Fluid Routing Solutions Bankruptcy – Automakers are Paying Attention; DIP Financing Approved;

Feb. 10, 2009 – This case already is being closely followed by the automaker customers of Fluid Routing Solutions. Three notices of appearance have been filed – counsel to Ford Motor Company, counsel to Toyota Motor Engineering & Manufacturing North America, Inc. and counsel to Chrysler LLC.  An even stronger demonstration of automaker interest is the attendance at Monday mornings’ hearing (February 9, 2009) of counsel for both Chrysler and Toyota.

We would expect that the automakers do not want to see a repeat of the disaster that occurred with Cadence Innovation LLC, where Chrysler and GM ended up in a race to see who could pull their tooling first, and Cadence was left with no alternative but a straight liquidation. While they would never admit it, the automakers are probably monitoring each other as closely as they are monitoring Fluid Routing Solutions to make sure that no one makes any sudden moves.

Fluid Routing Solutions Bankruptcy – A Picture Emerges – But Blurry

Feb. 09, 2009 – The portions of the docket available on Friday, February 6, 2009 presented an incomplete picture of the intended direction of the Chapter 11 Bankruptcy filing of Fluid Routing Solutions Intermediate Holding Corp., Fluid Routing Solutions, Inc., Fluid Routing Solutions Automotive, LLC a/k/a Mark IV Automotive, LLC) and Detroit Fuel, Inc.

The docket is now complete through close of business on Friday. One of the last motions filed on Friday was:

Fluid Routing Solutions Bankruptcy – First Day Motion to Pay Certain Supplier Administrative Priority Claims

Feb. 08, 2009 – Through two “First Day Motions”, Fluid Routing Solutions, Inc. and its affiliated filers (“Fluid Routing Solutions”) are taking steps to hold their own supplier base in place and avoid disruption to its manufacturing operations. The two motions are:

  1. Motion for Order Pursuant to Sections 105(a), 503(b), and 507(a) of the Bankruptcy Code Authorizing Debtors to Pay Certain Prepetition Claims of Suppliers and Vendors of Goods and Services Entitled to Administrative Priority
  2. Motion for Order Pursuant to Sections 105, 363 and 506(b) of the Bankruptcy Code for an Order Authorizing the Debtors to Elevate Certain Prepetition Claims of Certain Critical Vendors to Administrative Priority

This post addresses the first of these motions.

Fluid Routing Solutions, Inc. Bankruptcy – Background; Financial Picture

The bankruptcy filing on February 6, 2009 of Fluid Routing Solutions, Inc. demonstrates that the ability of US automotive suppliers to obtain institutional financing has reached the “lowest possible point”. By analogy, the “lowest possible temperature” is defined as that point when all atomic motion ceases. This bankruptcy filing shows that all institutional financing options have ceased for a US automotive supplier whose customer base consists of domestic automakers.

DESA’s Consolidated Initial Monthly Operating Report

This bankruptcy started under a terrible set of circumstances, and the strain is carrying over into the bankruptcy.  Prior to filing, DESA sought to have a ‘heart-to-heart’ talk with its lead lender. The lender responded by sweeping its cash collateral, refusing to lend additional monies, and DESA was left with its one remaining option – a Delaware bankruptcy, with practically no operating cash.

Even with the protections afforded by bankruptcy, the situation looks bleak and very uncertain.

Circuit City Liquidation – Preliminary Bankruptcy Preference Assessment

On November 10, 2008, Circuit City Stores, Inc. (“Circuit City”) filed for reorganization relief under Chapter 11 of the United States Bankruptcy Code.  Slightly more than two months later Circuit City announced abandonment of its plan to reorganize.  Instead, Circuit City will liquidate all of its assets.

What does this liquidation of Circuit City mean in terms of the potential for bankruptcy preference claims?

We have looked at the financial and other public information available.  Our preliminary assessment is that the Circuit City liquidation has the potential create a massive number of bankruptcy preference claims.

Sample Motion for Allowance of Administrative Expense Claim Pursuant to 11 U.S.C. Section 503(b)(9)

We have included a simple sample of  Motion for Allowance of Administrative Expense Claim Pursuant to 11 U.S.C. Section 503(b)(9). You can access this sample by clicking the preceding link.

We stress that this is a sample and a simple one at that. There are several ancillary provisions that could be included depending upon the circumstances of a particular case.

We provide an extensive discussion Section 503(b)(9) administrative expense request process in the article: Bankruptcy Creditor 503(b)(9) Administrative Expense

Suppliers Lining Up for 503(b)(9) Administrative Expense Claims

11 USC Section 503(b)(9) provides that a supplier shall be entitled to an “administrative expense claim” for “the value of any goods received by the debtor within 20 days before the date of commencement of a case under this title in which the goods have been sold to the debtor in the ordinary course of such debtor’s business.” 

Clearly motivated by Cadence’s announcement that it is liquidating, suppliers are making sure that they are in line for allowance of administrative expense claims pursuant to

Bankruptcy Preference Subsequent New Value Defense

The subsequent new value defense is perhaps the most frequently-used defense. It is, from a books and records perspective, the easiest defense to prove. The focus is on the period after the potentially preferential payment.

We have posted a brief video in which we review the “subsequent new value” defense.

  • The “Zone of Information” that applies to this defense
  • The basic elements of the defense
  • A simple example of the application of the defense

Click this link to see the video Bankruptcy Preferences – Subsequent New Value Defense.