BT-REQ-1940 Consumer Holiday Guide 2023 v9 BH - Flipbook - Page 12
Retail insolvencies: Doing
business with troubled retailers
Erin N. Brady
Sara Posner
Partner
Los Angeles, New York
Senior Associate
New York
Retail industry performance in 2023 has been de昀椀ned by cautious
consumers. This trend is expected to continue during the holiday
shopping season. Many predict that customers will focus on more
essential items and cutting back on discretionary spending. A poor
holiday showing can break distressed retailers, with many historically
昀椀ling for bankruptcy in the 昀椀rst quarter of the following 昀椀scal year.
A company’s bankruptcy poses
signi昀椀cant risks to its business partners,
imposing an automatic stay on acts
that would impact a debtor’s property,
meaning a supplier will be unable to
collect on any outstanding debt or
cease performance under an ongoing
supply agreement once bankruptcy is
commenced. Outstanding debts are
classi昀椀ed as unsecured claims and
may receive only cents on the dollar
(if anything at all). A bankruptcy
昀椀ling can also expose suppliers
to potential clawback claims for
preferential transfers.
So how can a business mitigate these
risks? The most important precaution
you can take is to be alert for the early
12
Retail and Fashion Holiday Guide 2023
warning signs of a distressed customer.
These can include:
• Requests to adjust contractual
payment terms to enhance liquidity;
• Delayed and/or partially ful昀椀lled
deliveries;
• Corporate shakeups, including
replacing key management, engaging
turnaround specialists or layo昀昀s;
• Fundraising activities, particularly atthe-market transactions or expensive
new debt; or
• Selling o昀昀 parts of business/closing
sites.
