Bankruptcy and Restructuring Blog

When a company files for bankruptcy protection, its vendors risk not getting paid for outstanding invoices, and getting sued by the estate for return of payments received shortly before the petition date. Vendors may also have concerns about continuing to do business with the debtor. In order to address some of these issues, a vendor may be able to persuade the debtor to seek a court order providing that it is "critical" to the debtor's ongoing operations. Such a "critical vendor order" protects the vendor by allowing the debtor to pay most or even all of its outstanding invoices, as well as providing some assurance of payment for ongoing sales. What these orders very often do not provide is protection from so-called "preference" claims for recovery of amounts paid to the vendor during the 90 days prior to bankruptcy.

As has been widely reported in the financial press, the April 2005 amendment of the Bankruptcy Code represents the most sweeping changes to the Code in several decades. And while considerable media coverage has described what the new laws mean for consumers, the ramifications of those changes for healthcare bankruptcies has gone largely unaddressed by the mainstream press. We believe that for the healthcare industry, the most significant ramifications of the 2005 bankruptcy law changes are likely to include the following:

The Telecommunications Act of 1996 (the "1996 Act") was designed to facilitate local telephone competition by eliminating state-imposed barriers to competition, and by forcing the incumbent local exchange carriers (generally the incumbent former Bell operating companies such as Verizon, SBC and Qwest) to cooperate and lease their network elements to competitive companies. Thus, the new entrants – the competitive local exchange carriers (the "CLECs") – were allowed to build their own competing networks and to interconnect that infrastructure with the existing telephone networks of the incumbents.