For a surety, the bankruptcy filing of a principal raises a number of issues and several challenges, but it does not necessarily mean a loss. The surety can maximize its recovery by staying vigilant and timely asserting its subrogation rights.
When a principal files for bankruptcy, and the surety is called upon to perform under a performance or payment bond, the surety should determine which goods were supplied to the principal/debtor immediately prior to the filing. Under the Bankruptcy Code,1 not all claims are treated the same. The Bankruptcy Code provides that certain unsecured claims have priority over general unsecured claims, and creates specific rights to recover goods supplied to the debtor immediately prior to the bankruptcy filing. This practice pointer addresses two types of rights to which a surety may be subrogated: (1) reclamation rights and (2) administrative priority claims under § 503(b)(9) of the Bankruptcy Code.
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We’re almost at the end of April (although it feels like winter outside), and it’s been another busy week here at the ILN. Our delegates are signing up like wildfire for our Annual Conference in Sicily at the end of May (can’t wait!) and we’re deep into planning our European Regional Meeting which will be in Glasgow in September. We’ve got a record turnout for next Monday’s IP group lunch, and our firms are churning out thoughtful content left and right.
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