Many clients have contacted Shenwick & Associates asking whether it is safe to ship goods to Saks following its Chapter 11 bankruptcy filing.
The real concern is whether vendors will be paid for goods shipped after the bankruptcy filing.
In most Chapter 11 cases, the answer is yes—shipping goods post-petition is generally safe, particularly where the debtor has obtained Debtor-in-Possession (DIP) financing.
Here are the key considerations:
Post-petition shipments receive priority payment status. Vendors who supply goods after the bankruptcy filing typically hold administrative expense claims under Bankruptcy Code §503(b)(1)(A). These claims must generally be paid in full as a condition to confirming a Chapter 11 plan under §1129(a)(9), giving them priority over pre-petition unsecured claims.
DIP financing supports ongoing operations. DIP financing provides liquidity so the debtor can continue operations and pay ordinary-course expenses, including post-petition vendor invoices. Courts often authorize payment of undisputed post-petition invoices in the ordinary course.
Chapter 11 encourages vendors to continue shipping. The purpose of Chapter 11 is to allow a debtor to reorganize while continuing business operations. The Bankruptcy Code structure incentivizes vendors to continue supplying goods so the business can survive.
Continuing shipments may preserve business relationships. Vendors who continue supplying merchandise maintain relationships with buyers and may offset losses from pre-petition shipments through continued profitable sales. Vendors who refuse to ship risk losing shelf space to competitors.
Vendors are not required to ship post-petition. The Bankruptcy Code does not obligate vendors to continue selling goods after the filing; the decision remains a business judgment.
Payment is not absolutely guaranteed. While administrative claims are entitled to priority, risk remains if the case later converts to liquidation and administrative expenses exceed available assets.
Critical Vendor or “Doctrine of Necessity” relief may be available. Vendors supplying unique or essential goods may seek treatment as a Critical Vendor, allowing payment of certain pre-petition amounts if the court finds such payments necessary to preserve operations. While beneficial, this status is not required for vendors to safely ship post-petition goods.
In most circumstances, vendors can safely continue shipping goods to a Chapter 11 debtor like Saks, especially where DIP financing is in place.
Vendors or advisors with questions regarding shipping goods or protecting claims in the Saks bankruptcy are welcome to contact us.
Jim Shenwick, Esq
Shenwick & Associates
917-363-3391
jshenwick@gmail.com
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