Your small business wants to refinance a mortgage that is about to mature, but can’t refinance in the private market because the economic meltdown has left your business with real estate worth near the amount of your existing loan, or less.  If this sounds like you, the SBA’s new program may help your business stay afloat.

 A recent case made it harder for an unsecured creditor to defend a preference avoidance action in a bankruptcy.  This ruling may be particularly troubling to unsecured creditors in the construction industry, because it involved the potential for payment from bond proceeds.

 If so, there may be changes in the way your loans are handled in bankruptcy court.  Although lenders never want to be creditors in bankruptcy proceedings, in the past they thought that if their collateral was sold, they could bid up to the full amount of their claim, without putting out any cash.  To the contrary, in 2010, a federal appeals court ruled that secured creditors do not have an absolute right to “credit” bid when their collateral is sold under a Chapter 11 plan of reorganization.

Credit bidding allows a secured creditor to bid up to the full amount of its debt claim at a sale of its collateral, without actually having to tender cash to acquire the collateral.  Traditionally, credit bidding protects secured creditors by ensuring proper valuation of the collateral at the sale and preventing other bidders from acquiring the collateral at bargain prices.

In this case, the debtor’s plan provided that almost all of its assets would be sold at auction, and the secured creditors would be given...

In a recent bankruptcy case, the debtor bought goods from the vendor and paid the vendor $1.9 million for the goods.  A court held that the vendor had to return those payments because the payments were not properly authorized by the bankruptcy court.  The payments - for the purchase of inventory from the vendor in the ordinary course of business - were made from the debtor’s operating account, and had to be repaid by the vendor even though the vendor gave the debtor equivalent value in inventory.  This painful lesson for that vendor is a warning to all that a vendor’s obligation to return payments from a bankruptcy debtor is absolute when the payments have not been authorized by the bankruptcy court.  There are no “harmless” or “innocent vendor” exceptions to a bankruptcy trustee’s power to recover such payments.

In a bankruptcy, cash collateral is cash or its equivalent, in which both the debtor and another entity, usually a secured lender, have an interest.  A debtor cannot use its cash collateral unless...