eNews June 18

In the News

June 18, 2020


The Importance of Commercial Credit

—Michael Miller, managing editor

Business-to-business (B2B) credit, commercial credit and trade credit are used interchangeably, but no matter the words used to describe the selling of goods, products or services to be paid for at a later date, the importance of this act can’t be overstated. During the COVID-19 pandemic, business credit is more valuable than ever as companies try to stay afloat during economic hardships. Some are receiving money from the government to stay in business for as long as possible, but others need assistance from business credit and B2B credit professionals.

“Commercial credit is the creation of modern times. … Credit is the vital air of the system of modern commerce. … It has done more, a thousand times, to enrich nations, than all the mines of all the world. … Commerce cannot exist without credit,” said Sen. Daniel Webster to Congress in March 1834 during a speech about the U.S. Bank Charter.

“While credit is delicate, sensitive, easily wounded and more easily alarmed, it is also infinitely ramified, diversified, extending every where, and touching every thing,” Webster said. Now, credit and NACM will actually be everywhere and touching everything. NACM is celebrating its 124th birthday like never before—virtually—on June 23. NACM continues to offer world-class credit education through its online educational sessions ranging from credit law and bankruptcy to payments and risk management. NACM’s first-ever digital Credit Congress and Expo is now live for those registered to take part. While not in-person in Las Vegas this year, there are still numerous opportunities to learn and “meet” exhibitors in the online showcase. The educational sessions require a registration; however, the expo portion does not. It is packed with videos, demonstrations, giveaways and other exhibitor information.

“My career in credit has been a wonderful journey of growth, education, challenges and opportunities,” said Sherri Norton, credit manager with Pacific Plumbing Supply Company. “NACM came through loud and clear as [a former co-worker] explained how NACM can be a partner in that career path and offer many opportunities for networking, classes, seminars and conferences, all leading to continued growth and improvement.”

NACM and credit are more than just a job to many; both weaving their ways through someone’s career and life. Brent Heizelman has been in credit for nearly four decades, and he’s still learning new things. “[Credit] has helped me be a detail-oriented person and has really helped me to be a more patient and understanding person as well as a good listener and communicator.” NACM’s education has also been helpful for Heizelman and other credit professionals around the world. “The educational sessions are always good, but to me, above that are the relationships and networking that I have relied on over the years. I have made lasting friendships through NACM and always look forward to catching up with people at conferences,” Heizelman said. “It’s the ‘fun’ part of being a credit manager."


Online Courses

This course satisfies one of the two CBF designation course requirements. Visit the Credit Learning Center (CLC) or contact the NACM Education Dpt. at This email address is being protected from spambots. You need JavaScript enabled to view it. or 410-740-5560 to learn more.

Online Courses


Material Suppliers Experience ‘Heightened Economic Uncertainty’

—Andrew Michaels, editorial associate


Everyone has felt the wrath of the pandemic, especially small businesses. The U.S. government started the Paycheck Protection Program (PPP) in April to help businesses keep their employees onboard, according to PBS, only to see the $349 billion in loans fade to nothing in less than two weeks. An additional $175 billion was funneled into the program shortly thereafter, some of which remains available.

Among those getting relief from PPP loans are lenders in the construction industry. In a recent webinar hosted by Anchin Accountants and Advisers, panelists discussed how contractors that had close relationships with their banks found the approval process quite simple as opposed to those without. Even when approved, panelist Charles Dantone, associate group director and vice president at Signature Bank, said during the webinar that companies must be prepared for impacts to projects’ bottom lines.

“Who’s going to eat that cost?” Dantone said. “We are looking to see how our clients are planning to go back to work and how they’ll manage things going forward.”

It’s crucial that new projects have “solid funding” in place, he said, so companies must “stick to your wheelhouse.”

“Sometimes a company’s success is based on the job they didn’t take,” added Vice President of Commercial Banking at M&T Bank Brian J. Diffendale during the webinar.

For material suppliers selling to subcontractors, Chris Ring, of NACM’s Secured Transaction Services (STS), said economic uncertainty has always been an issue. That’s why many material suppliers choose to use the mechanic’s lien process as a way to secure their receivables against the value of the piece of property, or claims against payment bonds for public construction projects their materials go to improve.

During this time of a global pandemic, with cost overruns and project delays caused by social distancing, economic uncertainty is heightened. Companies that have traditionally shied away from utilizing their mechanic’s lien rights because they did not want to “offend their customers,” are faced with a paradigm shift, Ring noted. They must quickly develop a process for gathering job information and completing the necessary statutory requirement, e.g., serving preliminary notices, filing liens and lawsuits, or face long payment delays and potential write-offs.

For those companies that are not prepared for this paradigm shift, however, Ring said they can count on NACM’s mechanic’s lien and bond services for education and services to cost effectively manage the mechanic’s lien process.



Online Courses

Quicker delivery speeds does not mean giving up on fresh investigations. Each next-business-day credit report from FCIB is freshly investigated at the time that you order it.

Get the key corporate facts you need to set credit limits quickly, including:

  • A robust predictive credit risk rating
  • Legal filings, bankruptcies, judgments, and liens
  • The latest financial and shareholder information

To learn more, please contact David Anderson at
+410-423-1840 or This email address is being protected from spambots. You need JavaScript enabled to view it., or click here for sample reports, pricing and ordering. 



Delaware Bankruptcy Court Rules That Shareholder Cannot Enforce 'Golden Share' Blocking Right to Dismiss Bankruptcy Filed Without Its Consent

—Tim McKeon, Esq.

As the COVID-19 pandemic continues to disrupt businesses and markets, and companies begin to look to bankruptcy courts for relief from the resulting liquidity and operational distress, the issue of creditor and shareholder “blocking rights” seems likely to become an important topic as parties attempt to protect their investments. Only two months into the global pandemic, a Delaware bankruptcy court has already addressed the issue in what may prove to be an important decision regarding shareholder rights, finding that a minority shareholder’s blocking rights were unenforceable as violating federal policy.

Blocking Rights

Lenders have long sought “blocking rights” or “golden shares” to block or restrict the ability of their borrowers to file for bankruptcy. It is well established that such restrictions contained within loan documents are unenforceable by creditors; however, case law was split as to whether similar restrictions within corporate governance documents were enforceable by shareholders. Consequently, some lenders sought to take an equity stake in a borrower and additionally require a “blocking right” under the borrower’s corporate governance documents as a means of controlling, i.e., restricting, a borrower’s ability to seek bankruptcy relief.

The right of a shareholder, who also is a creditor, to enforce such a blocking right has been upheld by the Fifth Circuit. In Franchise Services of North America, Inc. v. Macquarie Capital (USA), Inc. (In re Franchise Services of North America, Inc.), 891 F.3d 198 (5th Cir. 2018), the Fifth Circuit, interpreting Delaware law, held that state law determines who has the authority to file a voluntary bankruptcy petition and that bankruptcy law does not strip a minority equity holder of its voting rights to prevent a filing merely because it is also a creditor. There, the debtor did not obtain the consent of a shareholder—who was also a creditor—with blocking rights prior to commencing the bankruptcy, and, therefore, the bankruptcy was dismissed at the shareholder’s request.

Delaware Bankruptcy Court Dismisses Enforceability of Shareholder’s Blocking Rights, Rejecting Fifth Circuit’s Holding in Franchise Services

In May, Bankruptcy Judge Mary Walrath of the U.S. Bankruptcy Court for the District of Delaware rejected the Fifth Circuit’s ruling and refused to dismiss a bankruptcy case on account of the debtor’s failure to seek the consent of a shareholder—who was not also a creditor—with blocking rights.

The decision arises out of the bankruptcy case of Pace Industries, LLC, which filed for Chapter 11 protection with various affiliates on April 12, 2020, with a prepackaged plan of reorganization. Under the terms of the proposed plan, generally, lenders would be satisfied through a debt-for-equity swap and unsecured creditors would be paid in full, while existing shareholders would be wiped out. Five days after the petition date, a minority shareholder moved to dismiss the bankruptcy cases of certain of the debtors arguing that those debtors lacked the necessary authority to commence the bankruptcies because the shareholder, who had blocking rights under the corporate governance documents, had never consented to the filings.

Ruling from the bench, the court stated that it was “prepared to be the first court” to find that “a blocking right by a shareholder who is not a creditor is void as contrary to federal public policy that favors the constitutional right to file bankruptcy.” The court specifically rejected the Fifth Circuit’s holding in Franchise Services, stating that it saw “no reason to conclude that a minority shareholder has any more right to block … the constitutional right to file a bankruptcy by a corporation than a creditor does.”

Importantly, the court found that, under Delaware law, a blocking right may “create a fiduciary duty on the part of the shareholder; a fiduciary duty that, with the debtor in the zone of insolvency, is owed not only to other shareholders, but to all creditors.” This holding is interesting given that the concept of a shifting fiduciary duty owed to creditors when a company is merely in the “zone of insolvency” has been firmly rejected by Delaware courts. Nevertheless, the bankruptcy court ruled that the facts of the case supported a finding that the shareholder’s blocking right “does create a fiduciary duty”—those facts including that “the debtors are clearly in the zone of insolvency” and “their operations have been severely disrupted by the COVID pandemic.” Indeed, the decision places a heavy emphasis on the court’s finding that bankruptcy was the only means by which the debtors could address their liquidity and operational issues and offer a solution that benefited most stakeholders.

In summarizing its ruling, the court concluded as follows:

“And I think that, whether or not the person or entity blocking access to the Bankruptcy Courts is a creditor or a shareholder, federal public policy does require that the Court consider what is in the best interest of all, and does consider whether the party seeking to block it has a fiduciary duty that it appears it is not fulfilling by not specifically … considering the rights of others in its decision to file the motion to dismiss.”

Tim McKeon, Esq., is an attorney in the Bankruptcy and Restructuring Practice Group at Mintz Levin, where he works out of the firm’s Boston office. Tim’s practice focuses primarily on representing institutional investors, bond trustees, lenders and other creditors in Chapter 11 bankruptcies and reorganizations, out-of-court workouts and bankruptcy litigation matters across a variety of industries, including health care, retail, higher education and real estate. Tim also represents clients in connection with commercial financing transactions and in complex commercial disputes.


Online Courses

What do I have to do? When do I have to do it?

The STS Lien Navigator has the answers and will guide you through the entire process!

Credit professionals can rely on the Navigator to determine when and how action needs to be taken to protect lien rights across the 50 states, DC and Canada. The real-time Navigator ensures that you’ll always have the current information.

Specific questions are also answered for subscribers through the Navigator Answer Line. The Navigator is a web-based service, accessed through our website and available from any computer with internet access.

Navigating the Way—On Time, Every Time

For more information, call Chris Ring at 410-302-0767 or visit www.nacmsts.com.



Risk Mitigation in Supply Chain Contracts: Protections for Failure to Perform, Part II

Key Points:

  • As COVID-19 continues to cripple the U.S. and world economies, many businesses question whether those within their supply chain can or will perform under their contracts.

  • The law provides rights to companies facing such uncertainty, including the right to demand adequate assurance of performance.

  • Even before performance under a contract is due, a party that cannot or will not perform can anticipatorily breach a contract. The counterparty can then exercise its rights and remedies without delay.

Can you demand “adequate assurance” of performance?

If you believe that a customer or supplier has anticipatorily breached your contract or are otherwise concerned about whether it will fulfill its contractual obligations, under UCC § 2-609, you may have the right to demand adequate assurance of performance and, if commercially reasonable, suspend your own performance until it is provided.

Before you can demand adequate assurance, you must have “reasonable” grounds to be insecure about the other party’s performance, which requires a fact-specific analysis. For example, reasonable grounds for insecurity usually exist when a customer or supplier requests an accommodation or modification of the contract terms, such as changing time or place of delivery, substituting materials or ingredients used, or amending payment terms. In that sense, although certain conduct might not rise to the level of anticipatory repudiation, it could be a basis to request adequate assurance.

Your demand for adequate assurance must be made in writing. It should trace and cite the language from UCC § 2-609 and unequivocally state that it is a demand for adequate assurances—merely raising concerns about the other party’s ability or intention to perform is not enough. The demand should also state the specific basis for insecurity, indicate what assurances are being requested and provide a reasonable time to respond.

The supplier or customer can respond and potentially cure its anticipatory breach by, for example, indicating that it agrees to comply with the original contract terms and providing the documents requested (if any) that demonstrate its ability to perform. However, if the supplier or customer fails to give the assurances requested, you can provide written notice that the assurances are inadequate and you are treating the contract as cancelled.

You should also closely review your contract to determine if it specifically addresses what types of events can create insecurity, the time allowed to respond to a request for adequate assurance and the standards for determining whether assurances are adequate.

Can you refuse to deliver goods to or reclaim goods from a customer?

If a customer breaches its contract with you, the UCC also provides seller-specific remedies, including the right to refuse or stop delivery of the goods under UCC § 2-703(a). You can even refuse delivery if the buyer repudiates the contract.

A seller can also reclaim goods from an insolvent buyer after the goods have been delivered and accepted. However, under UCC § 2-702(2), the transaction must be for credit (where no cash is simultaneously exchanged) and the customer must be insolvent at the time it receives the goods. If those two conditions are met, you can send a written demand for reclamation within 10 days of the customer’s receipt of the goods—or longer if it has filed or files bankruptcy. However, your right to reclamation against an insolvent customer does not apply if the customer has already sold the goods in the ordinary course of business to a good-faith buyer. The right of reclamation is an exclusive remedy.

Once a customer files for bankruptcy, you lose your right to collect or attempt to collect on invoices and debts that pre-date the bankruptcy filing. You are also generally limited to recovery through the bankruptcy claims process along with all other creditors. In fact, certain payments a customer makes during the 90-day period before a bankruptcy filing may be challenged as preferential, and you may be required to return all or part of the money, depending on the circumstances. Fortunately, the UCC gives you some protections before a customer files bankruptcy and even during the 90-day preference period.

Part I of this supply chain protection article was featured in last week’s eNews.

This article is intended to inform clients about legal matters of current interest. It is not intended as legal advice. Readers should not act upon the information contained in it without professional counsel.

Reprinted with permission from Thompson Hine, a full-service business law firm.