!

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Canada Post Strike Steers SMBs to e-Payments

Workers for the Canada Post began rotating strikes on Oct. 22, significantly slowing down the pace of mailing but not halting it completely. Companies—particularly small- to medium-sized business (SMBs)—in Canada have consequently had a more difficult time mailing checks to credit managers as delays in the shipping process continue to disrupt the balance of the business-to-business landscape. Many Canadian SMBs have considered or have switched to making e-payments during the strikes, as advised by the Canadian Federation of Independent Businesses (CFIB).

The strikes began in Victoria and Edmonton, rippling through other major areas of Canada as well. Since the Canada Post workers agreed to strike in specific areas at a time, business would stop in particular cities and still continue in others, meaning mail would still flow, just at a considerably slower pace.

This strike comes after nearly 11 months of the Canada Post negotiating terms—relating to pensions, wages, benefits, etc.—with the Canadian Union of Postal Workers (CUPW), and no agreement has been reached. Since tensions have been high for so long, many SMBs have already begun to turn away from mailing checks to suppliers, using alternative forms of payment suggested by the CFIB. Some of the suggestions range from using Interac e-transfers to signing up for the Canada Revenue Agency’s (CRA) business account and more.

Long-term effects may hinder the Canada Post for years to come. If agreements aren’t met and the strikes continue, the Canada Post may not regain much of its customer base—should the strikes end.

"While a rotating strike may be less harmful than a general strike, it creates additional uncertainty for businesses at a critical time for many small firms," said CFIB President Dan Kelly in a statement Oct. 22. "The bad news for Canada Post workers is that every time they even threaten a strike, more small business customers move to use alternatives, many never return to Canada Post."

Credit managers working with Canadian SMBs should expect slowdown or e-payments from their customers. CFIB’s president said in a statement Canadian SMBs rely heavily on the Canada Post for shipping goods, sending out invoices and receiving payments. Two-thirds of SMBs send more than 20 pieces of mail a month, according to CFIB.

CUPW and the Canada Post continue to work through grievances and negotiate. The Canada Post said in a statement before the strikes began that they “value the relationship with the union,” and they urged looking for common ground in negotiations. CUPW’s President Mike Palecek said the union will not agree to “anything that doesn’t address health and safety, gender equality and good, full-time middle-class jobs,” meaning the rotating strike will likely continue indefinitely.

—Christie Citranglo, editorial associate


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CentsAbility: Creditors' Rights Law Update

If you have ever been a creditor concerned about a debtor not paying debts as they become due or paying other creditors while ignoring your demands, then forcing the debtor into an involuntary bankruptcy may be an option. An involuntary petition can be filed only under Chapter 7 (liquidation) or Chapter 11 (reorganization) of the U.S. Bankruptcy Code. Most involuntary bankruptcy petitions are filed as Chapter 7 cases because the filing fee (paid by the petitioning creditor upon filing the involuntary) is lower than in Chapter 11, and because the petitioning creditor typically wants a bankruptcy trustee appointed immediately (which is rare in Chapter 11 cases). If the petition is granted, the debtor can seek to convert the case from Chapter 7 to Chapter 11 later.

This creditors’ remedy has limitations, however. A creditor who files an involuntary petition against an alleged debtor must hold a claim “that is not contingent as to liability or the subject of a bona fide dispute as to liability or amount.” An involuntary petition usually must be filed by three such creditors whose non-contingent, undisputed claims aggregate to at least $15,775 “more than the value of any lien on property of the debtor securing such claims held by the holders of such claims.” If, however, the alleged debtor has fewer than 12 such creditors (excluding employees, insiders and the recipients of voidable transfers), then only one such creditor with a claim of at least $15,775 is sufficient.

The Bankruptcy Code sets several eligibility requirements for petitioning creditors:

  1. The claim must be for a readily determined amount, not a claim that may or may not exist depending upon future events, and not a claim for which the amount cannot yet be determined.
  2. The claim must not be subject to a bona fide dispute. If the debtor has a good faith basis for objecting to the existence or amount of the claim, that claim cannot be relied upon by the petitioning creditor. A creditor who is a plaintiff in a lawsuit would not usually be eligible as a petitioning creditor unless and until the alleged debtor stipulates to the validity and amount of the claim, or the plaintiff obtains a judgment that is not subject to appeal.
  3. If the petitioning creditor's claim is secured by a perfected lien on collateral, then the secured claim can be used as one of the qualifying petitioning claims only if the value of collateral is less than the amount of the claim, leaving the petitioning creditor with an unsecured deficiency claim. The unsecured deficiency claim can be used to meet the involuntary petition requirements so long as the deficiency claim is non-contingent and undisputed, and the aggregate amount of the three claims meets the minimum threshold for filing an involuntary petition.

Risks of Being a Petitioning Creditor

If the motive of a petitioning creditor is other than simple debt collection, there is a risk the alleged debtor will seek and recover from the petitioning creditor the legal fees incurred to defend against the involuntary bankruptcy. The classic example of such a bad faith involuntary filing is a business competitor of the debtor initiating the bankruptcy with the primary goal of disrupting the competitor's business, even though the debtor isn't really struggling financially. If the court finds that a petitioning creditor filed the petition in bad faith, then the Bankruptcy Code permits the court to require petitioning creditor to pay “any damages proximately caused by such filing,” plus punitive damages. There are numerous cases from the Bankruptcy Courts in North Carolina and South Carolina allowing fees and costs associated with the dismissal of an involuntary proceeding based upon a finding of a bona fide dispute and other requirements. Most courts hold that there is a rebuttable presumption that the petitioning creditors acted in good faith in filing an involuntary petition, and that the alleged debtor then has a burden of proving bad faith by a preponderance of the evidence.

Potential petitioning creditors also need to evaluate the risk of triggering a preference lawsuit against themselves by initiating an involuntary case. An unsecured or partially secured creditor who received payments or other transfers of value from the debtor during the last 90 days before the involuntary petition filing may find that the debtor or trustee later sues the petitioning creditor because payments on unsecured claims made within that timeframe might be clawed back by the bankruptcy trustee as a preferential transfer under the Bankruptcy Code. Petitioning creditors usually opt out of an involuntary filing effort when they have substantial preference risk exposure.

Other Considerations

If all the requirements of the Bankruptcy Code are met, the alleged involuntary debtor is given about a month to respond to the involuntary petition and either concede it belongs in a bankruptcy case, or fight against being forced into bankruptcy. If the debtor wants to oppose bankruptcy, the bankruptcy court is to determine if (1) the debtor is generally not paying such debtor’s debts as such debts become due (unless such debts are the subject of a bona fide dispute as to liability or amount) or (2) “within 120 days before the date of the filing of the petition, a custodian, other than a trustee, receiver, or agent appointed or authorized to take charge of less than substantially all of the property of the debtor for the purpose of enforcing a lien against such property, was appointed or took possession.”

The dispute in contested involuntary petitions usually turns on whether the alleged debtor is generally paying its debts as they become due. Courts have been reluctant to adopt a mechanical test. The court looks to the date that the involuntary petition was filed to make this determination. Payments of a debtor’s obligations by a third party, or through cash infusions from third parties, are not treated as payment by the debtor itself, and a company who pays its debts by borrowing funds and creating another liability is generally not paying its debts as they come due.

Bankruptcy courts may be disinclined to keep an objecting debtor in bankruptcy if there are pending proceedings outside bankruptcy court such as assignments for the benefit of creditors, court receiverships or bulk sale agreements. Courts also consider whether the debtor has any valuable nonexempt assets that can be liquidated to produce enough cash to pay both the administrative expenses of bankruptcy and a worthwhile dividend to the debtor’s creditors.

Once an involuntary petition is filed, the creditors cannot withdraw it, even with the consent of the alleged debtor, until obtaining bankruptcy court approval to withdraw the petition. The court will require notice to all creditors of the proposed withdrawal and will conduct a hearing.

In sum, while filing an involuntary petition is not without risks, it can be an excellent alternative for creditors who lack the motivation and financial resources to chase a recalcitrant debtor alone. Invoking the power of the Bankruptcy Code enables creditors and trustees to find and recover assets using means that are often unavailable or not cost-efficient outside of bankruptcy. Experienced bankruptcy counsel can help creditors decide when to employ involuntary petitions to their advantage.

Reprinted with permission.

Ron Jones, Esq., is a member based in Nexsen Pruet’s Charleston office, where he focuses his practice on bankruptcy and creditors’ rights. He has extensive experience in debtor and creditor representation and is a certified specialist in bankruptcy and debtor-creditor law, earning specialist distinction from the South Carolina Supreme Court.

Lisa Sumner, Esq., a member based in Nexsen Pruet's Raleigh office, is a commercial litigator focusing her practice in the areas of bankruptcy and creditors' rights. She is experienced in representing creditors in a variety of cases, including claims of lender liability, fraudulent transfers and breach of fiduciary duty, as well as in the filing of involuntary bankruptcy petitions.


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